A Strategic Approach to Multi-Generational Financial Security

When you’ve spent decades building wealth, your focus inevitably shifts from growing assets to protecting what you’ve built. This transition represents a mindset change that affects everything from family dynamics to risk management.

Navigating this transition successfully requires looking beyond traditional portfolio management and taking a comprehensive approach that addresses financial vulnerabilities, insurance gaps, family education, and the complex web of risks that come with the substantial assets you’ve accumulated.

Take a Complete Financial Inventory

Before you can protect your wealth, you need to know what you’re protecting. Start by understanding exactly what you own, where it’s located, and how it’s structured. Think of this as creating a detailed map of your financial landscape before you can chart the best path forward.

A financial inventory includes:

• Updated balance sheet with all family assets and liabilities
• How each asset is owned (individual, joint, trust, business entity)
• Location of assets across different states (if applicable)
• Current insurance coverage and limits
• Digital asset inventory and access information
• Estate planning documents (wills, trust, powers of attorney, and healthcare directives)

Why This Matters: It’s not uncommon for families to find uninsured assets after doing a financial inventory because coverage wasn’t updated as their portfolios grew over time.

Navigate Multi-State Complexity

If you own property in multiple states—such as a primary residence in Texas and a vacation home in Colorado—you could be dealing with different legal frameworks that impact your wealth protection strategy.

Key differences that vary by state:

• Community Property States (like Texas): Assets acquired during marriage are generally considered joint property
• Common Law States (like Colorado): Property belongs to whoever purchased it or whose name is on the title
• Tax Implications: Each state where you own property may require separate tax filings

Tip: Consider transferring assets to a revocable trust to avoid probate and work with an advisor who understands the nuances of multi-state planning.

Understand Your Wealth Protection Insurance Needs

Insurance for wealthy families is about protecting against catastrophic losses that could threaten your entire financial security. While traditional insurance thinking focuses on replacing what you’ve lost, wealth protection insurance focuses on protecting what you might lose. For example, when you have substantial assets, you become a target for litigation, and standard homeowners and auto policies won’t cover your exposure.

This is where umbrella insurance may be essential. An umbrella policy provides additional liability coverage beyond your standard home and auto insurance limits, accounting for risk scenarios like slander and libel claims, employment issues from household staff or caregivers, and property-related incidents. Staying ahead of potential lawsuits can save you later.

Aside from umbrella coverage, keep yourself protected with these strategies:

• Proper Entity Structuring: Using trusts and LLCs to separate and protect assets
• Professional Liability Insurance: For board service or consulting activities
• Legal Review: Regular review of potential exposures with qualified legal counsel

An Insurance Strategy with Tax Benefits: Irrevocable Life Insurance Trust (ILIT)

To help reduce estate taxes and ensure death benefits pass to your beneficiaries, consider putting your life insurance policy in an irrevocable life insurance trust (ILIT).

Why? When you die, your life insurance payout goes directly to your beneficiaries through the ILIT, bypassing your estate. The government can’t tax those proceeds as part of your estate, potentially saving your family a significant amount in taxes.

This trust holds your policy and receives the payout, which goes to paying estate taxes or offering liquidity to heirs. An ILIT has several benefits:

Want to transfer your existing life insurance policy to an ILIT? You’ll need to survive at least three years after the transfer. If you die within those three years, the government treats the insurance money as if you still owned it for tax purposes.  Be sure to weigh the pros and cons of transferring an existing policy vs. setting up a new policy to be owner of the ILIT.

Know Your Concentrated Position Risks

Many first-generation wealth builders have large portions of their net worth concentrated in a single stock or business. While this position may have generated substantial gains over the years, this concentration risk can threaten your financial security.

Here’s how to diversify yourself out of a concentrated position:

1. Assess Your Current Risk: Calculate what percentage of your total wealth is in the concentrated position and what you can afford to lose if that investment dropped significantly. Consider modeling different scenarios.
2. Set Your Target Allocation: Decide what percentage of your wealth you’re comfortable having in this single investment and calculate how much you need to sell to reach this target.
3. Understand Tax Implications: Calculate the tax bill for selling different amounts and explore tax-advantaged strategies like charitable giving of appreciated stock.
4. Create a Systematic Selling Strategy: Consider Selling a fixed percentage or dollar amount quarterly or annually and coordinate sales with realized losses for tax-loss harvesting benefits.
5. Monitory and Adjust: Review your progress annually and adjust the pace of your sales if market conditions or personal circumstances change.

Secure Your Digital Information

Your financial information is valuable, and criminals are getting more sophisticated in their approaches. Consider these core security measures that can keep you protected from threats:

• Password Managers: Use unique, complex passwords for every account and store in a secure password manager
• Multi-Factor Authentication: Turn on for all financial accounts
• Credit Freezes: Freeze credit reports at all three agencies if you suspect something suspicious (or if you’re not planning to need your credit anytime soon—better safe than sorry)
• Email Safety: Never act on email requests for money or from senders you don’t know without phone verification

Turning Strategy into Security

The transition from wealth building to wealth protection is about creating a legacy that reflects your values and provides security for future generations. A systematic approach to addressing vulnerabilities and implementing protection strategies can offer peace of mind to navigate this transition.

Remember, the cost of comprehensive wealth protection is almost always less than the cost of failing to protect what you’ve built. Start with a thorough assessment of where you are now, where you’re headed, and how to protect what you’ve worked so hard for.