High stakes: High net worth (HNW) estate planning
How would you characterize the HNW mindset?
In our experience, HNW individuals tend to be growth-focused. They often gravitate towards assets that generate cash flow, such as property portfolios that provide regular rental income streams. HNW individuals and families are also likely to hold bankable assets such as bonds, or equities, which can produce dividends as well as maximize the upsides of a bull market. That growth orientation can sometimes mean matters such as risk and estate planning are lower on the priority list.
Nevertheless, clients are taking into account the downsides of bond and property portfolios in the wake of mitigating events, such as the first Covid years and volatile equities markets.
Our HNW clients have come to PCS by Mercer for insurance solutions as they recognize that life protection solutions as one of the most effective tools for estate planning. This is particularly true when it comes to multi-generational wealth transfer and international assets.
What are some of the challenges and considerations that HNW individuals face when planning their estate?
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Estate tax:One of HNW individuals’ biggest concerns is the potential impact of estate taxes on their gifts, legacy, and bequests. Depending on the size and jurisdiction(s) of the estate, taxes can be significant. There are often complex rules and regulations that must be navigated in order to manage the tax burden**.
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Asset protection:HNW individuals need to proactively manage the potential threats to their assets, including cyber-attacks, creditors, legal judgments, identity theft and financial fraud. The threats can lead to significant financial losses. As a result of these, many HNW individuals will likely take practical measures to protect their assets, such as implementing strong cybersecurity protocols and diversifying their investment portfolios.
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Family dynamics:Estate planning can be complicated by family dynamics, particularly when there are private business succession challenges, multiple heirs, blended families, or other complex relationships involved. HNW individuals often need to consider how their estate plan will be received by family members, and whether it might cause unintended conflict or resentment.
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Legacy planning:
Many HNW individuals are committed to leaving a significant legacy that reflects their values and priorities. This may involve setting up charitable foundations, endowing scholarships or other programs, or otherwise creating a lasting impact in their own lifetime and beyond.
Investment performance: Wealthy individuals often have significant investments that are intended to support their estate and provide for future generations. Market volatility, economic uncertainty, geopolitical events, and other factors can create anxiety around whether their investments will perform as intended and deliver the desired outcomes for their estate.
How can life protection solutions work to manage the listed HNW concerns?
In most cases, estate planning involves long-term, conceptual thinking and it’s common for HNW clients to prefer more concrete, and immediate outcomes.
So, it’s important to keep in mind – life protection solutions are always evolving to better suit the needs of HNW individuals and can help to produce the specific outcomes our clients are looking for. The solutions can offer a wide range of benefits that extend beyond the traditional scope of insurance.
Estate planning is a key aspect of wealth management, and life insurance can play a critical role in this area. It can provide liquidity to pay estate taxes and other expenses, ensuring that HNW individuals' assets are distributed according to their wishes. It can also facilitate asset transfer to the next generation by providing a lump-sum payment to beneficiaries.
Life insurance may also be deployed as part of asset protection strategy help protect HNW individuals' assets from creditor or resultant third party claims, shielding them from potential losses in legal action. It can also help prevent family disputes by designating clear beneficiaries and instructions for asset distribution, which reduces the likelihood of conflict and uncertainty.
Legacy planning would be another area where life protection solutions could help. HNW individuals could use life insurance to leave a lasting legacy by providing guaranteed funds for charitable donations or endowments, supporting causes important to them even after they have passed away.
As an investment vehicle, life protection solutions offer a tax-advantaged way** to build wealth over time. Savings plans can guarantee a steady income stream. Additionally, some policies offer investment options with the potential for higher returns than traditional savings or investment accounts.
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is the Managing Director at Private Client Services by Mercer Limited.
Leo has over 18 years of insurance and banking experience. Prior to joining PCS by Mercer, Leo was a senior consultant and top producer. He served high net worth clients with a full range of wealth planning solutions focusing on the HNW universal life market in his early career. He has strong expertise in Life and Savings solutions and has incepted several jumbo policies for the Ultra HNW client segment. In addition, Leo has closed cases involving Private Placement Life Insurance (with complex portfolio for client wealth planning needs).
Leo graduated from Simon Fraser University in Canada, and speaks fluent Mandarin, English and Cantonese.
Email: Leo.Chow@mercerpcs.com