A high-net-worth individual is someone with liquid assets above a certain figure, generally, $1 million in liquid financial assets. The assets in this category are easily liquidated, meaning that, properties, fine art, etc cannot be included.
The high-net-worth individual always desires financial advice from professionals on ways to manage their money. This is because more work is required to maintain and preserve their assets. The amount of money owned by these folks makes them qualify for additional benefits and opportunities.
Are you a high-net-worth individual?
Although, the definition of how you can be wealthy to fit into the high-net-worth individual isn’t precise, having liquid assets in a particular number is a stepping stone.
The amount differs based on the your region, but, if you are someone with a net wealth of seven figures or more, you are in this family.
Your net wealth should be more than $1 million in cash and cash equivalents (liquid assets). They do not include primary residences, collectibles, consumer durables, etc.
Who manages the assets of a high-net-worth individual?
Private wealth managers are often on the lookout for high-net-worth individuals, to help them manage their assets. It becomes increasingly difficult to manage money the more it grows.
So, private wealth managers help a high-net-worth individual to take care of personalized services like investment management, estate planning, tax planning, etc. This helps to preserve your assets and maintain them.
As a high-net-worth individual, you are qualified for separately managed investment accounts instead of regular mutual funds. To qualify for a high-net-worth individual treatment, different financial institutions have varying standards. Some banks require a certain amount of money in liquid assets or depository accounts.
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What are the benefits of being a high-net-worth individual?
You are qualified for more benefits than anyone whose net worth is below $1 million, these benefits include;
- Reduced fees for certain Services
- Discounts and special rates
- Overall access to special events
- Access to separately managed investment accounts instead of the regular mutual funds.
- High demand by private wealth manager
- Personalized services in investment management, estate, and tax planning, etc
Types of High-Net-Worth Individuals
- Sub-High-Net-Worth Individuals: Anyone with less than $1 million but more than $100,000. They do not receive wealth management benefits like the rest of the high-net-worth individuals.
- Upper-End-High-Net-Worth Individuals: Anyone with around $5 million in wealth.
- Ultra-High-Net-Worth Individuals: Anyone with More than $30 million in wealth
All of these individuals must have their wealth in liquid assets.
What are the challenges of being a high-net-worth individual?
The challenges the high-net-worth individual faces are of two kinds; Taxation and Insurance. The unique challenges of the high-net-worth folks can be tackled by working together as a team with financial advisors, CPAs, tax attorneys, and specialty insurance companies.
The misconception that the wealthy do not pay their taxes is still prevalent today. A further look into the lives of the high-net-worth individuals says otherwise. The high-net-worth individual is often faced with five tax responsibilities. These include;
Income Tax: An HNWI with a yearly income of $1 million pays 37% in taxes to the IRS if he did not take full advantage of tax deductions.
Capital Gains Tax: high-net-worth individuals pay a long-term capital gains tax that is as high as 20%. This happens if they bought a property 10 years ago for $500,000 and sell it to a developer for $1 million today, a capital gains tax of $100,000 is what they are likely to face.
Estate Tax: they are exempted from paying estate taxes on the first $11,700,000 of their net worth, but, are taxed between the rate of 40% and 20% on a federal and state level respectively, if it exceeds $11,700,000.
Business Income Tax:most HNWIs own their own business, so they pay taxes on the company’s net income, unemployment taxes, Social Security taxes, Medicare taxes, etc.
Gift Tax:HNWI who attempts to reduce their estate tax liability by gifting significant amounts of their wealth to family members face this kind of tax. The tax rate ranges from 18% – 40% of the value gifted, with tax-exemptions on the first $15,000 of value.
The circumstances of the high-net-worth individuals are unique because of the high value of their assets. This is influenced by the potential cost of replacing those assets. They also experience the high cost of insuring themselves on personal and business liability levels. As a result, they must purchase different types of insurance policies from insurance companies, these are;
- High-Value Home Insurance
- Auto Insurance
- Boat Insurance
- Life Insurance
- Disability Insurance
A high-net-worth individual has access to all or some of the listed insurance policies but at a higher cost than average.