I'm a Wealth Manager: 6 Tax Strategies My High-Net-Worth Clients Use Every Year
We've heard it a million times and it bears repeating: Wealthy people don't set a tax strategy once and forget it.
Jeffrey Goodrich, wealth advisor at JCG Private Wealth Management and professor with UCLA's Financial Management Program, walks his wealthy clients through the same handful of decisions annually, and the repetition is important.
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Here are six pieces of advice he gives them, and how you can use his wisdom in your own finances.
1. Revisiting the RMD Decision Every Year
Required minimum distributions (RMDs) force a choice, and Goodrich's clients don't default to the same answer automatically.
"Should they take the distributions outright and pay the taxes, which may increase their AGI and potentially move them closer to phase out limits? Or should they utilize a qualified charitable deduction and donate the retirement funds directly to charity?" he asked. The right answer shifts based on income, charitable giving and how close to retirement a client is.
2. Reviewing Insurance Structures Annually
Split-dollar arrangements, key-person insurance and buy-sell agreement coverage all get revisited on a yearly basis (rather than treated as permanent fixtures). Goodrich frames it as an ongoing question:
"Does their buy-sell agreement insurance still make sense given the changing dynamics of their business?"
As a business or a client's circumstances shift, insurance structures built years earlier can quietly stop matching current needs.
3. Watching Life Insurance Loan Balances Carefully
Borrowing against a life insurance policy sounds harmless but the math almost always catches up to your detriment.
"Excessive borrowing against a life insurance policy can result in taxable income for the policy owner," Goodrich said.
If an unpaid loan (and its accumulated interest) consume the policy's remaining cash value, the policy lapses, and the insurance company uses the remaining cash value to offset the loan.
"The IRS treats this offset as a taxable distribution to the policy owner, even though no cash is actually received."
4. Understanding Estate Tax Liability Passes to Heirs
Unpaid estate taxes don't simply disappear when an estate closes.
"The IRS can pursue heirs and trust beneficiaries for unpaid estate taxes," Goodrich said. Beneficiaries, trustees, surviving spouses and anyone in possession of estate property can be held personally liable. There's a real limit, though.
"A beneficiary's liability is not limitless. It is strictly capped at the value of the property they received from the decedent's estate or trust."
5. Staying Invested Instead of Timing the Market
Goodrich wealthiest clients don't chase short-term moves.
"Time in the market means staying invested for long periods rather than trying to time short-term price movements," he said. Compounding does the rest. "Leveraging compounding means earning returns on both your initial investment and your prior earnings over time."
This strategy scales down easily. Households with more modest portfolios can apply the exact same discipline without needing a wealth advisor's resources to do it.
6. Avoiding the Overconfidence Trap
Even informed clients can fall into predictable behavioral traps, and Goodrich focuses on one in particular.
"This year, most people are unaware of the $1,000 single and $2,000 joint charitable cash contribution limits, or that there are phaseout limits for a new car loan, earned income, tips and those over age 65," Goodrich said.
Even households earning comfortably into the six figures can find that some tax breaks are reduced or unavailable because their income exceeds the applicable thresholds.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.