High net worth individuals are generally considered those with at least $1 million in liquid assets. Liquid assets are those that are easily transferable into cash, such as stocks or bank accountsrather than illiquid assets like vehicles or real estate.

Those fortunate enough to have a high net worth may need specialized wealth management to handle matters ranging from estate planning and charitable giving to business succession planning, risks and much more.

Read next: 7 Reasons Why You Should Consider Hiring a Financial Advisor, Even If You’re Not Rich

What is wealth management for high net worth individuals?

Wealth management for high net worth individuals involves many disparate elements. Here are the most common:

• Investments: Investments are the lifeblood of any financial plan because they create the wealth that defines what a high net worth individual is.

• Tax planning: Tax planning is the art of keeping what you earn, rather than paying it back to the government.

• Estate planning: Estate planning refers to what happens to your assets after you die or become incapacitated. It aims to minimize taxes and ensure your money goes to the people or institutions you choose.

• Risk management: Risk management is about protecting your wealth and growing it in a way that doesn’t involve taking risks that aren’t worth it.

Investment strategies

All investors benefit from diversification, but high net worth individuals have the advantage of having access to more sophisticated investment strategies.

In addition to traditional investments like stocks and bonds, high-net-worth individuals typically diversify their portfolios with real estate, private equity or hedge funds, for example. They could also turn to alternative investments like fine art, collectibles, precious metalsas examples.

Specialized investments not only help diversify one’s investment portfolio, but they can also help manage risk and increase returns. Most high net worth individuals choose to work with experts because of their complexity.

Tax planning

Taxes aren’t always the easiest to understand, so it’s usually beneficial for HNWIs to work with experts in the field. The complex set of tax rules actually offers many ways to reduce or avoid taxes, especially for people with high incomes or net worth. Here are some common strategies.

Choose tax-advantaged investments

One of the best ways to avoid tax is to buy investments that are not taxable. Municipal bonds, for example, are tax-exempt at the federal level and are also tax-exempt at the state level in their state of issue. Treasury securities are federally taxable but are always exempt from state taxes.

Contribute to tax-advantaged accounts

Although they operate in a slightly different way, IRA and 401(k) plans – in addition to 403(b), 457 plans and a few others – allow tax-deductible contributions. During this time, the money in the account grows tax-free until withdrawn. In the case of Roth IRAs, the savings are even more impressive because qualified distributions are also tax-free.

Make charitable contributions

Making charitable contributions is not only good for the common good, it also has immense benefits for wealthy individuals. Contributions are generally tax deductible, and donating appreciated securities can also help you avoid paying. capital gains tax.

Tax losses on crops

One of the most generous types of tax breaks, especially for wealthy investors, is the ability to offset capital gains against capital losses. If you had a big year in the stock market and made big profits, for example, you can sell all your losing positions and offset those gains against your losses, thereby avoiding paying taxes on them.

Estate planning

Estate planning is particularly important for HNWIs. As your net worth increases, your tax bracket – and the amount you’re obligated to pay – increases. The proper use of trusts, wills and other estate planning These tools can help HNWIs transfer their wealth effectively. Here’s how to do it:

Trusts

A trust is a legal document you can use to hold and manage assets, establishing rules about how the money is used and for which beneficiaries will receive it after your death, all while avoiding probate.

Wills

A will works much like a trust, but it still must go through probate, which is a public process. Wills also take effect after your death, whereas a trust can be in place during your lifetime. Even if you have a trust, you should have a will in place to fill any gaps in the trust and have a functioning estate planning document in case your trust is not yet funded.

Other Forms of Estate Planning

In addition to trusts and wills, HNWIs typically have other estate planning instruments. A power of attorney, for example, directs someone to take care of your financial affairs if you become incapacitated. Advance health care directives allow someone you choose to make medical decisions on your behalf if you are unable to do so.

Wealth preservation

Heritage preservation and risk management go hand in hand. Although HNWIs generally take some level of risk to generate their significant levels of wealth, they are also generally risk averse. After all, no one with a lot of money wants to see it disappear, especially if they worked hard to acquire it. This is where heritage preservation and risk management come into play. Here are some ways HNWIs protect their assets:

Insurance

Insurance is one of the best ways to protect assets against loss. The fire, the house and car insurancefor example, protect personal assets, while life insurance protects a family from the loss of the primary breadwinner.

HNWIs also typically have comprehensive insurance policies to provide additional coverage against personal lawsuits or to cover gaps in other insurance. They can also use insurance as an investment, to build cash value or to transfer wealth and reduce estate taxes through an irrevocable life insurance trust. Because these strategies are complicated, they should be used in conjunction with a licensed lifetime financial expert.

Intelligent asset allocation

HNWIs typically use smart asset allocation to diversify their portfolios across uncorrelated assets. In addition to standard investment options such as actionsbonds and ETFs, HNWIs often incorporate precious metals, hedging strategies, alternative investments, real estate and commodities into their portfolios.

Working with a wealth manager

Wealthy people almost by definition have more complicated financial lives. Given that most high net worth individuals also run their own businesses, manage charitable institutions, have large investment portfolios, or all of the above, it makes sense that they often prefer to work with a wealth manager to coordinate the their entire financial planning.

Not only do many of these HNWIs have limited time to manage their complex financial lives, but they often lack the specialized expertise that professional wealth managers also have.

Although HNWIs are often knowledgeable and may even be experts in, for example, property management, very few are also experts in tax and estate planning. It is almost necessary to find a way to anticipate financial pitfalls with an appropriate risk management strategy. This is why many choose to hire financial planners.

Final Take

Theoretically, all Americans have equal access to wealth planning strategies. However, the truth is that high net worth individuals need more advanced solutions and can take advantage of more options than the average American.

High-net-worth investors, for example, need help with tax and estate planning more often than the average American, and their wealth often creates financial situations that simply don’t apply to the vast majority of investors. Being rich often means your finances are more complicated. It is generally best for these types of investors to consult financial professionals.

This article was originally published on GOBankingRates.com: Expert wealth management solutions for high net worth individuals