High-net-worth (HNW) investors know that growing wealth isn’t just about making the right investments—it’s about keeping more of what they earn.
Taxes can take a significant bite out of your investment returns, from capital gains and income taxes to estate taxes that can impact generational wealth.
That’s why more HNW investors are turning to alternative assets to take advantage of tax-efficient strategies that can help them preserve and grow their wealth.
Why Reducing Your Tax Burden Matters
The more wealth you accumulate, the more tax-efficient your investment strategy needs to be. Traditional investments like stocks and bonds often come with taxable gains and limited deductions, making them less effective for long-term wealth preservation.
Alternative assets, on the other hand, offer structured tax advantages that can help defer, reduce, or even eliminate certain tax liabilities:
- Real estate investors, for example, can use 1031 exchanges to defer capital gains taxes by reinvesting proceeds into new properties, allowing their investments to compound tax-free.
- Others invest in Opportunity Zones to potentially eliminate capital gains tax on appreciation after a 10-year holding period.
- Meanwhile, Merchant Cash Advances (MCAs) and private debt provide investors with tax-efficient income streams, especially when held in self-directed IRAs.
Optimizing Estate Planning with Alternative Investments
For those focused on generational wealth, estate planning strategies using alternative assets can be a game-changer.
Some HNW investors use irrevocable trusts and family limited partnerships (FLPs) to transfer alternative assets at lower taxable values. Others donate assets like alts like MCAs to private foundations to maximize deductions while supporting philanthropic causes.
Another common tactic among ultra-wealthy investors is gifting alternative assets before they appreciate. By transferring investments when valuations are lower, heirs receive higher long-term gains while the original investor minimizes estate tax liability.
Find the Right Strategy for Your Portfolio
Every investor’s tax situation is different, and the best strategy depends on your goals, risk tolerance, and financial structure. Want to find out which tax-efficient alternative investment strategy might work best for you?
Take our quiz, “Which High-Net-Worth Tax Strategy Could Work for You?” to get personalized insights on reducing your tax burden.
