Operationally speaking, advanced planning results in the repositioning and restructuring of assets to preserve and often increase the wealth of business owners such as hedge fund general partners.

Let’s now examine each of advanced planning’s three interconnected components:

Wealth enhancement is the process of using advanced planning strategies to mitigate taxes, resulting in greater personal wealth creation. By and large, general partners are often losing out by not focusing on wealth enhancement. For example, qualified retirement plans allow tax-deferred growth of assets through tax-deductible contributions, providing key strategies for hedge fund general partners. However, according to the FFO survey, only 21.8% of start-up hedge funds have a qualified retirement plan.

Aside from qualified retirement plans, there are many other financial and legal solutions that hedge fund general partners can consider to enhance wealth. It’s important that general partners are aware of their options in order to make informed decisions.

Estate planning is the process of legally structuring the future disposition of current and future assets. Eighty-four percent of the hedge fund general partners have a will or a more formal estate plan, according to the survey. And 89.2% of respondents indicated that their estate plans have not been updated since the inception of their hedge fund. As wealth increases and circumstances change, many general partners are missing opportunities to mitigate estate tax and wealth transfer costs.

When doing estate planning, hedge fund general partners should usually think in terms of how to drive the greatest benefits to their loved ones by leveraging the hedge fund. For example, the ability to “freeze the carry” is often overlooked as a possibility.

Asset protection planning is the process of employing risk management products and advanced planning strategies to reduce or eliminate the amount of personal and family wealth exposed to frivolous lawsuits and other risks. Asset protection planning allows ultra-wealthy families to limit liability to safeguard the family fortune. Nevertheless, only 12.2% of hedge fund general partners have a formal asset protection plan, according to the survey.

There are a plethora of bright-line asset-protection strategies that can be leveraged by hedge fund general partners. One of the most powerful and underutilized strategies is the captive insurance company. Though these structures can provide both superior coverage and tax planning benefits, less than 2% of hedge funds have established a captive insurance company.

Conclusion
Hedge fund general partners of start-up funds would significantly benefit by paying attention to how advanced planning strategies can enable them to create greater personal wealth. There is no question that their investment acumen is the underlying and primary driver of wealth creation. Nevertheless, by employing appropriate advanced planning strategies, the general partners can lower their taxes while ensuring their wealth is not depleted by frivolous and unfounded lawsuits.

Alan S. Kufeld, CPA, MST, is a partner at Flynn Family Office. He specializes in wealth preservation and income and estate tax planning strategies for ultra-high-net-worth individuals and families. He can be reached at [email protected].

Frank W. Seneco is an advanced planning life insurance specialist. He is the president of Seneco & Assocates Inc., boutique planning firm in Connecticut. He can be reached at [email protected].

First « 1 2 » Next