{"id":3957,"date":"2020-11-01T17:37:00","date_gmt":"2020-11-01T17:37:00","guid":{"rendered":"https:\/\/fusionwm.com\/?p=3957"},"modified":"2022-10-12T17:46:41","modified_gmt":"2022-10-12T17:46:41","slug":"stress-test-lessons-for-all-of-us","status":"publish","type":"post","link":"https:\/\/fusionwm.com\/stress-test-lessons-for-all-of-us\/","title":{"rendered":"Stress Test Lessons for All of Us"},"content":{"rendered":"\n
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In many ways, the Super Rich\u2014those people with a net worth of $500 million or more\u2014are at the vanguard of wealth management, with tremendous access to expertise. Consequently, learning from the actions and orientations of the Super Rich can prove quite useful for affluent individuals and families who haven\u2019t reached the level of the Super Rich.<\/p>\n\n\n\n

That\u2019s especially true as more products, services and expertise expand. Many solutions that were once available only to the Super Rich are now accessible by the \u201cmerely affluent\u201d through resources such as virtual family offices, which bring together high-level expertise in cost-effective ways.<\/p>\n\n\n\n

One big example is stress testing\u2014a process commonly used by the extremely wealthy that is becoming increasingly popular with less affluent individuals and families.<\/p>\n\n\n\n

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Putting a plan through its paces<\/h1>\n\n\n\n

Stress testing is a systematic way to evaluate whether the financial (and other) solutions you currently have in place are likely to generate the results you want and expect. Stress testing is also done to assess how a solution you might be considering is likely to behave in different scenarios. Finally, stress testing can be helpful in determining whether you are missing out on or overlooking opportunities that could enhance and improve your results.<\/p>\n\n\n\n

We see that the Super Rich make extensive use of stress testing. It can potentially help them ensure that they are not making any serious mistakes when it comes to wealth management. It also can help them see whether they are overlooking any meaningful financial opportunities or strategies.<\/p>\n\n\n\n

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Two examples of stress testing<\/h1>\n\n\n\n

The following are just two examples of how and why the Super Rich might stress test their wealth planning.<\/p>\n\n\n\n

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Example #1: A very young inheritor<\/h1>\n\n\n\n

A stress test of a will discovered that a family\u2019s youngest son, then 6 years old, was slated to receive an inheritance of slightly more than $250 million when he turned 12\u2014a fact that surprised and dismayed the family. The problem was a technical failure: The will should have read that the son inherits the fortune at 21 years old, not 12 years old.<\/p>\n\n\n\n

However, even that switch didn\u2019t address the problem\u2014as the family also didn\u2019t want to give so much wealth at one time to a young adult. The stress test revealed that there had been a serious breakdown in communication between the family and the people involved in drafting their plan.<\/p>\n\n\n\n

Because of the stress testing, the Super Rich family\u2019s wealth plan was dramatically adjusted and updated. Now, the son will inherit substantial wealth in stages beginning when he turns 21. In addition, the wealth plan now has a framework and structure for creating a dynasty while also insulating family members from losing wealth because of litigation or divorce.<\/p>\n\n\n\n

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Example #2: An immunocompromised family<\/h1>\n\n\n\n

An extremely wealthy couple was highly confident that their wealth planning coordinated by their single-family office had been done well and would get them the results they wanted. The couple is very astute and understands the nature and even much of the complex mechanics of their plan. But they were curious about whether there might be legal strategies they were unaware of that could benefit them.<\/p>\n\n\n\n

The couple\u2019s plan was to have the bulk of their fortune go to charity, and the plan was designed with that goal in mind. However, it turned out there was a small catch in the logic. The family has a history of certain medical problems, some severe, and their charitable interests centered in part on certain diseases. Presently neither the wealthy couple nor their children showed any indications of these conditions.<\/p>\n\n\n\n

If these conditions were to manifest, the couple decided they would take the steps necessary to get the best treatment they could identify\u2014even if the treatments were very expensive and experimental (cutting-edge therapies not approved in their home country, for example).<\/p>\n\n\n\n