31 TMND : Find Your NICHE

Find Your NICHE

The millionaires next door, 

THEY ARE PROFICIENT IN TARGETING MARKET OPPORTUNITIES.

Why is it that you’re not wealthy? Perhaps it’s because you are not pursuing opportunities that exist in the marketplace. There are significant business opportunities for those who target the affluent, the children of the affluent, and the widows and widowers of the affluent. Very often those who supply the affluent become wealthy themselves. Conversely, many people, including business owners, self-employed professionals, sales professionals, and even some salaried workers, never produce high incomes. Perhaps it’s because their clients and customers have little or no money!

But, you may say, you have told us that the affluent are often frugal. Why target those who are not “big spenders”? Why focus on people who are sensitive to the price variations in products and services? The affluent, especially the selfmade affluent, are frugal and price-sensitive concerning many consumer products and services. But they are not nearly as price-sensitive when it comes to purchasing investment advice and services, accounting services, tax advice, legal services, medical and dental care for themselves and family members, educational products, and homes. Since the majority of the affluent are self-employed business owners and managers, they are also purchasers of industrial products and services. They are consumers of everything from office space to computer software. Also, the affluent are not at all frugal when it comes to buying products and services for their children and grandchildren. Nor are the children of the affluent frugal when it comes to spending the substantial gifts of cash that their parents and grandparents give them.

(225 of 277)

FOLLOW THE MONEY

In the next decade, there will be more wealth in this country than ever before. Opportunities to serve the wealthy will be greater than ever. Consider these facts about the American economy:

◆ In 1996, approximately 3.5 million households in America (out of a total of 100 million households) had a net worth of $1 million or more. Millionaire households accounted for nearly half of all private wealth in America.

◆ During the ten-year period from 1996 through 2005, wealth held by American households is expected to grow nearly six times faster than the household population. By the year 2005, the total net worth of American households will be $27.7 trillion, or more than 20 percent higher than in 1996.

◆ By 2005, the millionaire household population is expected to reach approximately 5.6 million. At that time, the majority of the private wealth in America ($16.3 trillion of $27.7 trillion, or approximately 59 percent) will be held by the 5.3 percent of households that have a net worth of $1 million or more.

During the period from 1996 through 2005, it is estimated that 692,493 decedents will leave estates worth $1 million or more. This translates into $2.1 trillion (in 1990 constant dollars). About one-third of this amount will be distributed to the decedents’ spouses (in 80 percent of these cases, widows). Widows will receive an estimated $560.2 billion, while the children of decedents will receive nearly $400 billion (see Table 7-1). This translates into $189,484 for each of the estimated 2,077,490 children of decedents. People who receive wealth from the estates of affluent parents have a significantly higher propensity to spend than others in their income/age cohort.

(226 of 277)

TABLE 7-1 ESTIMATED ALLOCATIONS¹ OF ESTATES VALUED AT $1 MILLION OR MORE ($ BILLIONS)

CATEGORY ALLOCATIONS : YEARS 1996 N=40,921; 2000 N=66,177; 2005 N=100,650 ; TOTAL FOR 1996-2005 N=692,493 . 

•Estate Tax after Credits : 14.95; 24.65; 40.65; 269.04 .

•Bequests to Spouse: 38.92; 64.17; 105.80; 700,24 . 

•Charitable Bequests : 8.56; 14.12; 23.28; 154.07 .

•Lifetime Transfers : 21.88; 36.07; 59.47; 393.65 .

______________________________

¹Estimated allocations are in 1990 dollars.

______________________________

TABLE 7-2 ESTIMATED FEES¹ FOR ESTATE SERVICES ($ MILLIONS)

CATEGORY OF SERVICE : YEARS

TOTAL FOR SERVICE :

YEARS 1996 N=40,921; 2000 N=66,177; 2005 N=100,650 ; TOTAL FOR 1996-2005 N=692,493 . 

•Attorneys’ Fees: 962.5 ; 1,586.9; 2,626.3; 17,105.6 

•Executors’ Fees: 1,241.1; 2,042.3; 3,373.7; 22,329.9

•Administrators’ Fees : 938.1; 1,546.7; 2,550.0 ; 16,878.1

__________________________________

¹Estimated fees are in 1990 dollars.

__________________________________

Additionally, to minimize estate taxes, many affluent parents reduce the size of their estates by transferring much of their wealth to their offspring before death. During the ten-year period 1996-2005, it is forecasted that living parents/grandparents will give their adult children and grandchildren more than $1 trillion. These gifts will be in various forms, including cash, collectibles, homes, cars, commercial real estate, public securities, and mortgage payments. This $1 trillion in gifts translates into more than $600,000 (in constant 1990 dollars) for each child of the affluent. This $1 trillion figure is a very conservative estimate, since, as statedearlier, by the year 2005, households in America with a net worth of $1 million or more will account for $16.3 trillion— or 59 percent—of the personal wealth in America. The $1 trillion given to children and grandchildren thus represents a small portion (6.3 percent) of this wealth. 

Much of this gift giving is tax free. Typically, parents distribute their wealth so as to limit gift tax liabilities. Each parent can give each child and grandchild up to $10,000 annually. Thus, a mother and father with three children and six grandchildren can give them $180,000 tax free each year. Also note that gifts of tuition and medical expenses are typically not included in computations of gift tax liability.

(228 of 277)