BUSINESSES AND PROFESSIONS LIKELY TO BENEFIT FROM THE AFFLUENT
There are many. Those who are specialists in solving the problems of the affluent and their heirs should be in great demand during the next twenty years.
ATTORNEYS WHO SPECIALIZE
A father recently asked us about the ideal occupation for his son. At the time of this discussion, his son was a second-year college student with a straight-A average. How did the father respond when we suggested that his son consider becoming an attorney? He said there were too many attorneys. We replied that there were too many law school graduates. There is always a demand for highgrade attorneys. Attorneys who can generate new business are in even higher demand. The father asked about the areas of law that would be best suited for his son. We described three to him:
Estate Attorneys—Too Many?
The first area we recommended was estate law. During the ten-year period 1996— 2005, attorneys’ fees associated with settling estates in the $1 million or more category will total an estimated $17.1 billion (see Table 7-2). Many attorneys will also earn revenue by acting as executors or co-executors as well as administrators of estates. Attorneys will participate as executors or administrators for only a fraction of the estates worth $1 million and more, but even a fraction of the estimated $22.3 billion in executors’ fees and $16.9 billion in administrators’ fees translates into high profits for enlightened estate attorneys.
In essence, estate attorneys will likely generate more than $25 billion in revenue from servicing estates in the $1 million or more range during the 1996— 2005 period. This figure is greater than the net income generated by all law partnerships for all services in 1994! Of course, this total is only a small amount
compared with the nearly $270 billion that will be paid to the federal government in estate taxes during the same ten-year period (see ‘Table 7-1).
There is more to being a successful estate attorney than just providing legal advice. The more successful ones also act as mentors and family advisors to the affluent and their heirs. These attorneys have to be especially adept at meeting the needs of the widows and widowers who are their clients. Within the affluent married-couple population, almost all husbands and wives intend to leave their estates to their spouses, since a husband or wife can inherit his or her spouse’s estate without paying an estate tax.* This unlimited marital deduction essentially postpones payment of estate taxes until the death of the second spouse.
Affluent widows face a particularly difficult situation. More than half will have been married to the same spouse for more than fifty years. Between 1996 and 2005, there are likely to be four affluent widows created for every one affluent widower. Age is most significant in explaining this variation. Within the millionaire married-couple population, the expected average age of a male decedent (husband) is seventy-five and a half years, while the average age for a female decedent (wife) is eighty-two years. Moreover, males in such cases typically marry women who are on average two years their junior. Thus, in the typical affluent-couple population, the husband who passes away at the age of seventy-five and a half years leaves behind a widow who is two years younger than he was at the time of death. His wife, who became a widow at the age of seventy-three, is expected to live until she is eighty-two. Most women in this scenario never remarry. Therefore, most women are widowed for nine years before their deaths.
It is estimated that during the ten-year period from 1996 to 2005, nearly 296,000 women in the millionaire married-couple population will become widows. Their average inheritance will be approximately $2 million (in 1990 dollars). During this same period, nearly 72,000 men from this population will become widowers. It is estimated that these men will inherit more than $125 billion, or an average inheritance of approximately $1.7 million.
In what states will the demand for estate attorneys be the strongest? We predict that demand in California, Florida, New York, Illinois, Texas, and Pennsylvania will be especially high during the next decade (see Tables 7-3 and 7-4).
On Income and/or Wealth
Which is the number-one income-consuming category among the affluent?
(229 of 277)
Income tax. The affluent in the $200,000-and-more annual realized income category account for only about 1 percent of U.S. households but pay 25 percent of the tax on personal income. They will want to become better at realizing less income in the future.
What will happen in the year 2005, when millionaire households will control 59 percent of America’s personal wealth? The government will likely place increased pressure on the affluent, possibly by creating innovative ways to tax wealth in addition to income. This prospect, according to our surveys of millionaires, is foremost on the minds of the affluent. Paying increasingly higher taxes to cover government spending and reduce the federal deficit is among the greatest fears of the affluent population. Several states already have a wealth tax. Each year residents in such states must list all the financial assets they own; a tax is levied on stocks, bonds, time deposits, and so on. How difficult would it be for our federal government to tax wealth this way? Not too difficult, since it already knows how some states tax capital before it becomes realized income.
We believe that in the next twenty years, the affluent will have to use every option within the law to remain affluent. It is a segment of our economy that will be under siege by the liberal politician and his friend, the tax man. Surely the affluent will readily spend their money for legal advice that will help them withstand the siege. The tax attorney will prove to be an integral part of the defense. Thus, the second area of law we recommended to the father for his son was tax law.
(230 of 277)
For Sale: A Place in America
The third area of law we recommended was immigration law. Attorneys who specialize in immigration law are likely to benefit from predicted developments in this area. For example, it will become progressively more difficult to immigrate to this country and become a naturalized citizen. At the same time, the demand for American citizenship will increase greatly, especially among affluent foreigners. Consider how millionaire entrepreneurs and advocates of free enterprise living in Taiwan feel about their future. China also wants their capital and country. China wants the Philippines for its oil. Who can guess how the Chinese government will treat the affluent population of a country it acquires? China is a real threat to many affluent people who live within its influence. Many of these people will seek American citizenship. Immigration attorneys will surely benefit from this trend.
“People do not feel safe,” said Chris Chiang of the Taiwan-based Pan Pacific Immigration Company. “They want to come to the USA. Billions of dollars have flowed out of Taiwan since mainland China held
The fear of affluent Taiwanese business owners is reflected in their movement of money into America. In fact, they recently invested more than $10 billion in California alone. Now they are considering investing $50 million in Atlanta (Fears, p. 1). What do they get for investing in this country?
The million-dollar investor program was created by Congress in 1990. It allows foreign nationals to attain permanent U.S. residency if they invest $1 million in a U.S. business, provided that investment creates ten jobs (John R. Emshwiller, “Fraud Plagues U.S. Programs That Swap Visas for Investments,” The Wall Street Journal, April 11, 1996, p. B1).
The need for immigration-related legal expertise is not limited to foreigners
who are affluent entrepreneurs. Many highly skilled professionals and scientific workers are being sought in growing numbers by American corporations. These employees have an increasing need for the services of attorneys who have considerable expertise and experience with immigration statutes.
MEDICAL AND DENTAL CARE SPECIALISTS
Many specialists will benefit from the enormous number of dollars that the affluent population will spend for health care in the next decade. A growing number of wealthy people will pay for the medical and dental expenses of their adult children and grandchildren. Currently, more than four in ten millionaires (44 percent) are paying or have paid for the medical/dental expenses of their adult offspring and/or grandchildren. We estimate that in the next ten years, millionaires will spend in excess of $52 billion for the medical and dental care of their adult children and grandchildren.
Most of these medical and dental expenses are not covered by health-care insurance programs. Skilled health-care specialists who prefer to deal directly with individual payers and not with bureaucratic third-party organizations will be especially important in providing these uncovered services. A growing number of health-care professionals are already focusing on this affluent selfpayer market. Those professionals with the highest skills and corresponding reputations can most readily capitalize on this trend. Often they can demand and receive fees that are higher than any insurance company would be willing to pay. The affluent will often pay directly to the health-care professional or organization. This way they avoid the possibility of paying gift tax on such distributions. Also, many affluent people will pay for their own “elective” health-care services.
Specialists who will benefit include:
◆ Dentists providing cosmetic dentistry, including bleaching, bonding, veneers, invisible braces, cosmetic nasal surgery, and chin and corrective jaw surgery ◆Plastic surgeons providing nose-reshaping surgery, ear-reshaping surgery, tattoo removal, facial contouring, chemical peels, and permanent hair removal
◆ Dermatologists providing mole removal, cosmetic surgery, acne treatment, freckle removal, and electrolysis
◆ Allergists providing treatment for fatigue, rashes, hives, itching, allergy-related mood swings and depression, food allergies, learning disabilities, and new house sickness
(235 of 277)
◆ Psychologists providing career counseling, academic and career assessment, treatments for attention deficit disorder, treatment for compulsive eating disorder, shyness and assertiveness conditioning, and intelligence and aptitude testing
◆ Psychiatrists providing treatment for stress and anxiety, drug and alcohol abuse, school stress, and panic disorders
◆ Chiropractors providing treatment for stress relief and head, neck, and lower-back pain
ASSET LIQUIDATORS, FACILITATORS, AND APPRAISERS
Not all intergenerational gifts are in the form of cash or its equivalents. Gifts to adult children and grandchildren are often in the form of private/family businesses, coin collections, stamp collections, gems and precious metals, timberland, farms, rights to oil and gas properties, personal real estate, commercial real estate, gun collections, porcelains, antiques, art, motor vehicles, furniture, and the like. Often the recipients of these items have little or no interest in them and want to transform them into cash immediately. They will need experts to advise them of the true value of the gifts or how to sell them, manage them even for short periods of time, or enhance their value. Specialists who will benefit include:
◆ Appraisers and auctioneers providing valuation/appraisal services and sales of a variety of personal and other assets, such as those listed above
◆ Coin and stamp dealers providing appraisal services and, in some cases, instant cash for coin and stamp collections
◆ Pawn brokers providing services at the local level; they often promote themselves as specialists in purchasing estate jewelry, diamonds, precious metals, coins, guns, antiques, china, collectibles, expensive watches, sterling flatware, and so on
◆Real estate management professionals providing property management of single/multiple family dwellings, maintenance services, rent collection, and turnkey cleanup
EDUCATIONAL INSTITUTIONS AND PROFESSIONALS
More than 40 percent of America’s affluent pay for their grandchildren’s private grade school and/or high school tuition. Coupled with the rapid growth of the affluent population, this translates into several million students whose tuition to attend private school will be subsidized within the next ten years.
(235 of 277)
Given these facts, the demand for private school facilities and private school teachers, counselors, and tutors will likely accelerate. At the same time, tuition and related expenses should increase significantly. Why? Because affluent grandparents are bidding up the cost of private school tuition. Since many of their adult children do not have to pay for the services from which their children benefit, the parents are relatively insensitive to the escalating cost of a private school education.
Organizations and specialists who will benefit include:
◆ Proprietors and teachers at private schools that provide tuition-based education at the preschool, kindergarten, elementary, and high school levels
◆ Proprietors and teachers in specialized areas such as music, drama, the arts, special education/learning disability programs, career counseling, and tutorials for SAT and other types of entrance/aptitude tests
PROFESSIONAL SERVICES SPECIALISTS
As stated previously, attorneys play a pivotal role in the transfer of wealth between generations. Accountants are also important in this regard. These professionals often serve as key advisors to the affluent. Advice in this context extends beyond the normal core of accounting and legal services. These professionals are relied on for their insights into how best to distribute substantial financial and other gifts to children and grandchildren. Clients often view these accountants as their first line of defense against paying substantial gift and estate taxes. They are often called upon to be co-executors of the estates of their affluent clients. It is not unusual for co-executors in these situations to receive a percentage of the estates of their clients. This is one way the affluent reward these trusted advisors for a lifetime of sage advice. Specialists who will benefit include:
◆ Accountants providing tax-planning strategies; estate, trust, and gift tax solutions; fiduciary services; business/asset valuation; and retirement planning
(237 of 277)
HOUSING SPECIALISTS/DWELLING PRODUCTS/SERVICES
More than half the affluent population will provide their offspring with financial assistance in purchasing a home. This figure actually understates the incidence of such outpatient care because often other substantial financial gifts not
earmarked for specific use are used for home purchases and related expenses. Those who receive “home-acquisition subsidies” from their relatives are often less sensitive to the variations in home prices than the nonsubsidized. (As always, our data suggest that it is easier to spend other people’s money.) This trend should benefit many of those who are employed in the residential housing and mortgage-lending businesses.
Home-acquisition subsidies typically do not negate the need for credit. Actually, parents who provide part of the purchase price of a home often precipitate the purchase of more expensive homes and larger mortgages on the part of their sons and daughters. Specialists who will benefit include:
◆ Home building contractors
◆ Mortgage lenders
◆ Remodeling contractors
◆ Renovation contractors
◆ Residential real estate developers
◆ Residential real estate agents
◆ Retailers of paint, wall coverings, and decorating products
◆ Marketers of alarm and security systems and security consultation services
◆ Providers of interior design and decorating services
FUND-RAISING COUNSELORS
Specialists who will benefit include:
◆ Professionals who conduct philanthropic research, develop targeting strategies, and counsel foundations and educational institutions
(238 of 277)
TRAVEL AGENTS AND BUREAUS AND ‘TRAVEL CONSULTANTS
The affluent enjoy vacationing with their children and grandchildren, and many of the affluent spend considerable amounts doing so. About 55 percent recently spent more than $5,000 for a vacation. About one in six spent in excess of $10,000.
Specialists who will benefit include:
◆ Marketers of family-oriented vacation resorts
◆ Marketers of cruises, tours, worldwide vacations, and treks and safaris
WHERE ARE THE OPPORTUNITIES LIKELY TO BE?
People who are interested in targeting the wealthy need to know the geographic distribution of the opportunities available. Note that earlier in this chapter we provided estimates by state of the number and total dollar value of estates in the $1-million-or-more category (see Tables 7-3 and 7-4). But keep in mind that for every estate in the $1 million or more category, there are about forty millionaires who are still alive. Thus, for many people who wish to market to the affluent, living millionaires are the more important of the two groups.
(239 of 277)
TABLE 7-5 ESTIMATED NUMBER OF MILLIONAIRE HOUSEHOLDS IN THE YEAR 2005
State : TOTAL ; 100,000 HH ; RELATIVE CONCENTRATION .
United States : 5,625,408 ; 5,239; 100 .
Alabama: 66,315 3,844; 73 .
Alaska : 19,216 ; 7,148 ; 136 .
Arizona : 76,805 ; 4,501 8 .
Arkansas: 32,008 ; 3,228; 62 .
California 773,213 5,762 110
Colorado 92,677 5,936 113
Connecticut 109,48) 8,702 166
Deleware 18,237 6,247 119
District of Columbia 14,076 6,815 130 Florida 289,231 4,91] 94
Georgio 146,064 4,973 95
Howsii 30,857 6,046 115
Idaho 19,264 3,883 74
Wlinois 283,329 6,054 116
The Indians108,679 4,674 a9
lowa 46,202 4,100 73
Kansas 49,784 4,755 91
Kentucky 56,271 3,668 70
Lovisiona 62,193 3,61) 69
Maine 18,537 3,887 14
Maryland 149,085 7,283 139 Massachusetts 154,390 6,746 129 Michigan 202,929 5,406 103
Minnesote 102,662 5,533 106 Mississippi 30,045 2,841 54
Missouri 92,665 4,4385
Montana 12,954 3,461 70
Nebraska 28,026 4,276 82
Nevada 36,272 5,577 106
New Hampshire 26,941 6,013 115
New Jersey 258,917 8,275 158
New Mexico 26,352 ; 3,758 ; 72
New York : 431,607 ; 6,153 ; 117
North Carolina :130,362 ; 4,450 ; 85
North Dakota: 9,559 ; 3,865 ; 74
Ohio : 197,554 ; 4,485 ; 8 .
Oklahoma: 46,734; 3,593 ; 69.
Oregon : 62,776 ; 4,795 ; 92.
Pennsylvania : 238,010 ; 5,033 ; 96.
Rhode Island : 19,672 ; 5,125 ; 98.
South Corolina : 58,479 ;3,867; 14
South Dakota:10,613; 3,584; 68. Tennessee : 91,263; 4,285; 82 .
Texas :365,034; 4,736; 90
Utah 33,850 4,097 78
Vermont : 10,035 ; 4,407 ; 84
Virginia:171,516; 6,327 ;121
Washington : 134,570 ;5,764 ;110 .
West Virginia :21,774 ;3,077; 59.
Wisconsin :100,421; 4,852 ; 93.
Wyoming : 9,021 ; 4,493 ; 86.
Other Areas : 41,239; 3,640 ; 69.
With this in mind, we have estimated how many U.S. households will have a net worth of $1 million or more in the year 2005. We have also estimated how many of these households there will be in each of the fifty states, the District of Columbia, and among Americans living outside the U.S. (see Table 7-5). Note that California has the largest millionaire household population. In terms of concentration per 100,000 households, however, Connecticut ranks first.
* The term inherit as used here does not fit the traditional definition, which
relates to receiving cash or its equivalents as a right or title descendible by law from an ancestor at his or her death. Nor does a spouse fit the strict definition of an ancestor. In reality, almost all the wealth of millionaire couples is held jointly; this is the main reason it is nearly impossible to estimate the number of individual millionaires and why we substitute the number of millionaire households. Nevertheless, it is a bit misleading to use the term inheritance when discussing the interspousal transfer of wealth. While both spouses are alive, what is his is hers and what is hers is his.
(240 of 277)
No comments:
Post a Comment