How To Look Poor On Paper While Staying Rich In Reality

Forbes

17-06-2025

Jamie Farmer is Managing Partner of Financial Strategies Group, a life insurance industry leader providing clients with practical solutions.
In a society where financial statements, tax returns and estate filings can be used against you, it may be time to change tactics. If you're wealthy and successful and face the potential for lawsuits, divorce claims among family members or estate taxes, your goal shouldn't be to flaunt your wealth—it should be to look like you have very little of it on paper.
This isn't about hiding assets or evading taxes. It's about using legitimate, long-established legal structures to protect your wealth and control how it's taxed, transferred and potentially targeted. In short, you want to be rich but appear poor on paper.
Imagine being sued. Would you rather show up in court appearing flush with liquid assets or appear modest, with little exposed wealth? Your financial posture can impact litigation outcomes, divorce proceedings and even how your heirs are taxed after your death.
The same principle applies to your tax return. If you're in the 'rich club' on paper, you're often on the hook for the highest marginal tax brackets and surcharges. By contrast, the 'poor club'—those who control their income recognition, asset visibility and tax reporting—tend to legally owe less.
This strategy doesn't require selling your home, trading your luxury car or altering your lifestyle. It requires a strategic shift in how assets are titled, structured and taxed. Your financial team, consisting of your attorney, certified public accountant (CPA), investment manager and insurance professional, should work in concert to help you build this structure.
Many high-net-worth individuals operate with their advisors in silos. That's a mistake. The planning discussed here must be coordinated to be effective and to avoid unintended tax or legal consequences.
Here are several key tools and strategies to reduce your visible wealth on paper while helping protect and preserve your real wealth:
When selling a highly appreciated business or property, consider trusts like charitable remainder trusts (CRTs) or charitable lead annuity trusts (CLATs). These structures can defer or eliminate capital gains tax, offer upfront charitable deductions and, importantly, move assets out of your estate while still generating income for life. You don't own the asset anymore, so it doesn't appear on your balance sheet. But you can benefit from it.
You can also use irrevocable dynasty trusts or spousal lifetime access trusts (SLATs) to freeze the value of appreciating assets and pass growth to heirs free from estate taxes and creditor claims.
Institutional-quality cash value life insurance contracts, previously reserved for corporations, are now available to individuals. These policies offer tax-deferred growth, tax-free access via policy loans and income-tax-free death benefits that are all within a structure that's often protected from creditors under state law. (Life insurance cash value and death benefit creditor exemptions vary significantly from state to state.)
In the current elevated tax environment, this form of life insurance is an increasingly attractive "tax never" asset. It also doesn't show up as income on your tax return, allowing for private wealth withdrawals with no reporting requirement.
Compared to Roth IRAs, which are limited in contributions and phased out at high income, life insurance offers fewer restrictions. There are no penalties for early access, and the right policy avoids surrender charges and high fees that historically made life insurance less appealing.
Many wealthy retirees make a costly mistake by waiting until age 73 to take required minimum distributions (RMDs). By doing so, they force taxable income into a narrow window and end up in higher tax brackets.
Instead, take advantage of the U.S.'s progressive tax brackets by spreading distributions between ages 65 and 73. At the same time, build a robust tax-free bucket that includes cash value life insurance. Drawing from this bucket can help avoid bumping into top marginal tax rates.
Another trap: failing to protect the inheritance you leave behind. Many affluent clients unintentionally expose inherited wealth to a child's divorce, lawsuit or creditor claim. With proper trust planning, those assets can be shielded even if the child has full control over them.
These trusts can also help mitigate estate taxes. By removing appreciating assets from your taxable estate, you ensure that your wealth grows for the benefit of heirs and not the IRS.
And if philanthropy is part of your legacy plan, don't wait until death to give. Many clients miss the opportunity to take valuable charitable deductions during their highest-earning years, losing the full benefit of the gift. CLATs allow for front-loaded deductions while still preserving family control of principal long-term.
Professionals like physicians, attorneys and executives often find themselves locked out of traditional tax-favored savings due to income limits and contribution caps. Institutional cash value life insurance can help fill that gap.
Unlike older policies with high fees and limited investment choices, institutional contracts now offer:
• No surrender charges
• Transparent and competitive fees
• Dozens of risk-aligned investment options
• Strong asset protection provisions
• No age 59 ½ rule or five-year seasoning period
These attributes can give affluent individuals another powerful asset in the 'tax never' bucket, allowing for tax-efficient growth, access and wealth transfer.
Wealthy individuals face a strange paradox: The more you have, the more you must plan to look like you don't. Strategic tax, legal and insurance planning can reposition your assets, reduce what shows up on your tax return and protect what you've built from lawsuits, taxes and family disputes. By leveraging trusts, life insurance and coordinated advice, you may be able to create the illusion of modesty while preserving real wealth and control.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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