Is It Time to Give Yourself a Break and Consolidate Your Investment Portfolio?

After spending decades building wealth, there comes a time that high net worth individuals and families should take a close look at their investments to determine what can be simplified and consolidated. Such measures make it significantly easier to manage assets during the wealth distribution phase of your life, and also make it easier for loved ones to step in and manage assets should the need arise.

Over time, it’s quite common for clients to accumulate many types of accounts, entities, and investments. Each asset type can present numerous challenges as you begin to consolidate, and all should be weighed against total net worth when making decisions. Let’s look at some of the possibilities, starting with accounts.

For many reasons, some people will maintain multiple cash accounts. But as situations change and a more straightforward maintenance strategy is desired, is it really necessary to maintain 4-6 such accounts? In many cases, a single trusted financial institution can act as the primary provider for liquid needs.

Similar considerations can be given to retirement accounts. While husbands and wives can’t combine IRAs, it’s generally possible to consolidate old 401(k)’s, profit-sharing plans, SEPs (Simplified Employee Pensions), rollovers, and contributory accounts into one. Roth IRAs will need to remain separate, as well.

Are you someone who has accumulated a number of different brokerage accounts over the years? Those, too, can provide some simplification to your accounting efforts. In many cases, it’s no longer necessary to maintain the same account type for different investment strategies. And, the value of having multiple custodians may have diminished as well.

To begin this process, list out all entities along with the purpose for each and any future plans. For rental properties that have since sold, consider setting up an LLC. It’s not uncommon for such investments to only have a small checking account remaining from their existence. If no further rental properties are anticipated, take the opportunity to close the checking account, officially shut down the entity, and file a final tax return. Once completed, you’ll appreciate the reduction in documentation.

Over the years, we’ve helped many clients shutter trust accounts that have dwindled to a few thousand dollars. In most cases, documents outlining the parameters of each trust may permit termination once it is no longer “economical” to keep as a trust. Sometimes, the guiding documentation specifies a dollar amount (say, $100,000) as a trigger point to closing the trust. Other times, it may be left to discretion of the trustee to determine that value. In either case, if no future contributions to the trust are anticipated, terminate the entity and pay out the proceeds to the beneficiaries.

Another efficiency opportunity to look for is the formation of entities that were created only to support another entity. For example, a corporation is sometimes formed to act as a general partner for another corporation. Once the “child” corporation’s purpose is fulfilled, like owning a business that has since been liquidated, the “parent” entity can be shut down as well.

For entities that must continue, make a list of the purpose for each account and a target liquidation date if possible. Review the list regularly. And when presented with a new investment opportunity, carefully consider whether re-complicating things are genuinely worth the effort. Sometimes, it absolutely is. Other times, the additional K-1 or annual tax return may not be worth it when putting into the context of your entire net worth.

As you can see from these examples, it’s easy to become overwhelmed when faced with consolidating accounts or terminating entities. However, by focusing on one at a time and consulting your wealth manager on logistics and tax consequences, the results can be very liberating.