Things to Buy When You’re Rich: Financial Commitments

For individuals with substantial financial resources, “buying” extends beyond simple consumer purchases. Wealthy individuals engage in significant financial commitments encompassing diverse asset classes, specialized services, and strategic capital allocations. These acquisitions represent considerable, long-term financial obligations with unique characteristics, ongoing costs, and specific financial and tax implications.

High-Value Tangible Assets

Acquiring luxury real estate represents a significant financial commitment beyond the purchase price. Owners face substantial ongoing operational costs, including property taxes, maintenance, and staffing. Upon sale, such assets can be subject to capital gains and luxury taxes.

Private aircraft and yachts also entail substantial financial outlays. Private jet ownership involves annual hangar fees, fuel costs, maintenance, crew salaries, and insurance. Sales and use taxes apply to purchases, and federal excise taxes apply to flights.

Owners of private aircraft can benefit from depreciation deductions. High-value art collections and rare collectibles require specialized insurance, climate-controlled storage, and professional conservation. Luxury taxes may apply to items exceeding specific price points.

Strategic Capital Deployments

Wealthy individuals frequently allocate capital to sophisticated financial instruments and opportunities generally inaccessible to average investors. These strategic capital deployments include substantial investments in private equity funds, venture capital, and hedge funds. Such investments are characterized by their illiquidity, often requiring long-term commitments. The potential for significant capital growth differentiates these investments from traditional public market holdings.

These funds operate with distinct fee structures, commonly following a “2 and 20” model. This involves an annual management fee and a performance fee, known as “carried interest,” which is a percentage of the fund’s profits. This carried interest is a performance incentive for the fund managers, aligning their compensation with the fund’s success.

From a tax perspective, carried interest is generally treated as a capital gain. Venture capital funds are often structured as limited partnerships, functioning as pass-through entities where the tax burden falls on the individual partners. The Qualified Small Business Stock (QSBS) provisions under Internal Revenue Code Section 1202 can allow non-corporate taxpayers to exclude gain from the sale of eligible small business stock.

Personalized Services and Experiences

Significant wealth facilitates the acquisition of high-end personalized services and unique experiences that streamline daily life and enhance privacy or security. This involves employing extensive personal staff, such as private chefs, pilots, security personnel, and household managers. These arrangements represent ongoing expenditures, with salaries, benefits, and associated payroll taxes.

Concierge medical services offer enhanced access to physicians, extended visits, and 24/7 communication. Annual retainer fees for these services can be substantial. While these fees cover convenience and personalized attention, they often do not replace traditional health insurance for clinical services.

Exclusive memberships to private clubs and bespoke travel arrangements further demonstrate this category of financial commitment. These involve substantial annual dues or per-use charges, reflecting the premium placed on privacy, exclusivity, and tailored experiences. These financial arrangements are generally ongoing, requiring consistent budgeting for retainer fees and service agreements.

Philanthropic and Legacy Planning

For individuals with substantial wealth, financial commitments often extend to philanthropic endeavors and strategic intergenerational wealth transfer. Establishing private foundations requires considerable capital outlay for initial funding and incurs ongoing administrative and compliance costs, including legal and accounting fees. These structures facilitate organized charitable giving and can provide a vehicle for a family’s long-term philanthropic vision.

Donor-advised funds (DAFs) offer a more flexible approach to charitable giving, allowing donors to contribute assets to a sponsoring public charity. Donors receive an immediate income tax deduction upon contribution. A significant advantage is the ability to avoid capital gains tax on appreciated assets donated directly to a DAF, as the funds grow tax-free within the account. This removes the assets from the donor’s taxable estate, aiding in estate planning.

Charitable trusts, such as Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs), are sophisticated tools used for both philanthropy and estate planning. These trusts can provide income tax deductions, avoid capital gains taxes on appreciated assets, and reduce the overall taxable estate. Assets transferred into a charitable trust are removed from the donor’s taxable estate, which can significantly reduce potential federal estate tax liability. The annual gift tax exclusion allows individuals to gift up to $19,000 per recipient in 2025 without triggering gift tax reporting requirements.