Wealth management author Steve Burns pointed out in his article that aside from salaries and retirement accounts, affluent families often hold seven types of assets that are not commonly understood or interacted with by ordinary middle-class and labor families.
According to Burns, the typical path to wealth for most people is through earning a salary, saving, and allocating funds to a 401(k) retirement account monthly until retirement. He believes this method is effective, but not the primary way wealthy families accumulate wealth. Here are the seven types of assets he listed:
Ordinary individuals can buy stocks of publicly listed companies or index funds through brokerage apps, while affluent investors may directly hold them or own shares of private, unlisted companies through private equity and venture capital funds.
Burns emphasized the importance of timing. Startups can see significant appreciation in their value during their pre-IPO stage, with a considerable portion of the gains already captured by founders and early investors by the time of the initial public offering (IPO).
Under US securities regulations, many private offerings are limited to “accredited investors” who meet certain income or net asset thresholds. This restricts most middle-class and labor savers from entering the riskiest and potentially highest-reward phase of investing in companies.
Additionally, substantial private ownership often comes with board seats and decision-making authority, which cannot be obtained by holding small amounts of index funds.
For most families, real estate typically refers to primary residences or maybe an additional rental property. Burns stated that affluent investors are more likely to hold apartment buildings, warehouses, and land acquired for future development.
Many commercial properties operate under a “triple-net lease,” where tenants bear property taxes, insurance, and maintenance costs, while landlords primarily focus on collecting rent.
From a tax perspective, property owners can depreciate buildings over several years and, through cost segregation studies, separately identify assets such as equipment and parking lots with faster depreciation schedules to accelerate tax deductions.
Burns explained that even with a continuously appreciating property and monthly rental income, these deductions could still result in a paper loss. If property owners meet the IRS requirements to be considered “real estate professionals,” these losses can potentially offset other income.
When labor families need cash, they usually sell assets, such as selling appreciated stocks, which typically incur capital gains taxes.
Burns noted that affluent investors often take a different approach by choosing to borrow. Through a securities-backed line of credit, they can collateralize their investment portfolio for cash while retaining ownership of all holdings. Since loans are not considered income, the borrowed funds are not subject to taxation.
Due to the high liquidity of the collateral held by lenders, the interest rates on such loans are usually lower than unsecured debts. Some families also achieve similar effects through permanent life insurance, including offerings like private placement life insurance, usually sold to ultra-high-net-worth clients.
In terms of “legacy,” under current federal tax laws, when beneficiaries inherit assets, the basis of the assets is usually revalued to the fair market value on the deceased person’s date of death, potentially avoiding income taxes on the accumulated appreciation over several years, with related loans being repaid from the estate.
According to Burns, luxury items like watches or antique cars may be seen as indulgences by the general populace; however, affluent buyers at the top end of the market regard some artworks, cars, watches, and wines as a place to park funds independent of stock market fluctuations, sometimes as a hedge against inflation or a weakening dollar.
He also highlighted the risks involved: high auction fees, yearly storage and insurance costs, as well as challenges in selling at reasonable prices within a short timeframe.
Some collectors store art in a “freeport,” a highly secure warehouse located outside a country’s customs territory. As long as art remains in the warehouse, owners are exempt from import duties or some sales taxes.
Another approach is donating. By donating appreciated artwork to museums for actual use, owners may be eligible for charitable deductions based on the fair market value, provided they comply with appraisal rules.
Burns mentioned that while salaries cease once work stops, patents, music catalog rights, film libraries, software, and franchise systems can generate income for decades after primary work is completed.
The cost of duplicating a recorded song or finished software program is close to zero, making most new sales or licenses highly profitable. He noted that this is why investment institutions have been acquiring music catalog rights in recent years. Typically, owners of these rights hold them through trusts or holding companies for better tax treatment and control over future beneficiaries.
This model also applies on a smaller scale, such as authors continuously receiving royalties from books published years ago or inventors licensing patents to manufacturers.
Burns wrote that few middle-class families consider limited liability companies (LLCs) or trusts as their assets, but the affluent view these legal structures themselves as assets due to their protective functions.
Assets placed into properly structured irrevocable trusts are generally no longer considered part of the owner’s taxable estate. Depending on the structure and state in which it’s established, trusts and associated entities can make it harder for creditors to access assets and aid heirs in avoiding probate proceedings.
Wealthy families with substantial assets often establish family offices, private entities serving a single family for investment, tax, legal affairs, bill payments, and intergenerational succession planning.
Burns stated that while personal relationships do not appear on brokerage statements, affluent investors still consider them as one of the most valuable assets.
He pointed out that board seats, angel investment networks, and private investment clubs can offer stable and exclusive investment opportunities. The best deals are often fully funded before becoming public knowledge, giving early participants potentially better terms and valuations, as well as the opportunity to interact directly with founders; on the other hand, retail investors may only become aware of a company on the day of its IPO through news headlines.
Burns believes that income can only explain part of the wealth gap, with the rest largely determined by the types of assets people own and how these assets are held and taxed. While he acknowledged that most of the mentioned tools require substantial funds and professional tax attorneys to be effectively utilized, the underlying concepts can be applied across all income levels: acquire income-generating assets, understand the tax implications on returns before selling investments, and network with financially savvy individuals, as many opportunities are often passed through connections.