Accumulating wealth is only one of the ways that you prepare for the future. There must also be a strategy for protecting the wealth that you amass. Protecting your assets involves more than making sound investments or keeping funds tucked away in various domestic accounts.
Here are things to keep top of mind regarding asset protection planning and why they matter.
1.The Time to Begin is Now
You may think that it’s necessary to build up a certain amount of assets before there’s any point in creating a formal plan for asset protection. That’s not the case. Even if you don’t have much right now, one unfortunate event would be all it takes to wipe out everything.
Today is the right time to start protecting those assets. Look at what you have right now and identify ways to ensure those assets are as secure as possible. It never hurts to explore various methods, even if you don’t need them right now. What you learn could come in handy in the coming years.
2. Keep It Simple and Transparent
One mistake people sometimes make is assuming that complexity somehow makes an asset protection strategy more effective. It’s easy for things to go in the opposite direction. Convoluted approaches that are hard to figure out can often be attempts to hide assets. That’s not the impression you want to make.
A good rule of thumb is to imagine yourself explaining the plans for asset protection to a friend. If you find that the process you’re discussing takes on too many layers or is hard to articulate, take that as a sign to simplify your strategy.
3. Don’t Assume That Bankruptcy Will Protect Your Assets
There was a time when bankruptcy, primarily Chapter 7, provided the best possible way to deal with debt that could no longer be managed. Given the changes made in US bankruptcy laws in 2005, the odds of surrendering more of your assets to settle judgments are higher than before. If you’re a U.S. citizen, it’s conceivable that you would end up with only a few assets that the court would deem exempt from this type of action.
For this reason, it’s helpful to identify ways to tuck away assets, so they are not subject to current bankruptcy laws. They are still not hidden assets, but the bankruptcy court will not be in a position to touch them.
4. Asset Protection Complements Insurance, Not Replaces It
The fact that you’re creating a plan to protect your assets doesn’t mean the need for insurance goes away. In fact, you want to review your insurance plans regularly and see if they need to be increased. Doing so minimizes the potential need to draw on your assets to settle a debt that an insurance policy would otherwise cover.
What type of policies do you want to keep in force? Health insurance is one example. Long-term care coverage is another. A whole life policy that accrues cash value is a good idea for many individuals. If you are a business owner or a professional in certain fields, business liability coverage also helps to protect your assets.
5. Asset Protection and Estate Planning
In like manner, plans to protect assets are no substitute for coming up with a viable approach to estate planning. The latter is focused on what is to be done with your assets after you die. By contrast, asset protection aims to make sure you retain at least a portion of your wealth while still alive.
Effective estate planning goes beyond having a last will and testament. It also means a living will, various powers of attorney, and other legal preparations. Even as you continue to look for ways to protect your assets, maintain an up-to-date plan for your estate.
6. Don’t Mix Business and Personal Assets
However you decide to structure the plan for asset protection, be careful about what assets end up where. A cardinal rule is never to place personal and business assets in the same account. You can even use the same type of account for each; you simply should not mix the funds.
Make clear which assets are yours and which ones belong to your company. Should you face a financial threat or judgment, it may be possible to go after company or personal assets, but not both of them.
7. House Assets in More Than Account Type
No rule says all of your assets must be maintained in the same type of account. For example, you could choose to keep some in low-risk investments like certificates of deposit. Other funds could be placed in a revocable or irrevocable trust. You might even find it helpful to explore options like setting up a family corporation.
Opting to spread assets among several accounts, especially ones that can only be accessed under certain circumstances, does offer a degree of protection. If something catastrophic happened to one of those accounts, the others would remain intact.
8. Share Control of Assets
With many of your asset protection strategies, it helps if you do not have sole control over the accounts. Doing so makes it harder for anyone to make the case that you’ve only moved money away for disassociation purposes. Such an allegation could further complicate a critical legal situation if one occurred.
A trust is an excellent example of how to share control. The administrator handles most of the account management on your behalf. While you retain some control, it’s only exercised under specific conditions. This helps protect those assets in more than one scenario.
9. Move Some Assets Offshore
Without a doubt, having offshore accounts should be part of your asset protection planning. Offshore banks offer a range of options, including checking, savings, time deposit accounts, and more. You can access these accounts anytime, and this can be particularly helpful if there are emergencies that might arise you’re your asset accounts in your home country.
You can further increase the effectiveness of employing trusts by opening one or more offshore trust accounts. Even with some courts ordering defendants to bring money back into the country of origin to settle judgments, assets in offshore trusts can be impossible to reach.
10. Regularly Review Your Asset Protection Strategy
Your efforts toward asset protection should be reviewed regularly. As time passes, laws may change. The same is true for your personal circumstances. It may become advantageous to adjust your planning to better use new approaches or enhance what is already in place.
Don’t hesitate to seek professional advice when deciding how to protect your assets. There may be approaches that you have not heard of before or that were not available when you first began to make these plans.
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For more information, contact us and make plans to discuss how to find the ideal settings for your assets.
Luigi Wewege is President of award-winning Caye International Bank, headquartered in Belize, Central America. He is the author of The Digital Banking Revolution, now in its third edition, and has co-authored economic research presented before the United States Congress. He also serves as an Instructor at the FinTech School in California and as an Advisory Board Member of Fort Kobbe International Vaults in Panama. He holds an Italian MBA from the MIB Trieste School of Management with a major in International Business and a BSBA with a triple major in Finance, International Business, and Management from the University of Missouri-St. Louis.