Asset Protection 101: 10 Key Steps To Protect Your Wealth And Assets

In times of economic uncertainty, asset protection is more important than ever. While everyone these days would love to have a crystal ball to see what the future holds, you can’t protect the assets you have now by guessing or hoping for the best.

Fortunately, there are some tried-and-true strategies for limiting your financial risk — at least, for those key assets like your real estate holdings, savings, and investments. Let’s delve into some of the best tactics for protecting your wealth through both sunny and stormy economic environments.

What is Asset Protection?

Asset protection is the strategic planning to safeguard one’s assets from potential creditors and legal disputes. In today’s unpredictable financial landscape, having a robust asset protection plan is crucial for preserving your wealth and ensuring financial security for you and your family.

Understanding Risks in Wealth and Assets

Every individual’s situation is unique, with different levels of exposure to risk. Identifying potential legal and financial threats is the first step toward effective asset protection. Understand the specific risks associated with your assets, profession, and lifestyle to tailor your protection strategy accordingly.

1. Don’t Talk About Money

Flaunting what you have isn’t just in poor taste — pun intended — it’s simply not safe in today’s world. Both personal and business liability are increased when you’re a bigger target; in other words, others might be more willing to pursue legal action against you if they perceive you to be wealthy.

It’s not just an issue for business owners. High-ranking business professionals and even run-of-the-mill managers can be subject to lawsuits, and your company may not protect you fully.

There are many other reasons to blend in when it comes to your financial status, but keeping yourself from being a target to go after is vital to protecting the assets you have.

2. Make Insurance a Priority

No one likes to spend on insurance policies that may never pay off, but they can bring invaluable peace of mind if you have wealth to protect. Insurance is a fundamental tool in asset protection. It can shield you from significant financial loss due to unforeseen events.

Even if you’ve done everything you can to minimize your liability, unexpected circumstances can ruin all that you’ve worked hard for if you haven’t got the right insurance in place. Many otherwise financially savvy people fall prey to insurance myths that mean you don’t have what you need to protect your home, your business, and your assets.

An umbrella coverage is a great place to start for shielding your wealth from lawsuits. The umbrella policy guards against being on the hook for amounts larger than your homeowners or auto policies will cover. It’s like an extra layer of protection that won’t set you back a large amount. Start with a rider on your homeowners policy that covers your net worth.

3. Divide Your Business and Personal Interests

If you’re sued due to a business concern and you don’t have all the i’s dotted and t’s crossed to keep your business and personal finances separate, you’re risking much more than you need to be. Utilize at least one business entity, like a limited liability company or corporation, to encompass all your professional dealings and prevent attacks on your personal wealth.

You may still be able to take advantage of certain tax benefits where you can offset business losses on your personal tax return, depending on how you have set up your business entity. Talk to a qualified tax professional to understand the pros and cons of different types of business structures for your situation.

Once you have your separate business entity established, take care to maintain that separation between your corporate and personal finances. Have separate bank accounts, insurance and company documents, and be sure to adhere to corporate requirements like holding annual meetings. This keeps someone from making a legal argument that your business and personal assets are not separate and therefore, should be fair game in a lawsuit.

4. Put Your Money Where It Can’t Be Touched

There are some methods for shielding your assets so they can’t be tapped into via a legal settlement or bankruptcy. First and foremost, you should be putting money into ERISA-qualified retirement plans, which allow unlimited asset protection in case of bankruptcy. Even IRAs can protect up to $1 million in assets.

You might also consider certain types of trusts as ways to protect assets. A revocable trust — while it helps your heirs avoid probate — isn’t the best option for protecting your wealth during your lifetime. Irrevocable trusts are more airtight, but you do give up control over how the assets are distributed. Your financial planner can help you determine if a trust is a good option for your needs.

5. Look Into Strategies Utilized by the Very Wealthy

You may not have billions of dollars in net worth, but you can use some strategies that billionaires do to protect their wealth. These could include setting up an offshore trust that isn’t susceptible to domestic creditors or using equity stripping to put the bank between your assets and any creditors in the future.

You may also be able to transfer assets into a spouse’s name or gift them to others if you believe that you’re at increased risk due to business or personal obligations.

6. Hire the Right People to Help You Manage Your Finances

You can’t do everything alone. Find competent and trustworthy wealth management professionals to serve you in legal matters, financial planning and tax preparation. Start small when you first begin to work with a new pro and make sure they’re acting in your best interests.

Of course, if you have a problem arise, like a lawsuit or tax case, you’ll need additional help such as a tax litigation and defense attorney. Don’t hesitate to spend money on the right people to help you avoid strict penalties, both financial and otherwise.

7. Don’t Make Foolish Mistakes

If you don’t fully understand an asset protection option, especially the more advanced ones, don’t utilize it. Setting up these specialized accounts or trusts can backfire if they’re not structured the right way, and your money could still be at risk. Your team should be willing and able to answer your questions about any new asset protection strategy and help you become familiar with the pros and cons of each option.

You’ll also want to be sure your taxes are paid on time and in full. Mistakes happen, but you could be on the hook for negligence or even tax fraud if you don’t correct problems right away with the help of a knowledgeable tax professional.

8. Establish an Emergency Fund

An emergency fund is your financial safety net. Aim to save at least 3-6 months’ worth of living expenses. This fund ensures liquidity and accessibility, helping you cover unexpected costs without tapping into other assets that may be less liquid or have legal protections in place.

9. Utilize Trusts for Asset Protection

Trusts are versatile legal instruments that can provide substantial protection for your assets. By placing assets in a trust, you can shield them from creditors and legal judgments, ensuring that your wealth is preserved for future generations. Consider different types of trusts, such as revocable and irrevocable trusts, based on your protection needs and estate planning goals.

10. Invest in Retirement Accounts

Retirement accounts like 401(k)s and IRAs offer tax advantages and legal protection from creditors in many jurisdictions. Maximizing contributions to these accounts can be a strategic part of your asset protection plan, safeguarding your long-term savings and ensuring financial stability in retirement.

Offshore Accounts: Pros and Cons

Offshore accounts can provide asset protection and privacy benefits. However, they come with complexities, such as compliance with international laws and potential scrutiny from tax authorities. Weigh the advantages against the risks and costs involved, and consider consulting with a financial advisor or legal expert.
Conclusion

If you have questions about asset management and how that relates to your tax bill, or if you would like to know more about protecting your assets with various legal and tax strategies, give the professionals at Silver Tax Group a call or contact us today.