Shielding Your Wealth: 3 Tips to Protect Assets From Creditors
Whether you’re a business owner or a provider for your family, protecting your most important assets from creditors has to be at the top of your mind. Unfortunately, most people don’t give it much attention until it’s too late.
Understanding Asset Protection
Everyone wants to talk about accumulating wealth. And while, yes, acquiring wealth is the first step in the equation, it’s not the only step. Once you have wealth, you should be focused on two things: (1) growing that wealth and (2) protecting that wealth.
Growth is the area where most people spend 90 percent of their energy and effort. But wealth protection – also known as asset protection – deserves a lot more than 10 percent of the focus.
Asset protection is an important core pillar of financial planning. It’s about safeguarding your wealth from threats like lawsuits, bankruptcy, creditor claims, and divorce proceedings. The goal is to build an impenetrable shield around your assets so they remain intact – even in the face of adversity.
When appropriately integrated into your financial planning, asset protection becomes a key component in maintaining your long-term financial stability. It helps preserve the fruits of your hard work, ensuring your wealth continues to serve your goals, whether it’s financing your children’s education, expanding your business, or planning your retirement.
Failing to pay attention to asset protection can leave you with a leaky bucket that gets drained totally dry when calamity strikes. Contrary to popular belief, asset protection is not about hiding assets or evading debt. It’s about pragmatically structuring your assets so that it’s difficult for your wealth to be seized in challenging times.
3 Tips for Protecting Your Assets
There are dozens of legal methods for protecting your assets. The exact ones you use will heavily depend on your own unique circumstances, assets, location, and risk tolerance. With that being said, here are a few general tips:
1. Embrace the Power of Trusts
Trusts are legal entities that hold assets for the benefit of specific individuals or organizations. They act as an effective method for asset protection by placing your wealth outside the direct reach of creditors. It’s like building a massive wall with a moat around your assets.
There are a number of types of trusts. Each serves a distinct purpose and has its own set of advantages and disadvantages. While we don’t have the space to go through every single type of trust in this article, you should know that offshore trusts are very attractive.
As trust attorney Gideon Alper explains, “U.S. private creditors very rarely have the resources or desire to chase a judgment debtor’s assets outside of U.S. jurisdiction. Very few collection attorneys even know how to begin to initiate collection proceedings against assets located offshore.”
Offshore trusts are also very difficult for the general public to search, meaning the beneficiary remains extremely private. This makes it great for situations where you want information about assets to remain behind closed doors.
2. Set Up LLCs for Businesses
A Limited Liability Corporation, also known as an LLC, is one of the best tools for keeping your personal assets and business assets separate. (It’s not the only one, but it’s one of the most convenient options.)
With an LLC, you ensure someone who sues your business can’t also come after your personal assets (such as your home, car, vacation homes, mutual funds, retirement accounts, etc.) It basically limits the liability to the individual company’s assets.
3. Leverage Insurance Where Needed
Finally, one of the simplest things you can do is put the proper insurance policies in place to protect individual assets from facing unnecessary levels of risk in certain situations. This includes all of the basic policies like homeowner’s insurance, auto insurance, umbrella insurance, and professional liability insurance.
Find an insurance professional who can help you get set up with all of the right protection methods for your biggest assets.
Adding it All Up
Asset protection is just one leg of the “stool.” It’s something that commands equal respect in terms of earning wealth and growing wealth. When you’re able to earn, grow, and protect what you have, you become an unstoppable force in the pursuit of wealth building.
Use this article as a jolt of motivation to get your asset protection measures in place.