Asset management becomes more challenging as your net worth rises. Indeed, the wealthier you are, the more likely predators and creditors are to target your hard-earned financial resources.
Unfortunately, it can be expensive to overlook taking the necessary safety measures.
According to a Chubb poll, 10% of high-net-worth respondents had been required to pay at least $100,000 in legal judgments due to improper planning in many instances.
So, as you amass wealth, you must also be careful to protect it.
Here are some asset protection strategies that can help you secure your wealth.
What is asset protection?
Asset protection is a set of tactics and planning methods. The primary purpose of these methods is to conceal a person’s or a company’s assets from court orders, seizures, taxes, claims from creditors, and unwelcome beneficiaries like ex-spouses.
Its strategies include trusts, LLCs, umbrella insurance, and prenuptial agreements.
In the same way, Title Insurance Coverage is another important component of the asset protection plan. It specifically focused on protecting property ownership rights.
Protecting your assets is necessary if you work in a high-risk industry or own expensive possessions.
Most of these tactics transfer assets into a different organization, and many of them also serve as estate planning tools.
Asset Protection Strategies
Umbrella Insurance
Umbrella insurance is a liability insurance that provides additional coverage beyond standard policies, such as auto or homeowners insurance. It offers affordability and high levels of protection, typically starting at $1 million, for hard-earned investments.
It can also be used in estate planning to protect assets from potential claims before death. Premiums for personal coverage are generally not tax-deductible, but payouts are tax-free.
However, individual umbrella policies may not cover certain claims, such as those related to business activities or intentional acts.
For business activities, a separate umbrella policy is needed, deductible as a business expense.
Moreover, this tactic is essential for protected LLCs or corporations and for sole proprietorships to protect personal savings and investments from risks arising from ongoing business operations.
When adding umbrella insurance, it is important to increase underlying insurance coverage to keep a minimum level of coverage.
Life Insurance
Life insurance provides a financial safety net for loved ones during death, covering funeral costs, outstanding debts, and ongoing living expenses. There are two main types:
- Term life
It is less expensive and provides coverage for a specified period
- permanent life insurance
It covers the entire life and includes a cash value component.
This strategy can provide income tax-free death benefits, help with estate planning, equalize inheritances, and protect proceeds from future claims.
However, premiums can vary based on age, health, and coverage. It is good to consult with personal financial planners, CPAs, business attorneys, and estate planning attorneys for guidance on life insurance planning.
Qualified Retirement Accounts
A qualified retirement account, such as an IRA or 401(k), is more than just a necessary tool for safeguarding your finances. They also offer special advantages for asset protection.
You can delay paying taxes and possibly increase your investment returns over time by carefully allocating assets in these accounts. This can greatly increase your wealth and give you a safety net for retirement.
Finally, these strategies vary from case to case. So, consulting with an insurance agency is the best way to get a comprehensive asset protection plan to meet your needs.