Building a sizable estate is a difficult task, and an accomplishment that you can be proud of. Unfortunately, if you have significant assets, you're also at greater risk for a lawsuit or other action that can decimate those assets. It's easy to be so focused on acquiring wealth and assets that you forget to think about strategies that you can use to protect those assets. This is especially true if you come into wealth suddenly – for example, if you inherit property or a windfall, or if your business or investments take off overnight. If you find yourself with unprotected wealth, it's important to start planning ways to protect it as soon as possible. Take a look at some useful asset protection strategies that will help you safeguard your wealth for your and your family's future.
Minimize Joint Accounts
Joint bank accounts can be useful. You may share an account with a roommate for household bills or expensive, or with a family member for shared expenses, like taking care of an elderly relative. However, when you put money into a joint account, you should know that you're vulnerable in the event of any judgement not just against you, but against the other person or people named on the account. For example, if you have a joint account with your sibling, and your sibling gets divorced, owes back taxes, or is sued, the money in that joint account could be taken to pay a judgement, even if some of it is yours.
You don't necessarily have to close all joint accounts – keeping them may be practical – but you should review any joint accounts that you have and make sure that they're still necessary. If they are still necessary, only add the minimum amount of money that you need to add to it. Don't use it to store sizeable sums of your personal cash. A good strategy is to keep just enough in the account to keep it open, and only transfer more into it when you need to make a payment with that account.
Formalize Your Business
Watching your business take off can be one of the most satisfying experiences in the world, but it also opens you up to brand-new avenues of liability. Liability is simply part of the cost of doing business, and if you're running a successful business, you probably know that you need to have insurance to protect yourself against liability claims. What you may not know is that if you're running your business as a sole proprietor or as a partnership, your personal funds as well as your business funds might be at risk.
A sole proprietor is personally liable for the actions of the business and all of its debts. In a partnership, each partner is personally liable for the actions of all of the partners and the debts of the partnership. Even if it wasn't your individual action that led to debt or a judgement, you're still personally responsible, which means that the judgement can go beyond the business assets and into your personal assets.
The solution is to formalize your business. Make it an LLC or a corporation. Which is right for you depends on the specifics of your business and your tax situation, but from an asset protection perspective, either is better than a sole proprietorship or partnership because they both separate your personal assets from the business's assets in most circumstances. It's fine to function as a sole proprietor or as a partnership when you're first starting out and on a shoestring budget, but as you begin to build personal wealth and achieve business success, it's important to separate your personal assets from the business.
Invest in Umbrella Insurance
Umbrella insurance is a type of insurance meant to protect you from judgements that go beyond your homeowner's or auto insurance. When you don't have substantial assets, you don't need to worry as much about it – there isn't much use in suing someone who doesn't have much money for more than their insurance will pay, because the plaintiff will have a hard time collecting the money. However, when you do have a substantial amount of money, you're at risk of being slapped with a larger judgement. That's when umbrella insurance kicks in.
Umbrella insurance covers you when you're being sued for things like bodily injury, property damage, slander or libel, false arrest, malicious prosecution, and mental anguish. It's usually very affordable. An umbrella policy that covers $1 million in damages costs between $150 and $300 a year, and each additional million after the first costs around $100 to $125 each year. Experts recommend carrying at least $2 million in umbrella insurance.
Once you've amassed a significant amount of assets, you can ensure that your family and heirs will have a great future – but only if you can hold onto those assets. Good asset protection advice and strategies will help you do just that.Share