Asset Protection Strategies: 7 Ways to Protect the Wealth You Have Built
You have spent a lifetime building and collecting your assets. You own your home, have a decent pension and may also have other assets like rental properties, shares or trusts set up for your kids. But sometimes we are just one wrong move away from losing it all or finding ourselves much worse off than we imagined.
Here are 7 ways you can protect your assets:
1. Liability insurance
We are all potentially just one lawsuit away from losing everything. However, there are things we can do to prevent this. The simplest and best way to protect yourself is by buying liability insurance that at least matches your net worth. With insurance costing $200-300 per 1 million dollars of coverage, peace of mind is not expensive at all, and a simple umbrella policy may be all the cover you require.
Investopedia defined liability insurance as an insurance policy that protects an individual or business from the risk that they may be sued and held legally liable for something such as malpractice, injury or negligence.
If you own rental properties, set each up as its LLC or Limited Liability Company. By doing so, if a renter chooses to sue you, they can only threaten that one property. All your other assets remain secure. Should you own other businesses, also make similar precautions.
2. Disability insurance and Life insurance
It’s a hard topic to think about, but what would happen to our loved ones if we’re to pass away. Would your spouse still be able to pay the bills? Would your kids be able to afford to go to college? Or would you even be leaving them with debts to pay?
By investing in life insurance even with the worst-case scenario, your loved ones will be protected.
The same can be said about disability income protection insurance. We never know what might happen tomorrow that could prevent us from being able to work. Having disability insurance removes that worry should you have an accident or fall ill.
Have you heard of an emergency fund or rainy-day fund? It is also another great way to be ready for that unexpected event.
3. Watch your spending habits
Although this may seem like a very obvious statement, spending just a little beyond our means could quickly drain away money it has taken a lifetime to save. And it happens all too often for one reason.
When we retire, we have more free time, which means we spend more money doing the things we like and seeing the people we love. For this reason, it is vitally important to create a budget and stick to it.
A good strategy would be to use more cash as much as possible on your regular purchases. If you run out of money, then you will have to stop spending.
There are many great websites and phone apps that can help you to create a budget. Use one or two of them so you can take better control of your money.
4. Protect yourself against fraud
Two years ago, my brother had thousands of dollars stolen from his account after his debit card was cloned at a local gas station. Fortunately for him, the bank returned the money, and the police were able to catch those responsible, but sadly it is not always the case.
It took my brother around one month to report the problem to the bank because he was unaware it was happening until he got his next paper statement. Therefore, I suggest checking your account as regularly as possible, every day if you can. Any suspicious transactions can then be immediately discovered and make sure the bank is informed as soon as possible. This will give fraudsters very little time to steal your money or rack up debt.
However, what can you do to prevent this from happening at all? It may seem obvious but never share your bank details or passwords with anyone. This also means never letting your debit or credit cards out of your site (this is what happened to my brother).
Most banks now have very secure systems for entering your bank account online, that include different forms and layers of protection. However, these can be quickly undone if you access your accounts via an open or public WiFi network.
The most secure place to access your internet bank is at home using your password protected WiFi.
5. Investment strategies
We think that any money we put in the bank will always earn us a little bit more in interest. Although this is true, if our rate of interest plus tax is below that of inflation our savings are getting smaller each year. Inflation at the moment stands at around 2%; this means a basic-rate taxpayer needs to earn 2.5% in interest for their money to be worth the same one year on.
However with bank interest rates so low, what other things can you invest in that may have a higher yield or return:
- Real Estate has always been seen as quite a safe investment because even if there is a crash, over the long term a property will still increase in value, generally beyond the level of inflation. Additionally, you also can generate income by renting the property out.
- The Stock Market is seen as very risky by many; however, the fact that the top 10% of earners in the US own 84% of all stocks shows how profitable it can be.
- Gold is seen as the ultimate safe place to put your money even during economic downturns. Other precious metals like silver and platinum are also seen as quite safe places to put your money.
- Antiques and collectibles are seen as another great way to make money on your investment, but you need to know what you are doing. For example, Getty never paid more than $1 million for a piece of art, but his collection is now worth billions.
6. Where to keep your money
As I mentioned above standard US-based savings accounts may not provide you with enough interest to maintain their value; however, an offshore bank account may be able to provide you with this due to fewer regulations, tax obligations, and higher interest rates. Make sure that you do your due diligence on this matter first.
When talking about tax obligations the best place to put your money (should you have a lot of it) if you want to give it to your kids is in trust. In turn, if you fall into financial trouble creditors cannot take money from a trust set up for your children. There are many types of trust, I would suggest that you talk to your financial advisor first or an estate planning Attorney to see which one is best for your situation.
7. Make a will
The last thing we want when we die is for our hard earned assets not to go to the people we want them to or to be eaten up as part of a bitter legal battle.
Your living will is, therefore, your chance to tell everybody that you care about what you can do for them in the future.
You will tell them about your insurance, should your death have been untimely. You will tell them about all the assets you have along with any trusts you may have set up. And last but not least who will receive what.
All the asset protection strategies I have given you were to help protect your wealth during your lifetime. But this is not a complete list. You will have to talk to your financial advisor to find the best strategy for you.
Your will (along with any trusts) indicate how you would like that money to be protected or shared with others when you are no longer around. For that reason, it is, therefore, the most crucial step of all.