If you are a real estate investor, you need to cover your assets. If you own a business, you need to cover your assets. If you own a home, you need to cover your assets. Let's face it folks, if you have some money and assets saved up, you need protection.
Asset Protection is not just for the super rich!
Many of us view asset protection as the playground of the super rich. In reality, we should emulate the super rich use the same tools and strategies they use to not only create wealth, but to keep it as well.
Here are a few tips to get you started…..
Keep a low profile. Though it is not something we like to think about, the good old USA is one of the most litigious countries in the world, and people file frivolous lawsuits every day. A flashy lifestyle is like chum in the water to lawsuit-happy lawyers and litigants. If people think you are “asset rich,” your chance of being sued skyrockets. However, they are less likely to file a lawsuit against you if they don't think you have the money to pay a settlement. One way to lower your profile is to not title your assets directly in your own name. Instead, use trusts, limited liability companies, family foundations, or other asset holding entities.
Separate your assets. Although it is unfortunate, lawsuits are a reality and effective asset protection has to address the potential fallout of these lawsuits. Whether it’s a rental property, a restaurant, or something else, segregate your risk. Consider creating a separate corporate or limited liability entity for each liability generating asset or group of assets.
For example, if you own several income producing rental properties, you should consider separating the properties into two or more limited liability companies and form yet another entity as the commercial operation for property management. If you own a portfolio of liquid investments like stocks, bonds, options, or commodities, you should hold them in their own entity.
Also, never mix liability generating assets. For example, an apartment house should not be owned by the same entity that owns a restaurant.
By separating your assets, you limit your risk to only the one entity.
Avoid general partnerships. In this form of business, you’re personally liable for all debts or other business liabilities the partnership incurs. General partnerships allow each partner a great deal of authority over one another. If you are in a general partnership, your partner can make major decisions and agreements on behalf of the partnership without consulting you, regardless of what your partnership agreement may state. Any general partner can commit the partnership (and hence every other general partner) to any legal contract (like taking out a loan). Although you were not there when the deal was made, as a general partner you will be responsible. In today’s litigious society, it’s a high-risk way of doing business. Don't do it!!
Properly insure yourself against loss. No matter how confident you feel about your asset protection plan, good insurance is an absolute necessity, from car insurance to your homeowners' policy and everything in between. Under-insuring leaves you and your assets at risk.
Consider Uncle Sam. Nothing can shrink your assets faster or have a greater impact on your wealth accumulation than the dreaded income tax. The entities you select to hold your assets should provide not only liability protection, but also tax protection. ‘Nuf said.
Get good advice. No one achieves great wealth on their own. While you may be incredibly intelligent at your business, be it real estate or some other enterprise, chances are you have some knowledge deficiencies regarding business structure, asset protection and tax strategy. Work with carefully vetted bankers, investment advisors, financial experts, and legal professionals as you create a comprehensive estate, business and tax plan that protects your assets.
And finally, Act now! Don’t wait until you are already at risk before you begin the planning process. If you have been served with a lawsuit, it is likely already too late. The old saying “those who fail to plan, plan to fail” is never more appropriate than when applied to asset protection. So get up off your assets and Act now!!
If you have questions about YOUR asset protection plan, leave a comment below, shoot me an email (email@example.com), tweet me (@resherpa) or…just use the contact form here on the blog. I'd love to hear from ya.
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