Updated: Apr 12
If you have assets that you do not intend to spend in retirement, you have built generational wealth for your family. Your assets are any resource you own that may generate economic benefit, and passing them down to the next generation increases their chances of having financial freedom and success. However, you want to ensure having a clear plan for the generational wealth you are working so hard to build. The last thing you want is to lose it before being able to pass it down. For this reason, you want to protect your assets in case someone files a lawsuit, you face bankruptcy, creditors come to collect, etc. Most people do not consider these circumstances until they occur. Do not make the mistake of only focusing on building generational wealth and not considering protecting your assets until it’s too late.
Asset Protection Strategies
Protecting your assets is necessary for the continued success of your business because unanticipated issues can threaten its stability. Also, implementing different asset protection strategies can help ensure you keep the generational wealth you built.
Creating as many obstacles as possible for potential creditors to pass before they can get to your assets may encourage them to make favorable settlements instead of getting involved in litigation. But if you don’t protect your assets, the creditors may get to your business, real estate, cash, cars, intellectual property, life insurance, among other assets.
Below are some strategies you may implement. However, DesCPA Business Advisory does not provide legal advice. You should consult with an attorney before applying any of these asset protection strategies.
Get Umbrella Insurance Policy
An umbrella insurance policy works as an additional layer of liability protection - it protects you from claims above the standard coverage offered by other policies you may have. Simply put, if your original policy doesn’t cover a claim completely, the umbrella insurance policy covers the rest. This way, you don’t have to cover the claim with your savings or other assets. An umbrella insurance policy may also protect you against defamation, vandalism, and invasion of privacy, but not against fraudulent or negligent actions.
Choose Your Business Entity Carefully
There are tax-planning considerations when choosing your business entity, but it is not only about that. The right structure also serves to protect your assets. For example, a sole proprietorship exposes your personal assets to a lawsuit, whereas if you have an S Corp or a Limited Liability Company (LLC), you will not be held personally liable for debts or if you file your business for bankruptcy.
Set Up a Trust
There are many types of trusts, but in general terms, it is a legal entity that allows you to protect your assets and even set them aside for future generations. If you transfer your assets into a trust, they will be out of reach for most creditors.
Maintain Your Corporate Veil
You may think your assets are protected if you set up an entity. However, you must avoid creditors from piercing the corporate veil and attacking your personal assets - like your house, bank account, and investments - to hold you personally liable for your business actions and/or debts. You can prevent this from happening by avoiding intermingling your personal and business assets. Make sure to keep a separate bank account for your business and use the company name in your contracts and other documents.
When to Begin Protecting Assets
No one likes thinking of the worst-case scenarios. But failing to do so can affect you and your family negatively. It is never too early to start protecting your assets, but it might be too late if there is already a lawsuit against you. If you start protection planning by this time, the court could perceive it as fraud!
You might feel overwhelmed trying to do all these things but take one step at a time and just start.
We provided some asset protection strategy ideas, but the best one for you depends on your business's industry, owned assets, goals, risks, among other factors. Consulting a lawyer and a financial business advisor can help you develop a wealth management and protection plan tailored to you. And it is even more important if you have a significant amount of assets you hope to pass down to your children or grandchildren one day.
As a Business Advisor, Certified Public Accountant, and Certified Fraud Examiner, Lydia Desnoyers can help you protect your assets. For more information, contact us today!
Watch Put Lyd On It!™: Cover Your ASSets to learn more.
Schedule an introduction meeting with Lydia Desnoyers from DesCPA Business Advisory.