Whether you are earning and working toward your financial goals or have already amassed significant wealth, protecting your assets is an essential element of your overall financial plan. This includes developing a savings plan, investment diversification and adequate insurance coverage.
With rising interest rates, uncertainty in markets and inflation, it’s more important than ever to have a family wealth-preservation strategy in place. Here are six key strategies to consider.
Asset Protection
If you have significant wealth, it’s important to protect your wealth against the possibility of lawsuits, bankruptcy and divorce. Even a single claim can wipe out decades of hard work, savings and investment. Fortunately, there are effective strategies available to shield your personal assets from creditors and other threats.
Asset protection planning involves legally insuring your personal and business assets against claims, seizure and burdensome taxes. It requires a thorough knowledge of state and federal exemption laws, comparative taxation, international law and the laws of trusts, estates, corporations and other legal entities. It must also be implemented without engaging in illegal practices such as concealment, sham transactions or fraudulent transfer. Thankfully, experienced financial professionals can guide you to an affordable solution. It’s best to start as soon as possible.
Trusts
Trusts are a complex legal arrangement that require careful consideration, planning and expertise. They can be used to reduce estate taxes, responsibly gift assets to family, support philanthropic initiatives and protect wealth from external threats.
We can help you select the right trust strategy for your needs and goals. Depending on your objectives, we may recommend domestic or foreign asset protection trusts (APTs).
A APT is an estate planning tool that can shield assets from creditors, lawsuits and divorce claims. It’s typically more expensive to establish and maintain than a revocable living trust, but it can provide stronger protection for high-net-worth individuals and families. It can also be used to help avoid probate, which can be lengthy and costly. It can even help lower capital gains tax by “freezing” the assets in the trust.
Retirement Accounts
Many people save money in tax-advantaged retirement accounts such as traditional and Roth IRAs, myRA, SEP IRAs, SIMPLE IRAs and 403(b) plans. In addition, individuals may be able to take advantage of state laws that protect certain assets from lawsuits.
Investments in these accounts can be a big part of an individual’s wealth. To help preserve these investments, good asset allocation is critical.
This involves dividing investments into buckets based on their potential return, their risk and one’s financial situation. It can help minimize losses from unforeseen events and reduce the risk of prematurely depleting retirement savings.
Cybercrime and Identity Theft Insurance
Many high-net-worth individuals and executives have a digital footprint that includes personal and corporate accounts. Monitoring these accounts can help limit the damage a cybercriminal could do to your estate or finances.
Identity theft can lead to additional charges on your credit card, unauthorized loans and damage to your credit score. Having identity theft insurance can help you recover from the impact of this crime.
It typically reimburses you for expenses you incur as a result of a data breach or cyber attack, such as credit report fees and the cost to replace documents. You can purchase it as an add-on to your homeowners or renters policy, through a cybersecurity company or as part of a plan that includes other services, such as credit monitoring.
Strategic Asset Location
Asset location is a process that determines which type of account to hold different investment assets in to maximize after-tax returns. It takes into consideration the tax treatment of each account type, investment holding periods, and current and prevailing tax laws.
The first step in the process is determining a household asset allocation based on risk tolerances and financial goals. From there, the focus is on organizing a portfolio of stocks and bonds to be more tax efficient using an asset location strategy.
Implementing a strategic asset location strategy can be complex and require ongoing monitoring to ensure the desired results are achieved. Contact a financial or wealth advisor to help you plan and execute this strategy.