Part 3, Prosperity Asset Protection
- September 9, 2016
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Asset protection is essential to prosperity. There is no one-size fits all strategy. There is no silver bullet which can kill all creditor beasts. Change in the law and policy is inevitable. Circumstances change even more rapidly so asset protection strategies will differ based on need, asset values, cash flows, and the asset environment. Regardless of the strategy, asset protection always starts with risk assessment (liability, taxes, etc.). Then we generally help clients with a plan of action in each of three areas: (1) common sense approaches (for risks we understand) (2) identifying the right insurance protection (for risks we do not anticipate) and (3) structural asset planning (to help defend against risks that 1 and 2 cannot handle). There are also more advanced strategies available. How should we protect prosperity assets?
Remember, prosperity assets generate consistent income. Thus, asset protection for a prosperity asset should start with planning for the largest risks to the income stream. If a family’s sole income stream comes from wages, long-term disability and death are the major threats. Responsible activity and having adequate insurance protection (like life insurance the fits) to replace the income stream is critical to asset protection. Structurally, the stability of the family hangs on a single asset, so developing new income streams, like interest earned from savings/investments or a new business activity, should also be considered. This is called asset diversification.
If the prosperity asset is real estate which produces income from rents, the biggest threats are asset waste (bad tenants), destruction (floods & fire), and asset capitalization. Asset protection strategies include: proper vetting of renters, property insurance on the asset, and carrying enough capital on hand to survive tenant transitions. Structurally, isolating the rental property from other assets by placing the asset into an enterprise with limited liability protection may also be a very good idea.
Here is the take-away summary for the series, (1) Develop Prosperity Assets, (2) Efficiency is the key to Preserve Prosperity Assets, and (3) Protect Prosperity Assets from loss and serious damage with comprehensive planning.
Thanks for reading!