You're doing the right things if you're working hard, saving and investing wisely. And you're looking forward to benefiting those you hold near and dear: yourself, your spouse, your children, your family, your employees, your business clients, your neighbors, the IRS.
What? You don't want to benefit all those folks? Of course not. But without a comprehensive financial plan, one that incorporates asset protection considerations, you may unknowingly be doing the right things to benefit all the wrong people.
Accidents, lawsuits, taxes and other financial risks are simply the facts of life. Here are a few basic ways you can protect your assets aside from using insurance. Yes, insurance should be one of the first tools considered when building asset protection into your comprehensive financial plan. The cost of insurance is negligible compared to the possible cost of not having insurance.
For example, purchasing umbrella insurance for protection from personal risk and liability coverage for protection from business risk is generally an inexpensive start. However, insurance alone never provides total protection.
A is for ADVICE.
Your first step is to engage professionals. You'll need a variety: legal, tax and financial. Asset protection should not take place in a vacuum, so a multifaceted approach is necessary. Different assets are exposed to different types of risks. Depending on your specific situation, different types of risks require different types of protection be applied at different times.
For example, a "qualified disclaimer" can potentially be quite useful in minimizing the portion of your family's wealth that goes to the IRS via the estate tax. Knowing when and how much to disclaim can be very valuable advice.
B is for BUSINESS.
Your business is your own, not your neighbor's. Conversely, your personal investment account is your own, not your business creditor's. Or is it?
Your business creditors may be able to reach your personal assets and vice versa, especially if you are a sole proprietor. A partnership can be even worse, as your partner's personal creditors may be able to reach partnership assets.
Additionally, you may be personally liable for your partner's professional actions, not just your own. Choice of business type can be instrumental in providing an asset protection element to your financial plan. Certain types of business entities and insurance products not only shield business partners from the business risks discussed, but may also provide an efficient estate planning strategy.
C is for CONTRIBUTIONS.
Contribute to your employer-sponsored retirement plan. Contribute to your IRA. Your employer- sponsored retirement plan enjoys federally legislated creditor protection under ERISA. ERISA protects your accrued benefit in your employer sponsored defined benefit (pension) plan, 412(i) plan, profit sharing or 401(k) plan. IRAs find their protection under federal bankruptcy laws and under state law and are generally similarly protected.
Of course, this brief article is no substitute for a carefully crafted, comprehensive financial plan, which incorporates asset protection considerations.
So do all the right things to be certain you benefit all the right folks. And before implementing any significant financial planning strategy, contact your financial planner.
Marc P. Tomberg is branch manager at Raymond James Financial Services. His office is located in Ryanwood Square at 2140 58th Ave, Vero Beach. He may be reached by phone at (772) 778-4399.