Published July 26, 2012
Most Americans don’t consider asset protection in the normal course of living. Most of us will buy homeowners insurance to protect our homes from loss or buy car insurance to protect our cars and ourselves while driving. However we do very little about protecting our other assets. Some of which are considerable in value. In fact, most people don’t understand that they are even at risk to begin with.
For instance, many people do not realize that if they are involved in a lawsuit and lose, the prevailing party has a right to your assets in order to meet the judgment. This means your bank accounts, brokerage accounts, and even your vacation home could be at risk.
Then there are unexpected health issues like prolonged illness where your insurance coverage runs out or the insurance company refuses to cover your treatment. This can saddle you with expenses that you didn’t plan for or expect. I am sure that most of you would agree that sometimes you just don’t know what life is going to hand you.
How about every time the stock market decides to deplete your 401(k), IRA, or other retirement accounts at no fault of your own? It’s like a ride that you can't seem to get off either because exiting the market would cause you to realize a big loss or you knew no place to go with your funds to lessen the risk.
Unfortunately, many people are out there on their own with little or no help as it comes to managing many areas of their wealth. You're probably asking, “So how do I cover my assets from lawsuits?” Or, “How do I keep my retirement or investment dollars from declining in value?” I can show you shortly what can be done.
There are several legal ways to protect certain assets of your net worth that you can start doing tomorrow to defend what you have worked long and hard to achieve. The best part about it is that anyone can do this, regardless of how much money you make or what your net worth is. These techniques are readily available and require little or no money to implement.
For the most part you do not need the services of an attorney or an accountant. However, I always recommend you consult a qualified tax and/or legal professional for advice concerning your individual situation.
In some cases you might have to use the services of financial services professional for assistance. However, even if you require assistance, these services can be had at little or no cost. That is because many of the professionals will be compensated directly by the financial firms that offer the financial products that provide the protection.
So many times people feel powerless regarding their finances. The reality is just the opposite. Laws exist in most states that protect retirement accounts, homes, and other assets from creditors. For instance, in Florida where my practice is located, all retirement accounts are protected from creditors: IRAs, 403 (b)/TSA, 401 (k), 457 Plans, etc. In addition, your primary residence is protected. In some states they can place liens against your home, causing you to have to settle the outstanding obligation when you ultimately sell the property. So take the time to check to see how your state treats your primary residence and other assets as it relates to judgments and collections.
Certain trusts can also provide limited or total protection. Your individual circumstances and/or objectives will determine which trust is right for you.
Annuities and the cash values of life insurance policies as well as death benefits are also protected in most states. Make sure to check what your state dictates on limits regarding protection. If you are not familiar with how they work, these products can reduce or eliminate the risk of loss in many ways. They are usually tax-deferred in growth and life insurance provides income tax-free death benefits to beneficiaries. More importantly, if they are properly funded and structured, they could be used in a manner other than for their obvious use.
Fixed annuity contracts can meet any of the following objectives:
• Stability of your principal*
• Tax deferral of growth
• Asset protection
There are even optional provisions available that can guarantee a reasonable level of growth for income purposes. In addition, the income can remain constant or adjust upwards over time. Best of all, the income cannot be outlived. It comes to you for life. You do not lose control over your principal. You can stop or start the income stream as you wish. In the event of your death, the balance remaining in the account would be left to your beneficiary.
Utilizing this one option can provide not just security of your principal, but security of the income the money can produce. In addition, it protects your money from creditors. There are also tax management advantages and probate avoidance. Wow! All of that from just one financial product that, when properly structured, provides numerous protective advantages. (In the interest of full disclosure, remember bank accounts are FDIC insured whereas insurance products such as annuities are dependent upon the claims-paying ability of the issuing company.)
I hope that I have been able to demonstrate that you are not in a powerless position to do something about asset protection. By far, there are many other things that can be done to mitigate risk of loss. The best advice that I can offer is that you seek the assistance of a competent financial advisor who can help you assess your exposure and guide you through the process. That way you can continue sleeping well at night knowing that what you have worked long and hard to achieve will be there tomorrow.
For more information, contact Jorge Gonzalez at Synergy Financial Group at Jorge@SynergyCFP.com or visit www.SynergyCFP.com