6 Ways to Protect Your Wealth and Financial Assets

Maybe you (and perhaps your spouse/partner) have worked long and hard to build a sizeable nest egg to live your golden years. Or perhaps you came into an unexpected windfall (lottery, inheritance, severance pay) and are now officially "wealthy". Regardless of how you made your fortune, it's always advisable to take steps to protect it.

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Here are 6 ways that you can use to shield your wealth from possible or unexpected threats. While not all of them might be applicable to every wealth holder's circumstances, many of them are quite generic in their application.

  1. Ensure you're insured: Wealth often attracts attention, and sometimes it is of the kind that you can do without. Unjust demands from no-do-gooders, lawsuits and frivolous court proceedings are all likely to be the new reality for you. One of the first principles of wealth protection is to make sure you have adequate and appropriate insurance.

Increase your personal liability insurance through an umbrella policy that is worth at least what your net worth is equal to.  

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  1. United you may fall: If you are single and wealthy, this one may not appeal to you. However, for high net worth couples with joint accounts, having co-mingled assets puts half of your wealth at risk. In the event of turbulence in a relationship (i.e., a divorce), and depending upon local/state regulations, half of your assets could be claimed by your spouse – even though they may not have contributed significantly towards building it.

While this may not be a huge risk in most relationships, where the primary earner of the wealth has other dependants (such as infirm/elderly parents or children from prior relationships) who need a share of the pie, such a situation could pose a serious problem.

Consider holding assets in separate/sheltered accounts.

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  1. Cooperation with Corporations: There may be situations where you, as a high net worth individual, also own a small business. Though your business could be a major source for contributing to your wealth, believe it or not, it can also be a huge threat to your fortunes. Corporate structures like "Partnerships" for instance could mean your personal wealth is on the line for any adverse business decisions/actions taken/carried out by any of the partners in the venture.

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"Corporations" or "Limited Liability Companies (LLCs) are a great way for wealthy business owners to ensure their personal wealth is insulated from business-related liabilities. Through such structures, creditors can only claim redress to the tune of what the company is worth, and nothing more.

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  1. Death and Taxes: These two phases in life generally come with lots of uncertainties and confusion, especially in their immediate aftermath.

    Depending on your age and your spouse's age, some forward planning could also make for putting tax smart strategies in place when rolling over a deceased spouses IRA into yours, especially when it comes to Minimum Required Distributions (MRDs). 

    Something else to keep in mind is that poor record maintenance – for instance not updating the beneficiary information on IRAs, 403(b) and 401(k) accounts – could lead you to lose the wealth accumulated in your deceased spouses' accounts.

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From a tax perspective, wealth protection strategies in the event of a divorce can also be employed to shield more of your fortune from being lost to decisions made by the legal system.

For instance, a Qualified Domestic Relations Order (QDRO) can be created to ensure retirement assets are split in a tax efficient manner in the event of a divorce.

  1. Protection through Diversity: Although this is one of the simplest of wealth protection strategies, yet it is probably one of the most overlooked. Quite often, especially in the early stages of wealth building, you might invest in a certain asset class (Real estate, Precious Metals) only to see high double-digit or even triple-digit gains. This leads to complacency, and you continue to divert all of your wealth into those classes ("Why mess with a good thing!").

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That is a huge mistake! Diversity in investments is the surest way to ensure your wealth stays protected, not necessarily only in the short run, but also for the long term.

  1. Professional Advice: Too often high net-worth people are too busy creating wealth to also spare the time protecting it. Paying now for the right professional advice can save you a lot of time, expense and stress in your later years when it's time for you to enjoy your wealth. Investment Planning, Tax Planning, Retirement Planning, Succession Planning and Estate Planning are some of the areas where professionals can literally be worth their advice!

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Reaping the benefits

While building wealth for most people takes a long time, everything you've worked for and built over time can quickly erode if left unprotected. Alternately, even "protected" wealth can mysteriously evaporate if it is improperly invested. Using the 6 simple steps recommended above, high net worth individuals and families can more carefully protect their wealth and make it last longer for them to enjoy.  

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