Many people think asset protection is only a function of estate planning and since that is a “death” topic, it often gets low priority on the financial planning to-do-list. Unfortunately, many financial planners and insurance agents are using “estate planning” as a “sales system” to make commissions and fees. In fact, most people get so overwhelmed by the barrage of financial advertisements and advice of so-called “gurus” that they just give up. A lot of people end up buying a mixed bag of products that have little or nothing to do with their financial objectives.
There are several tools that you have at your disposal for dealing with the destructive forces that attack your net worth. However, just like using any tool, you should be familiar with how it works and what it is supposed to fix. Using the wrong tool to fix the problem (if a problem even exists) usually means disaster.
For example, permanent life insurance and annuities are powerful tools that should be used in almost every financial plan but they MUST be coordinated with other assets that you own and orchestrated with successful financial strategies that keep your money out of harm’s way. In other words, to be efficient, you must integrate the right financial or legal tool with strategies that fit your lifetime goals.
Your main objective should be to grow your assets and protect them at the same time. In medieval times, the wealthy people built castles and they also built a moat to protect against destructive forces. You can do the same thing!
Today, you must protect your assets from destructive forces like taxes, inflation, stock market and interest rate declines, lawsuits and creditors, probate and inheritance taxes, and financial product fees and expenses. Furthermore, loan interest, lost opportunity costs, and long-term care expenses can create havoc with your financial plan.
Income protection works hand-in-hand with asset protection. You should also have multiple income sources so that if any one source falters, you have an alternative income stream to take its place. In retirement, your investments must produce income that rises in proportion to the rate at which living costs rise, thereby sustaining your lifestyle and enabling your ability to maintain your dignity and independence – the two most important things in life as we grow older.
A good financial advisor should be aware of your lifetime goals and always take a thorough inventory of your assets and income sources to help determine if there are any potential problems that might cause you harm. Once that is done, you can begin to work on any deficiencies and choose the right tools for the job.
Unfortunately, too many people are learning far too late that asset protection planning is a critical part of financial planning, not something that can be done as a quick or temporary fix. Also, this type of planning is not typically included in the fees you pay for someone to manage your investment portfolio and therefore, usually gets ignored.
The primary focus of proper financial planning is to create multiple options that can give you “choices” for the most advantageous use of your money based on the circumstances at the time you need it or ultimately transfer it to your heirs. Where you are in life and where you want to be in the future ultimately dictate the money decisions you should make.
So, before you pay your financial advisor another dollar or purchase another financial product, make sure that you have a solid asset protection strategy in place and THEN put in place the tools that best fit into that strategy.