What Should Be Included in a Financial Plan to Protect Your Assets?

A financial plan is a comprehensive strategy that outlines your current financial situation, goals, and steps to manage income, expenses, investments, and savings for future stability and growth. It is a roadmap to help you achieve financial security, protect assets, and meet life’s financial objectives.

A financial plan can be adjusted for asset protection purposes by incorporating strategies like trusts, liability insurance, and diversified investments to shield wealth from lawsuits and creditors. This tailored approach ensures that assets remain secure while still supporting long-term financial growth.

Key Elements of a Financial Plan

The main elements of a financial plan designed for asset protection are comprehensive insurance coverage, estate planning, and asset structuring.

1. Comprehensive Insurance Coverage

Having adequate liability insurance is the foundation of asset protection, providing financial protection for unforeseen losses. The main types of liability insurance are auto insurance, homeowners insurance, and umbrella policy. Professionals should also consider a professional liability insurance policy.

Carefully assess your coverage limits and ensure they align with your financial needs and potential risks.

2. Estate Planning

An estate plan ensures your assets are managed and distributed according to your wishes upon death or incapacity. Key documents include:

• Will: Specifies asset distribution and appoints guardians for minors, addressing your final wishes.
• Trusts: Enable asset transfer outside probate, reduce estate taxes, and offer privacy and protection.
• Power of Attorney: Appoints someone to manage your finances if you become incapacitated.
• Advanced Healthcare Directive: Outlines your medical preferences in case you cannot make decisions yourself.

3. Asset Structuring

You should position your assets in a way that aligns with your state’s legal protections, which can shield certain types of property from creditors.

For example, many states offer exemptions for homesteads, retirement accounts, tenancy by entireties assets, and life insurance policies, making these assets off-limits from judgment collection.

A financial plan designed for asset protection should consider how to take advantage of these exemptions while still achieving your financial goals.

Integrating Business Asset Protection Strategies

For business owners, you should separate personal and business assets. The main things to consider are:

Operating Agreements: Operating agreement drafted with asset protection provisions can minimize the risk to the business from judgments against company owners.

Limited Liability Companies: Multi-member LLCs can protect ownership of the company from personal creditors.

Insurance: General liability, professional liability, and workers’ compensation insurance provide coverage for business-related risks.

Offshore Trusts

High net-worth individuals should consider an offshore trust to best protect their assets from unexpected liability.

An offshore trust is a legal structure set up in a foreign country with strong asset protection laws, such as the Cook Islands. It is designed to hold and manage assets on behalf of beneficiaries.

An offshore trust can protect your assets by placing them outside the reach of U.S. creditors and courts, making it substantially more difficult for creditors to reach those assets.