By Michael Gold, CFP®, MBA Founder & CEO – Wealth Advisor
Something you may not know about me is that I am a big history buff. I am fascinated by the sprawling historic castles that were occupied by reigning kings, queens, dukes and duchesses.
What is interesting to me is that many of these castles and surrounding lands were always heavily protected, many with moats acting as a line of defense to protect them from potential invaders. The larger the castle, the larger the moat, as there was more to protect. We can relate the idea of a “moat” as a metaphor to your personal wealth.
Think of it this way, as your assets grow, so will the need to protect them.
Here are a few critical lines of defense that can act as your own “moat” for your wealth so you can put in place and regularly evaluate:
It is very important to know the major categories of loss that could jeopardize your estate and prepare a mitigation strategy to protect against each. This is where insurance coverage comes into play.
For example, an umbrella liability policy is a must.
How much do you need? A good rule of thumb is that your coverage limits should be high enough to cover your net worth, as well as factoring in the equity in your home.
If you own a business, make sure you have adequate coverage for professional liability, errors and omissions (E&O), malpractice, key person insurance and other types of coverage specific to your line of work.
In addition, be sure you re-evaluate your life, health and long-term care insurance policies annually (at a minimum).
A 2018 report from the National Bureau of Economic Research (NBER) found that retirees were likely to incur an average of $122,000 in medical expenses after age 70.
When it comes to long-term care and preparing for the possibility of higher-than-expected medical costs later in life, you can’t start preparing, planning and protecting your wealth early enough.
Business Entity Structures and Legal Agreements
If you own rental properties or other business interests, the legal structure of each business entity can contain liabilities and gaps in one business which may put your personal assets at risk.
If you are planning to go into business with a partner, make sure to consult a business attorney to determine what type of entity structure provides the best fit. Have them help you draft a clear operating agreement to cover the major contingencies.
By putting your assets into a trust, you can create a layer of protection from potential creditors. In fact, certain types of trusts, if structured properly, can also be used to protect against estate taxes.
These types of trusts are sometimes ideal for funds you intend to pass on or gift to your children, grandchildren, other family members, charities and/or an organization.
A trust can be revocable or irrevocable and there are trade-offs to both types.
With an irrevocable trust, you cannot modify the terms after the fact, but you can define the conditions for distribution to ensure that monies are used appropriately. A revocable trust allows you more flexibility but less protection from creditors and estate taxes.
The legalities of trusts vary from state to state, but they are an essential component of estate planning.
One thing to consider when protecting your wealth is appointing an independent trustee.
Why? Think about this: if you establish a trust for your adult children and if you let them act as their own trustee – but then they were to get divorced or a legal dispute in business or an accident occurs – the assets in the trust may not be as secure as you hoped for.
It is very possible for a judge to determine “fault” and state that since they are their own trustee, they can write checks to settle claims.
With an independent trustee, this scenario does not occur and your layer of creditor protection – a.k.a. “your moat” – is more secure.
Consider the Possibility of Divorce
Regardless of whether you think there is any possibility of divorce in your future, make sure to keep good habits in place that may become essential in the event of a separation.
While keeping money in a separate bank account does not protect it during a divorce, you should still take care to avoid commingling of monies from different sources in the same bank account.
Inheritances, retirement accounts and investment accounts can potentially be divided in the event of a divorce and prenuptial agreements are not always recognized by the courts.
That is why it’s important to include an attorney as part of your financial strategy team and make sure you are aware of the laws governing the financial aspects of divorce in your state.
Update Your Will, Health Care Proxy and Power of Attorney
In the event of an accident or sudden illness in which you could become incapacitated or unconscious, someone may need to make important healthcare and financial decisions in your place.
An estate planning attorney can help you to put these documents in place, while also preparing the right people to act on your behalf should the need arise.
You should have two power-of-attorney documents: One for your finances and one for your health decisions.
They can be the same person, although they can be different people as well. Be sure you trust whoever you appoint to act in your and your family’s best interest.
If you are concerned about protecting your wealth, your assets and your future, we at Gold Family Wealth are here to help.
Michael Gold is the Founder and CEO, Wealth Advisor of Gold Family Wealth, an independent wealth management boutique and named one of the Top 100 People in Finance. Michael has 20 years of experience in the financial industry and has a bachelor’s degree in business and economics from the State University of New York College at Oneonta, an MBA from NYU Stern School of Business, specializing in Quantitative Finance and Leadership and his CERTIFIED FINANCIAL PLANNER™ (CFP®) credential. He serves business owners and entrepreneurs by stress-testing their financial plan to identify red flags and missed opportunities. Michael strategically outsources professionals from various fields, such as tax, insurance, retirement and trust and estate law to collaborate on potential solutions to help position his clients to pursue their desired goals.
Michael currently lives in Westport, CT. When he is not working, you can find him spending time with his wife, Giselle, their three children, Sebastian, Aria, and Pierce, and their dog, Charly. To learn more about Michael, connect with him on LinkedIn.
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