Posted by A+ Income Taxes

Strategies to Protect Your Financial Wealth

Strategies to Protect Your Financial Wealth

Have you ever heard of a homeless person sued for a 5.5-million-dollar case? Undeniably, there is none. This is because lawsuits are not filed against a person with not so many assets. Lawsuits are mostly if not all filed against those with “deep pockets”. If you have ample amount of assets or you are expecting to receive money from an unexpected wealth event perhaps an inheritance, business sale, stock options sale, sports/entertainment contract or even from lawsuits, it is best that you consider several money-moves to protect your new wealth from others or against lawsuits. 

1. Increasing liability insurance. Insurance should be your first line of defense in litigation. Inform your insurance broker and request for an increase in liability limits. Ensure that the amount of your personal umbrella liability coverage is no less than your net-worth. For instance, if you are expecting 3-million-dollar money from your Aunt’s estate, ask for a 3-million-dollar umbrella liability policy from your insurance broker. The rates are not that expensive. Expect a 200 to a 300-dollar rate per 1 million dollars of coverage. Most people opt to have a 10-million-dollar umbrella policy though it is recommended by a Los Angeles tax attorney to only have a minimum of a 5-million-dollar umbrella policy.

Remember that before you receive your inheritance or windfall, making a phone call to your insurance broker ahead of time is best.

2. Take into consideration separating your assets. Depends on where you get your windfall and what state you live in, the money that you received will instantly become half-owned by your spouse if you deposit the money into a joint account with your spouse. This may not be an issue for some people but for others, this may pose a big problem in the future. For instance, when you pass away, your children in your first marriage may receive less than what you expect when you decide to deposit your inheritance or windfall to your new spouse. This problem will turn out to be more damaging if you are anticipating a divorce. 

Remember that keeping your assets in a separate account and discussing it to your attorney is best if you do not want that your spouse will co-owner your windfall.

3. You must be protected from renters. If you are into a rental property business or if after receiving your sudden wealth you decide to invest in the rental property business, to protect your other assets from your disgruntled tenants, set up a business entity such as a corporation or an LLC. By doing this, your other personal assets are protected and your renters can only run into the entity that holds your real estate if they decide to sue you for 5 million dollars.

Remember to ensure that each of your rental properties must have a separate business such as Nevada or Delaware Series LLC. This is to protect each of your rental properties within a single LLC.

4. Ensure to assess all of your accounts that are jointly held. The money that you deposited into a joint account either with your parents, spouse, children, business partners or roommates is at risk. Your entire account could be wiped out if the joint owner files for a lawsuit judgment, divorce or incur a tax lien. 

Remember to keep your account balance as low as possible if a joint account is needed. 

5. Informal partnerships must be formalized. Partnerships in business are like a ticking time bomb. This is because the actions of your partner are your responsibility just like having a joint account. But unlike having a joint account, all of your assets may be at risk if there is a lawsuit against your partner. For instance, if you have an informal agreement to partner with your friend and provide consulting services and on the way to a client your partner is involved in an accident, your personal assets may be at risk too.

Remember to not get into partnerships as much as possible. For you to have legal protection, form an entity such as a corporation or an LLC.

6. To protect your assets, create business entities. Take into consideration the sole proprietorship. If you do a part-time work without having a formal business structure or you have a small business, then you are doing a sole proprietorship. Unlike a partnership, since “sole” means it is just you, you don’t have to think of your partner’s action, but if you are sued, all of your personal assets are in jeopardy.

Remember that to be able to protect your personal assets from lawsuits, create a business entity.

Unexpected wealth is an exciting experience that can change your life and the lives of the people around you. The more assets you have, the bigger the lawsuits you are targeted with. Protect your sudden wealth before you get the windfall. 

A+ Income Taxes
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