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How to Protect Your Assets From a Personal Financial Crisis

By Jason Markum

We live in a crazy world. You never know what’s going to happen. From an unexpected health emergency, to a crazy lawsuit, to an unexpected firing from work, and 1 million other things in between; we just never know when disaster is about to strike.

But you can plan ahead of time to keep your finances safe from catastrophe, and that’s exactly what I’m going to discuss in this article today.

You may be a doctor who gets sued for malpractice, you may be a business owner who gets sued for some strange liability issue, you may get stuck with insanely large medical bills and find that your insurance policy doesn’t cover them, or you may just get fired from your job… whatever the emergency you need to be prepared before hand…

I’m going to discuss a few strategies to protect your assets from things of this nature. But these things need to be applied before trouble starts, because if you try to apply them afterwards; they will not work. So here we go…

One effective strategy is to set up a family personal holding company that lets you maintain control of your major assets but at the same time transfers ownership out of your name. To do this you form a Corporation and give yourself a majority of the stock. You give a minority interest of the stock to your family members. Next transfer your assets to the corporation as a gift. How you allocate shares is important; one example is to give 30 shares to yourself 25 shares to your spouse and 15 shares to each of your three children for a total of 100 shares of stock outstanding. This way if somebody sues you, they can only take your 30 shares, and those 30 shares constitute a minority interest in the corporation.

Another effective strategy is to create a spendthrift trust. These are good for protecting inheritances from ending up in your creditors hands. Basically you set up a trust with you as the beneficiary and somebody else for instance your spouse or maybe a close friend or even a lawyer as the trustee. The downside here is that you lose control of your assets to the trustee, but you can always remove the trustee and replace them if you want.

Another effective strategy is to simply give your assets to family members. It’s important to do this before trouble occurs though, because if you do it after trouble starts a judge is likely to nullify the gift. There are gift tax consequences to this strategy that you will need to research in advance. Talk to your CPA or tax attorney before you give any gifts to your family members.

Another effective strategy is to have a life insurance policy because cash values in a life insurance policy cannot be touched by creditors. One drawback of this strategy is that single premium annuities are not protected, which is something you want to keep in mind.

These are just a few examples of how to protect your assets from a financial crisis or emergency. Sitting down with a good financial planner that specializes in asset protection, or an attorney who specializes in financial planning and asset protection, or even just an accountant who specializes in this area is a very good idea for anyone with a substantial net worth, and I suggest you do so right away.

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