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Protecting Your Assets: Key Mistakes to Watch For—and Their Solutions

Summary:

For individuals with significant wealth, becoming a target for unwarranted litigation is a real concern. This makes implementing robust asset protection strategies essential. These strategies combine legally sound principles with specific financial instruments to safeguard your wealth from unjustified claims.

For individuals with significant wealth, becoming a target for unwarranted litigation is a real concern. This makes implementing robust asset protection strategies essential. These strategies combine legally sound principles with specific financial instruments to safeguard your wealth from unjustified claims.

​However, navigating asset protection requires careful consideration and expertise. Here are five critical errors we frequently observe among wealthy individuals attempting to protect their assets—and guidance on how to prevent them.

Mistake #1: Delaying Protection Until Threats Emerge

Timing is everything in asset protection planning. Implementing protective measures after becoming aware of potential legal action can be not only ineffective but legally problematic. Moving assets into protective structures like trusts after a claim is foreseeable may be classified as a "fraudulent conveyance" and reversed by courts.

​Fraudulent conveyances come in two forms:

  • Actual fraud occurs when someone deliberately transfers assets to a controlled entity while maintaining unofficial control, leaving nothing for creditors
  • Constructive fraud focuses on the timing and economic impact of asset transfers, particularly when made during financial distress, regardless of intent

The solution is straightforward: implement asset protection strategies well before they're needed. Proactive planning is the only effective approach.

Mistake #2: Inadequate Insurance Coverage

A cornerstone of effective asset protection is maintaining appropriate liability insurance coverage. Many wealthy individuals would benefit from expanded umbrella liability policies but overlook this option. Similarly, successful business owners often maintain insufficient general liability coverage or could benefit from enhanced directors and officers (D&O) liability protection.

​Fortunately, liability insurance is relatively cost-effective. After lawsuit prevention—which isn't always within your control—insurance serves as your first line of defense. Regular evaluation of your coverage through stress testing is advisable.

Mistake #3: Isolated Planning Rather Than Integrated Strategy

While standalone asset protection planning is possible, integrating it with your broader wealth management strategy—including estate and tax planning—typically yields superior results. This comprehensive approach helps identify potential trade-offs and hidden risks.

Consider this: gifting assets to heirs might seem like an effective estate planning strategy, but it could be deemed fraudulent conveyance from an asset protection standpoint.

​Taking a holistic approach to wealth planning, rather than addressing each aspect separately, typically produces more effective and economical solutions that better serve you and your family's interests.

Mistake #4: Lack of Understanding Your Protection Strategy

If you cannot explain the basic rationale and intended outcomes of your asset protection plan, it may not provide the security you seek. During legal proceedings, such as depositions, courts may view asset transfers suspiciously if you cannot articulate your reasoning behind them.

While you don't need to master every technical detail, you should be able to explain the fundamental logic behind your protection strategy.

Mistake #5: Working With Inadequately Qualified Professionals

Some financial advisors possess just enough knowledge about asset protection to create problems rather than solutions. To achieve optimal protection, partner with a recognized authority in the field—someone other financial professionals acknowledge as an asset protection expert.

Evaluating Your Asset Protection Strategy

To assess your wealth's vulnerability to unfounded lawsuits, consider conducting a stress test of your current plan:

  • First, identify your highest-probability significant risks. Consider both likelihood and potential impact, using either actuarial calculations or informed estimates.
  • Next, assess your risk tolerance and concerns, weighing various priorities and needs.
  • Finally, work with an asset protection specialist to evaluate your existing plan. This analysis should incorporate your identified risks, concerns, and current protective measures. Based on the results, you can determine necessary adjustments, ranging from minor tweaks to major overhauls.

The goal is to develop confidence in your protection strategy—one that aligns with your needs and preferences while balancing asset protection with other wealth management objectives.

Tim McNeely
Advisor to Dental Entrepueriers 

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This material is intended to be used for educational purposes and does not constitute a solicitation to purchase a security or investment advisory services. Some material on this site has been researched and prepared by BSW Inner Circle and its affiliates, CEG Worldwide, LLC and AES Nation, LLC. Timothy J McNeely has retained AES Nation to conduct research and prepare informational materials for his use. Mr. McNeely is a member of CEG Roundtable and pays an annual fee for these services. Mr. McNeely is involved in these activities through The LifeStone Companies.

Some materials is published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright by AES Nation, LLC. This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing..

*Timothy J McNeely is an Investment Advisor Representative.  All investment advisory services are offered through a RIA. The LifeStone Companies are not owned or legally affiliated with RIA and the activities conducted by Mr. McNeely under The LifeStone Companies are considered educational activities and are separate outside business activities.

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