TALES FROM THE CHESTNUT TREE

ABC’s of ASSET PROTECTION

Neal A. Deutsch, CFP^®

Published in Rivertown Journal, February 2006

You’re doing all the right things: you’re working hard, you’re saving, and you’re investing wisely. You’re looking forward to benefiting those you hold near and dear: yourself, your spouse, your children, your family, your employees, your business clients, your neighbors, the IRS…. What? You don’t want to benefit all those folks? Of course not. But, without a comprehensive financial plan ­ one that incorporates asset protection considerations - you may unwittingly be doing the right things to benefit all the wrong people.

Accidents, lawsuits, taxes and other financial risks are simply facts of life in our present day lifestyle. Here are a few basic ways you may be able to protect your assets in addition to your insurance program. Yes, insurance should be one of the first tools considered when building asset protection into your comprehensive financial plan, as the cost of insurance is negligible compared to the possible cost of not having insurance coverage. For example, purchasing a Personal Umbrella Policy for protection of personal risk and liability beyond the coverage of your auto and homeowner’s coverage is generally an inexpensive start. However, insurance alone will not afford total protection.

A is for ADVICE. Your first step is to engage a qualified, experienced team. This would include professionals proficient in the legal, tax, financial and insurance fields. Asset protection should not take place in a vacuum, so a multifaceted approach is necessary- different assets are exposed to different types of risk. You wouldn’t go to your doctor and ask for tax advice or inquire of your lawyer to give you medical guidance. It is imperative that you direct your questions to the professional on your team specifically skilled in the area of need. Have your professionals confer with each other- remember, it’s all in your interest for all the members of your team to work together.

B is for BUSINESS. Mind your own business! Your business is your own, and should not be accessible to others. Your personal investment account is your own, not your creditor’s. Or is it? Your business creditors may be able to attach to your personal assets, especially if you are a sole proprietor. A partnership can be even worse, as your partner’s personal creditors may be able to reach partnership assets. Additionally, you may be personally liable for your partner’s professional actions, not just your own. Choice of business entity can be crucial in providing an asset protection element to your financial plan. Certain types of business entities and insurance products not only shield business partners from business and personal financial risk, and may also provide an efficient estate planning strategy.

C is for CONTRIBUTIONS. Contribute to your employer sponsored retirement plan. Contribute to your IRA. First and foremost, it’s your future. Your employer sponsored retirement plan enjoys federally legislated creditor protection under ERISA. ERISA protects your accrued benefits in your employer sponsored defined benefit (pension) plan, 412(i) plan, profit sharing or 401(k) plan. IRA’s are protected up to $1,000,000 excluding any amounts attributable to rollovers from qualified plans.

Of course, this brief article is no substitute for a carefully crafted comprehensive financial plan, which incorporates asset protection considerations. Each situation and each person’s goals and objective are different, so before implementing any significant financial planning strategies, consult your financial advisor and estate planning team. You’ve worked hard to accumulate those assets- create a plan to protect them!

Neal A. Deutsch is a Certified Financial Planner^™, Registered Securities Principal and President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com Feel free to visit his website at www.chestnutinvestment.com