We have all heard the expression before but what does it mean when it comes to asset protection? Savvy business people separate their "eggs" into different "baskets" by diversifying their investment portfolios, carrying insurance and even backing up their computers remotely. Ships are built with this same principle in mind, sectioning off the hull in multiple compartments so that if one section takes a hit it can be sealed off and the ship remains afloat. While the principle of diversification is universally embraced in business and investing, it is surprising how many people unknowingly violate this principle when it comes to protecting their assets. If you look at the portfolios of even the most astute investors, with their assets perfectly allocated in various holdings, you will often find one thing that is not diversified...ownership. Their home, real estate holdings, and other assets can be traced back via one easily accessible data point, their Social Security Number. By failing to diversify their ownership, all of their eggs are in one basket and entirely at risk if they ever suffer a legal attack. This leads us to an important principle of asset protection-compartmentalization. By having different assets owned or held by various entities that are separate from you, you dramatically reduce your risk of loss in the event of a legal attack. If one asset or entity runs into trouble, i.e. a tenant in your rental property slips and falls and sues you, only the assets in that particular entity are at risk. They cannot lay claim to your other assets or entities. The general rule of thumb for compartmentalization is to limit the amount of assets in any one entity to 20% of your net worth or $250,000. To maximize protection it is advisable to use entities that are established with financial privacy, meaning they cannot be traced or tied back to you by a predatory third party. A private Nevada corporation is the perfect vehicle for this purpose and will shield your assets from legal attacks. |
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