Shielding Against Creditors & Avoiding Untimely Liquadation
The performance of different investment options are beyond the control of investors. Followers of Modern Portfolio Theory believes that there are 2 types of risks – Systemic and Non-Systemic (or aka un-systemic). Non-systemic risks can be minimized through diversification. Nothing can be done about Systemic risk. In that sense, one can do something to their portfolio to minimize risk through diversification. Other controllable factors would include asset allocation, rebalancing etc.
Most serious investors would be interested in the factors listed above. However, 2 factors are often overlooked -
- Avoiding forced liquidation at the wrong time
- Protecting those investments from creditors
Scenario 1 could happen if the investor were to pass away during a market downturn, like now. Assets that are force-sold due to probate process could fetch just half their price.
Scenario 2 could be a concern for business owners or members of the management. Their family members could be easily affected as assets are taken away by creditors. Even insurance policies with cash values could be taken away.
One way of solving these 2 problems is through the setting up of a Trust. The idea behind this is that the asset is given away in a Trust and creditors have no right to something that does not belong to the debtor. Setting up a Trust after getting into debtor-creditor issues is not going to work as Trust must not be set up fraudulently.
However, one of the main concerns of setting up Trust is the Settlor’s (the person who set up the Trust) lost of control over the assets. Settlors may also worry about the Trustee’s ability to manage the assets efficiently. Using professional Corporate Trustees is usually not cheap.
There is actually a way of Trust setup that may offers creditor protection without lost of control. I will give more info in due time.
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