We spend our careers diligently building a life we can be proud of. Whether it's a dream home, a reliable car, or a nest egg invested for the future, these assets represent our hard work and aspirations.
But have you considered how these assets will be managed if you're no longer here? What happens to your investments, property, and savings in the event of your passing, or even a life-altering event like a divorce or bankruptcy?
These questions place an even greater emphasis on the significance of estate planning and protecting your assets. You don’t want your dependents or family members to lose out on what they rightfully deserve.
Understanding estate planning and the tools available can ensure your assets are protected and distributed according to your wishes. From setting up a property trust to creating a limited partnership, in this article, learn the various ways of effectively safeguarding your financial assets.
1. Trusts
Trusts are one of the best ways to ensure your assets are sheltered from any financial attack or legal liability. Using a trust, you can transfer cash or financial assets like bonds or shares as a gift to someone you choose, along with some conditions.
For example, you can give someone the dividends on deposits, but retain the ownership of the deposits. As a trustee, you set up and control the asset transfer during your lifetime.
Additionally, trusts allow you to protect your assets in the unfortunate event of bankruptcy or divorce. Depending on your need, you can create an asset protection trust or a family asset protection trust.
Asset Protection Trust (APT)
An Asset Protection Trust (APT) enables you to decide who is assigned your assets after your death. The core purpose of an APT is to safeguard your assets from risks, such as creditors, lawsuits, and divorce settlements. With an APT in place, your assets get distributed directly to your beneficiaries, which also safeguards your beneficiaries’ interests from any financial abuse.
Family Asset Protection Trust (FAPT)
In an FAPT, you or your family can transfer ownership of assets to a separate legal entity, which is managed by a trustee. Family businesses often use this instrument in estate planning to preserve their family wealth from one generation to the next.
During your lifetime you can continue contributing to the FAPT trust, however, the ownership of the assets in the trust belongs to the trust alone and not by you. A FAPT protects assets from creditors, lawsuits, financial attacks and divorce settlements.
2. Financial Services Compensation Scheme
Through the Financial Services Compensation Scheme (FSCS), you can safeguard your money in the event the provider fails to. FSCS steps up in the event of a financial collapse of any financial institution like a bank, credit union or building society.
In such an event, when these institutions fail to protect your money and you end up losing some or all of your cash, FSCS automatically compensates up to £85,000 per eligible individual and up to £170,000 for joint accounts.
3. Will
A will is perhaps the most obvious estate planning tool. Through a will, you can clearly list out your wishes for what happens to your assets after your death. Without a detailed will in place, intestacy rules automatically come into force, that may not be in line with your wishes.
When you die without creating a will, you’re considered to die ‘intestate’. Intestacy rules push your asset transfer through a mechanical legal process and may leave your beneficiaries with an unnecessary inheritance tax liability.
There are countless benefits to creating a will, from making your asset distribution wishes known and documented to minimising any tax liability.
4. Relationship Agreements
Today it is common to enter into legal agreements with your partner before officially entering into any relationship like marriage. In the UK, the various agreements around relationships include prenuptial, post-nuptial, cohabitation and separation agreements.
Prenuptial agreements and post-nuptial agreements generally list the various assets or finances of both partners and the consequences when the relationship ends.
Likewise, unmarried couples enter into a cohabitation agreement to agree on their living and financial choices before settling down together. Separation Agreements help you lay out the division of your assets in the event of a separation.
Do understand the implications and consequences of these relationship agreements on your assets before entering into one.
Additional Considerations to Ensure Your Assets Remain Safeguarded
Knowing Your Assets
Once you are clear on what assets and financial resources you own, you are better equipped to protect them.
In a marriage, you share some valuable assets like a house or a vehicle. Discussing your finances can seem uncomfortable to begin with, but it’s best to know what assets you rightfully own in a relationship.
Having this knowledge can help in the unfortunate event of separation.
Keeping a Detailed Record of Your Assets
Just as it is important to know what assets you own, it is equally important to maintain a thorough record of them. Assets can often change hands when sold, transferred or registered in a different name. Safeguarding your assets becomes easier when you diligently maintain a record and paperwork of your assets.
Getting Legal Help
When in doubt always reach out for help from the right professionals. Consulting legal professionals like attorneys will give you a better picture of your asset protection levels. You can learn more ways to protect your assets according to your personal and financial circumstances while complying with the laws and regulations in the UK.
To Sum Up
All it needs is a little forethought and some planning today to safeguard your assets. Think of it as a stepping stone to build and secure your financial future. Once your portfolio of financial assets and its protection plan are in place, make sure you review them periodically. Don't hesitate to seek professional advice and help if you need it.
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