Entrepreneurs: Don't be the contractor who builds his house last
Posted May 3
While busy managing and planning for every phase of business, entrepreneurs should not be as the contractor who builds his own house last, meaning that all of his or her personal priorities — such as finances, the creation of a will, protection of valuables — are at the top of the list. After working hard to accumulate assets, do not put off the protection of those assets. Here are several tips.
Review and protect your assets
The assets accumulated over the years have come at a considerable price, and I don’t mean only cost. The largest asset is typically a house. However, other assets are important to protect as well. Those assets can be the business you own, stocks, bonds, a gun collection or other collectables. All of these assets have value and should be preserved and protected to pass on to family members.
To protect your assets, a few simple steps should be applied. First, create a will so there is a clear definition of how assets get passed to the people of your choice. Without a will, assets are subject to probate and a court-appointed trustee who, in the end, may distribute assets and property in a way you do not intend. A will is a very simple, inexpensive way to make sure that assets are given to owners of choice. Your personal attorney can certainly guide you through this process.
Create a will
A will should be reviewed annually. Pay particular attention to the terms and conditions of the will and change it whenever a family event takes place. Birth, death, marriage, adoption or divorce are some family events that would be included.
A trust is another method of protecting assets, and the most common type of trust is a family trust. A family trust is most often used for purposes of passing the house to a spouse or children without legal interference. Other assets can also be placed in the family trust with assets in the name of two or more family members. This protects the asset in such a way as to create a smooth passage of ownership from one member of the trust to another.
Another important consideration is to own an asset under the “joint tenancy with right of survivorship” method. When one owner passes away, the ownership transfers directly to the surviving owner without tax, estate penalties or the necessity of a will to declare the transfer of ownership. Furthermore, this is a way to pass assets to children on a tax-free basis. There are some limitations on this, so be sure to review it closely with an attorney and an accountant.
Put the proper amount of insurance in place to ensure that the surviving relatives will be able to settle the affairs of the deceased. This could include business affairs as well as keeping the family in some semblance of life’s normalcy. There are many components that make up what is needed to keep a family financially sound. Other things to consider are education for children and spouse, marriage expenses for children, church service, debt elimination (e.g., mortgage, auto, credit card debt). Do not forget the need for general living expenses.
With respect to general living expenses, often overlooked is the need to compensate for inflation. An easy rule of thumb is 3 percent per year. Add it on top of what you think is needed for each year the insurance is meant to cover. The exercise of determining the amount of insurance needed is important because it will lead you to a realistic view of what is needed for the surviving family members to live. The least expensive life insurance is a term policy; put it in place until it is time for other considerations, such as a whole life policy or annuities.
There are other methods to ensure financial stability and the event of a family death, but these are among the simplest methods of protecting your financial condition. Put this effort at the top of the priority list to ensure ease of asset passage to your loved ones.
I would like to contribute on subjects of personal finance, investing and business.