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How to Protect Your Wealth: A 5-Step Plan

Having worked so hard for so many years, you’ll want to know how to protect your wealth. To ensure that circumstance or other people can’t get a hold of it. Here’s a simple 5-step plan to make sure your assets are preserved for your children.

Step 1: Avoid unnecessarily burning your own assets

Taking money out of the market during a downturn to cover unexpected expenses or an income shortfall could cost you big time. Even after markets recover, your portfolio’s value will be less than it would have been had you not sold low. Keeping your money invested and in the market is usually good, but make sure you plan for the coming months and even years by retaining a cash emergency fund that you can draw down on at anytime without worrying about market timing.

Whilst it’s comforting to think that our jobs are 100% secure and that serious illness is something that happens to other people, truthfully we don’t know what tomorrow will bring. Income Protection or Critical Illness insurance can help maintain your financial stability if your salary was to be interrupted. It will help avoid you having to dip into your longer term investments to cover any shortfall. This will be especially useful for anyone who doesn’t have a cash reserve.

Step 2: Avoid other creditors getting at your assets

Claims can come against you from any number of sources.

Think carefully about whether you should keep your business assets separate from the rest of your portfolio. Putting your buy to let properties and other business activities into separate vehicles (company or LLP) will help protect your personal assets from losses.

If using separate legal entities for your business isn’t right for you, make sure that you formalise your relationship with any business partners you might have. Make sure you’ve set up your partnership correctly and that limitations of liability to the other partner are expressly mentioned.

Formalising your financial relationship with a life partner might also be something to consider.

Step 3: Keep your tax bill down

It may sound obvious, but taxes are the enemies of your wealth.

Make sure that you’re taking advantage of any opportunities to reduce your tax bill. Salary sacrifice arrangements, pension contributions, Enterprise Investment Schemes and Venture Capital Trusts are all great ways to reduce your income tax bill, but it’s surprising how few people exploit these opportunities to the full.

Planning to reduce inheritance tax is best not left until your later years. Gifting to family members or friends and giving to charity can all potentially reduce any inheritance tax payable on your estate. However, exemption on any gifts made within 7 years of death tapers sharply and could leave your children with an unwelcome tax demand.

If you still want to retain benefit of your asset consider whether a trust might afford you protection from IHT. Estate planning is a complex area and gifts & trusts must be carefully considered due to their irrevocable nature.

Step 4: Make sure your estate goes to the right place

When a person dies without a valid will, the estate must be shared out according to specific rules and only certain people will be able to inherit any assets. These rules dictate that, if there are no children or grandchildren, a spouse or civil partner may only inherit £250,000 if there is no will in place. The rest goes to the government.

If you want to ensure that your loved ones get the inheritance you planned, it’s important that you write a will.

It’s also important to check the nominated beneficiaries on insurance policies and pension funds to ensure the right people will receive any sums payable.

Step 5: Avoid third parties claiming money from your children

If one or more of your children suffer a relationship breakup, their estranged partner (married or not) may have a claim on any inheritance passed onto your son or daughter. Some of the wealth you’ve built up could therefore be “taken” from your bloodline, leaving much less for your grandchildren. How much gets awarded to the estranged partner would likely be decided by the family court.

Setting up a trust can allow you to protect your estate from other people and ensure that any money is kept in the bloodline. If you set up a living trust, it will even protect the relevant part of your estate from claims by third parties whilst you’re still alive.

The articles are for information only and should not be construed as advice or a recommendation. Please seek independent financial advice before taking any action. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.

Note that investments can go down as well as up and you may not get back the full capital invested.


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