Protecting Assets

Protecting Assets

The Protecting Assets Everyone who invests money has some degree of desire to protect the asset. The desire to protect is simply another way of looking at an investor’s acceptable level of risk. As mentioned previously, there are varying degrees of acceptable risk. The aggressive wealth-builder will take chances that an asset-protection-minded person would not.

Most of the time, the asset protection person will simply opt not to sell, but sometimes a need arises to geographically relocate the investment or perhaps improve the quality of the property without expanding the investment or increasing the risk.

Many times, clients simply want different but similarly valued property in a different or “better area.” These clients have no real need to explore all the possible ways to defer the taxable gain because the shortterm goal is a lateral move of the investment. The obvious choice is to do a 1031 exchange, selling (relinquishing) one property and purchasing (replacing it with) another. However, this is also a good time for clients, including you, to consider long-term objectives.

Retirement and estate planning considerations may make a private annuity trusp more attractive than a st2aigh| 1031 exchange. With a private annuity trust you can still meet your short-term goal of selling one property, buying another, and deferring the taxes. But a private annuity trust, as a result of its characteristics, also allows planning for a guaranteed stream of retirement income and may mean huge estate tax savings because it removes the asset from your taxable estate.

A private annuity trust also protects the investment from future creditors and personal or professional lawsuit liability. But on the negative side, a private annuity trust has more formalities, requires more planning, and commits the asset/investment to an irrevocable family trust.

Whether a 1031 exchange or private annuity trust is right for the asset-protection-minded person simply depends on each individual’s set of circumstances and personal objectives.