Why we need asset protection
Many people wishing to achieve financial independence and freedom focus on maximizing the value of their assets.
They use various methods for asset management, increase their income through active and passive financial streams, and control their spending. Some achieve such control through broadening their financial literacy and financial mindfulness and applying it in their routines, while others bet on extreme frugality.
Asset protection is needed because for many digital, financial, and physical assets, there is a high risk that the beneficiaries won’t be aware of the assets or won’t be able to identify and locate them.
For example, they may not be aware of:
- Bank accounts
- Insurance policies
- Digital assets such as cryptocurrencies
- Pension funds and retirement plans
- Investment portfolios
- Company stock
- RSUs
- Stock options
- Real estate
- Shares in companies
The risk of the beneficiaries not finding the assets becomes even bigger when the asset owners are expats or have multiple and complex assets, often in multiple countries. The risk is also higher when the beneficiaries are not proficient with the types of assets – often the case with elderly people or young children, or simply people whose profession is far away from finance, and as a result, their financial literacy is not high enough to be able to deal with asset inheritance.
How can we protect our assets?
How can we hedge against that risk? How can we be sure that our loved ones will be able to identify, locate, and claim their inheritance? Let’s see a few popular ways to protect our assets.
Option 1: using shared online documents and sheets
Some people try to catalog their assets in online sheets or documents and share them with their families. This is definitely better than nothing, but this approach has many drawbacks.
Usually people feel comfortable sharing such details only with their closest family members, for example, their partner. What will happen to that information if your partner loses the password or forgets how to access it? If something happens to your partner? The file is not encrypted – what if it is hacked by malicious people? Do you feel comfortable uploading supporting documents, for example, insurance policies or bank details, unencrypted, in a public drive?
Yes, a shared document or sheet is better than nothing, but it still has too many disadvantages.
Option 2: keeping the documents at folders at home
Again, this approach is better than nothing, but it still has many of the drawbacks of option 1. You feel comfortable sharing these documents only with your closest family members. Also, this approach works primarily if your family – your partner, children, and parents – live in one place. If, for example, your children live in other countries or cities, and only your partner is aware of the location of these folders and documents, the risk is again very high: what if something happens to your partner?
And while this option does not have the risk of hackers, such as option 1, it brings new risks of its own – a natural disaster or fire destroying the documents, or theft, for example.
Similar to option 1, keeping the information in folders at home is better than nothing, but it still has too many disadvantages.
Option 3: using secure digital vaults
Secure digital vaults are a better option than online sheets and documents, primarily because they provide way better security. Usually the information they store is encrypted, and they often have two-factor authentication as an option for additional protection.
Another advantage of secure digital vaults is that you can share the information even with family members who are living in other cities or countries.
The drawback of personal digital vaults is that they lack a digital inheritance feature. For example, they don’t enable you to share the information in the vault only in the case of an unforeseen event and not before that. With secure digital vaults, you either share the information now, or you don’t share it.
Because of that, people usually use secure vaults primarily to catalog their assets and have them listed in one place. Then they usually share this only with their closest family members, for example, their partner; they don’t share it with members of their extended family, and there is no possibility of arranging for your extended family to be notified about these assets if anything happens to you.
There is also the risk that the partner might lose their username/password or forget how to access the vault. Will your children remember the login details to the vault for the next 30 years? Or something might happen to the family members with whom you’ve shared the information and it would be lost for the other heirs.
This risk is increased when, for example, the family has children who are still too young to have the information in the secure vault shared with them, elderly parents, or simply family members who are not financially proficient.
Option 4: using will, estate planning and trusts
Some people decide to hire attorneys and wealth managers to prepare a will and an estate plan to protect their assets. This is a very comprehensive measure and useful especially from a legal perspective, ensuring, to a very large extent, that the assets will be protected and the designated beneficiaries will inherit them.
But estate planning and wills have several disadvantages:
- They are expensive (can get very expensive).
- They require a lot of effort and are time-consuming.
- They don’t allow for an easy update of the asset catalog.
While the first two drawbacks are clear, the last one is worthy of attention. The reality is that most people have dynamic assets:
- An expat moves to a new country and opens a bank account, joins a local pension fund, and takes out insurance there.
- An employee in a tech company starts a new job and gets a new batch of stock options or RSUs in another asset storage system.
- A person decides to open a new bank account or to change the bank altogether.
- A person buys a new insurance policy, invests in stocks or cryptocurrencies, takes out an additional retirement annuity, or generates new streams of passive income.
This is why peoples’ assets are dynamic and change often. The situation is very different from one hundred years ago when most people’s assets were primarily static, not so numerous, and not so complex.
For this more stable world of the past, estate planning, wills, and trusts were perfect. But they are not fit for the job in the dynamic asset catalog reality that we live in.
Even if you have the best will and trust, part of an estate plan crafted by very skilled attorneys, they will be of little value to your family members if your current assets are not reflected in your estate plan and your family members cannot identify and locate your assets. In this case, they will simply not be able to claim and inherit them.
Option 5: using digital inheritance services
Digital inheritance services have the capabilities of secure digital vaults to securely catalog and store your assets in encrypted environments, but in addition, they enable you to decide what information to share, when, and with whom.
In other words, you might share the information about your assets with your closest family members, for example, your partner, but you can choose to share information with members of your extended family only in the case of an unforeseen event.
This is a big advantage over digital vaults.
Many digital inheritance services also allow clients to designate a hierarchy of beneficiaries. For example, you might easily create the following scenario:
- Your partner (who) to be informed immediately about your assets (when – now)
- Your siblings (who) to be informed about your assets only if something happens to you (when – in the case of an unforeseen event)
- Your closest cousins (who) to be informed about your assets only in the case of an unforeseen event and only if your partner and your siblings are not available (when + hierarchy)
At the core of digital inheritance services is the ability to detect unforeseen events. This is usually achieved through email verifications and phone confirmation to avoid false triggering of the notifications to the beneficiaries, and often with integration with social networks to detect “alive” signals, for example, when logging in.
One of the biggest advantages of digital inheritance services is that they have multiple capabilities to ensure that the beneficiaries will actually be informed about the designated assets. These include email notification and phone calls with the beneficiaries to confirm that they have received the necessary information which will allow them to identify and locate the assets.
Digital inheritance services provide additional protection for your assets and your loved ones, for example legal support for the beneficiaries in the process of claiming the assets. This is extremely valuable in cases when the family members are not financially proficient; in this case, the legal packages ensure that they will receive the support needed, without paying any additional fee.
Improve our financial literacy
We are living in a very dynamic world where people who are not necessarily high-net-worth individuals possess diverse and complex assets.
Whatever method we choose to protect our assets, to successfully protect our assets in such an environment, it’s also very important to continuously improve our financial literacy.
It doesn’t mean that every one of us has to become a financial expert, proficient in accounting and international finance, for example. But it means that we need to continuously educate ourselves on financial matters, which will allow us to make the right decisions regarding important topics such as asset protection, asset management, and building financial independence.
We at DGLegacy firmly believe in that and are very committed to helping people continuously improve their financial literacy. As part of that commitment, we’ve started to create blog posts and articles on various topics such as asset protection, asset management, insurance policies, stocks and legacy management, asset security, personal finance, and financial planning.
We are very happy that our efforts have been recognized by our readers, as well as external experts. The latest example of this came last week when DGLegacy was selected by a panel of experts at Feedspot as one of the Top 10 Asset Protection Blogs on the web!
This recognition makes us even more motivated to continue to build a world where people can protect their assets and secure their families financially!
