Do I need asset protection at all?
When we speak about assets, the first thing that comes to mind is stocks and investments.
The reality is that people these days possess many more assets, even if they don’t realize it. These include retirement plans, bank accounts, various insurances, such as real estate or life insurance, real estate properties, company shares, notes, stocks, stock options, and RSUs.
Often, many of these assets are also in multiple countries – a situation familiar not only to expats but also to global citizens, due to various considerations such as taxation, inheritance, and asset management and protection.
The goal of estate planning, trusts, and wills
Before diving into some fundamental flaws of traditional estate planning, let’s briefly go over what it is and what its goal is.
Estate planning is a process of preparing and executing a set of activities with the goal to protect the user’s assets after a person’s life. The preparation and execution of the estate planning activities are done during a person’s lifetime. The primary goal is to ensure that the person’s assets will go to the designated beneficiaries in the most efficient way. The most efficient way might mean with fewer taxes, with lower costs, in less time, with less bureaucracy.
Put very simply, your estate planning answers questions such as which asset goes to which of your beneficiaries; e.g., will your assets go equally to your children, or will some of them go to charity? Estate planning resolves complex situations if there are several marriages, clearly identifying which assets go to each of the different family members. It also ensures that your beneficiaries won’t be buried under high taxes when they inherit the assets which you’ve designated to them.
If that’s an estate plan, what are trusts and wills? Put simply, they are part of your estate plan.
There are multiple types of trusts, but the two broad categories are revocable trusts, often called living trusts, and irrevocable trusts.
As indicated by the name, an irrevocable trust cannot be changed or revoked after its creation. This means that even the creator of the trust cannot take out an asset from the trust. As you can guess, the primary benefit of an irrevocable trust is to protect your assets against the claims of creditors in the case of bankruptcy.
The primary benefit of a revocable trust is avoiding a court process known as probate. Probates determine which assets go to which beneficiaries. These probate court proceedings are often lengthy and unpleasant. If your assets are owned by a trust, you avoid the probate – the trust is the owner of the assets, so if the person who was the previous owner of the assets before the trust was established passes away, the ownership does not change. The trust still owns the assets, and as a result, there is no probate court process.
Why traditional asset protection tools don’t work
Everything sounds good with estate planning, right? In fact, it has some fundamental flaws which can prevent you from effectively protecting your assets such as bank accounts, insurance policies, real estate, company stocks, stock options, cryptocurrencies, and other digital assets.
These fundamental flaws in traditional asset protection tools in many cases prevent these assets from reaching your family and loved ones if something happens to you. Let’s review these flaws.
Outdated asset catalogs
A big problem related to traditional asset protection tools is that they soon become outdated. Let’s take trusts, for example. One sunny day you decide to protect your assets by creating a living trust.
You find a good attorney, list all your assets, sign the papers, and you are ready – your assets are protected. The reality is that they are not.
The reason is that assets are dynamic. Take a second to think what assets you have now and what assets you had 15 years ago. The two lists are very different, right? Yes, assets change continually.
Estate planning can be time-consuming
Establishing a trust is an expensive and bureaucratic process, and it is impossible to spend all that time and money with an attorney to continually keep your trust up to date for the next several decades. As a result, quite often when beneficiaries get access to a trust established by a family member 30 years ago, they are unpleasantly surprised to find that it’s of no value: the assets listed in the legal documents are no longer valid, while the new assets aren’t listed.
Beneficiaries unaware of the assets or unable to locate them
Another big problem is that traditional asset protection tools focus primarily on protecting the value of the asset but not the ownership of the asset.
Traditional asset protection tools such as insurance policies focus on protecting the value of the asset but not the ownership.
For example, insuring real estate protects against climate disasters. A bank can protect your savings account up to a certain amount. But all these asset protection tools do not guarantee or target proactively the protection of asset ownership.
Did the insurance company that provided your life insurance tell you how they would identify and notify your heirs if the insurance was triggered? Did your bank tell you how they would identify and notify your heirs if you abandoned your bank account?
You might be surprised that, for most asset protection tools, the answers to the above questions are somewhat negative. And the reason is that they aim primarily to protect the asset value but not the asset ownership. The blunt answer is they don’t have any incentive to notify your heirs.
You would certainly not be happy knowing that your asset had preserved its value but was not in the hands of your family.
Traditional asset protection tools support only specific asset types, not all
Another problem related to traditional asset protection tools is that they protect certain assets types, but not all. If you have insurance for your real estate, it protects only the real estate. Even if you have established a trust, certain assets such as life insurances can’t go into your trust.
Many traditional asset protection tools are expensive
Some of them can actually be very expensive. For example, attorneys who provide estate planning have different charging models, but quite often their charge is based on the value of the assets that you want to protect. In these cases, the cost can skyrocket.
Even attorneys who charge fixed fees are quite pricey, and these fees are deep into 5 figures. When you combine this with the fact that a catalog of assets rapidly becomes outdated, the value of such estate planning becomes questionable.
The most important risk for you
We’ve used the phrase “when it matters the most” in the title of this blog, but we didn’t actually specify what it means. You might immediately answer, “It matters the most at any moment in time!”
Every moment matters the most when we speak about our families.
Your immediate answer is quite correct, actually. Is there a moment in time when you would say, “Nah, at this moment my family might lose all the assets which I possess – that’s OK”? Hardly. You are absolutely right: every moment matters the most when we speak about our families and protecting them!
Traditional wills provide protection only at the moment when they are created.
This is exactly the problem with traditional wills. They capture a snapshot of your assets and beneficiaries at a given moment, so they offer protection for only a very short time. But you need such protection always because every moment is the most important for your family.
The link between traditional asset protection and unforeseen events is simply broken.
It should already be clear that asset protection through traditional wills just doesn’t serve its purpose nowadays.
They don’t provide an easy mechanism to update your asset catalog and, as a result, soon become outdated.
Traditional wills see assets and beneficiaries as a snapshot in time, rather than continually changing.
And most importantly – they don’t provide a mechanism to inform your loved ones about your assets, such as insurance policies, bank accounts, stocks, and retirement plans.
Digital inheritance protects your assets and secures your family’s future
Digital inheritance services, such as DGLegacy, enable you to protect your assets against unforeseen events and ensure your family is secure. You can connect your preferred beneficiary with your preferred assets, and they will be notified at the time you choose – while ensuring they get the support they need in the process of claiming.
Digital inheritance services enable you to protect all types of assets. It is also easy to keep your list of assets and beneficiaries up to date.
This way, in the case of an unforeseen event, your loved ones:
- are aware of your assets
- can identify and locate your assets
- can minimize the chance of unclaimed assets.
Digital inheritance tech tools combine a few distinctive characteristics:
- Secure storage of asset catalogs
Usually, data is protected through encryption and also stored in secure data centers, rather than in public clouds. - Ability to designate beneficiaries
Usually, these are family members and close relatives. Typically, digital inheritance tools enable the user to choose whether the beneficiaries are to be informed about the assigned assets immediately or only in the case of an unforeseen event. - Mechanism for detection of an unforeseen event happening to the user
This is a critical aspect of digital inheritance – the ability to detect whether something has happened to the user. The tools usually implement multi-step processes to ensure that such an event is detected. - Additional support for the beneficiaries
As mentioned, this support is especially useful if the beneficiaries are not financially proficient, are elderly people or young children, or your assets are complex and in multiple countries. - Ability to notify the beneficiaries
If an unforeseen event is detected, digital inheritance services have the ability to automatically inform the designated beneficiaries.
Digital inheritance tools ensure that your loved ones will be automatically informed about your assets so they are aware of them and can identify them.
The last is a key difference between digital inheritance tools and other alternatives. Digital inheritance ensures that notification of the designated beneficiaries will be handled even without external intervention, while alternative methods rely on external activity – people have to have access and proactively access the information.
With digital inheritance, in the event of anything unforeseen happening to you, your loved ones:
- are aware of your assets
- can identify and locate your assets
- can minimize the chance of unclaimed assets.
Does digital inheritance replace estate planning?
We’ve already seen that traditional estate planning has several big flaws:
- Cost
- Bureaucracy
- Time involved
- Kind of … useless, due to outdated asset catalogs
- It doesn’t provide a mechanism for notifying the beneficiaries if anything happens to you.
Seeing these problems of traditional estate planning, you might wonder whether digital inheritance can replace traditional estate planning.
The simple and very clear answer is: no. Digital inheritance doesn’t replace traditional estate planning. The primary reason is that they serve different purposes.
Estate planning involves legal issues and should be carried out by experienced attorneys. Digital inheritance services solve a different problem – they ensure that your loved ones will be aware of your assets so they will be able to identify and locate them, as well as receive support in claiming them.
The longer answer to the question do digital inheritance services replace estate planning is that they actually complement each other perfectly.
Estate planning can provide you with legal protection, e.g., avoiding probate, tax efficiency, or enabling the appointed beneficiaries to step into possession of the designated assets.
Digital inheritance can ensure that your beneficiaries WILL BE AWARE of all your assets. As estate planning is a costly and time-consuming process, you can complement it with a digital inheritance service, which allows you to easily keep an up-to-date assets catalog and designate your beneficiaries so that they are automatically informed about the assets should anything happen to you.
