Forbes describes an asset as a thing that possesses value. It can be a property that has monetary value. It can also be used to describe people who serve a significant purpose in an organization; as an example, employees can be an asset to a company.
Because assets hold value, indeed, no one wants to lose them. For this article, we focus on assets that hold monetary value; we refer to assets, for this article, as properties that people have, contributing to their net worth.
Assets and Liabilities
To understand a person’s or a business’s net worth is to understand the difference between assets and liabilities. Businesses often prepare net worth statements in the form of balance sheets. Through these statements, businesses can easily identify the financial status of the company.
In the net worth statements, assets and liabilities can be seen. As discussed above, an asset is the current value of the business. On the other hand, liabilities come in the form of debt; these are financial claims that companies or individuals owe to another person or organization.
When you subtract the liabilities from the assets, you will get the net worth. In simple terms, this is the real value that you possess when you remove all your liabilities. Net worth is often referred to as equity; a person or organization’s equity increases the more assets one has over liabilities.
Types of Assets
There are different types of assets; an asset can be tangible or intangible; it can also be liquid and illiquid. When it comes to properties with value, the focus is on liquid and illiquid assets.
A liquid asset can be easily used and spent at the moment one needs it. It comes in the form of cash or any of its equivalent: cash deposits or the money in your wallet and bank account. Liquid assets also include equities; equities include stocks like mutual funds.
Illiquid assets, on the other hand, are assets that are not readily available for use. As a general rule, assets are considered illiquid if an individual or business exceeds 90 days to liquidate the property. To liquidate means to sell the property of value.
Samples of illiquid assets are pieces of art such as paintings, antiques, collectibles, and memorabilia. Pieces of jewelry and real estate properties are also part of illiquid assets. As cars may take months to sell, they are considered illiquid, too.
Cars, real estate properties, jewelry, antiques, and other material properties are considered tangible assets. Intangible assets, on the other hand, are non-physical assets; in the context of businesses, samples of intangible assets are brand reputation and intellectual property.
Protecting your assets
As assets are essential for both individuals and organizations, it is also necessary to protect these assets. To secure one’s assets, one has to do some tried-and-tested ways.
Insurance
Getting insurance is a great way to protect your assets. For example, the right auto insurance will cover your vehicle in case of damages. It can save you from incurring significant repair costs, and it will give you peace of mind at the same time. Others, on the other hand, prefer getting umbrella insurance. Umbrella insurance is a type of insurance that encompasses all kinds of insurance a business or an individual has.
According to an article by Forbes, wealthy families protect their assets from lawsuits by getting liability insurance. For many affluent families, the way to protect all their assets is by getting at least around 10 million dollars of this type of insurance. At the end of the day, this amount is still more inexpensive than getting sued and losing a majority of their assets.
Asset Protection Trust
A trust is acquired by individuals to ensure the financial stability of their younger kin. Specifically, an asset protection trust is used to protect assets against creditors. This kind of trust involves transferring assets to a trustee; a trustee is overlooked by an office called a trust protector.
In the event of distress, a trustee under the asset protection trust can ignore instructions from the settlor or trustee protector. As this trust is usually located offshore, outside the US, creditors do not have claims over an individual’s property.
Separation of Personal and Business Assets
Another way to protect personal and business assets is by keeping them separate. This prevents both properties from being subjected to the same risks, such as lawsuits. The best way to have separate business and personal assets is by keeping separate bank accounts; one account must be for the business, and the other is for personal use.
Take early action
In conclusion, protecting one’s assets can be ensured by taking the appropriate steps early. One can never tell when they will be subjected to a lawsuit, so it is best to have the proper protection. Doing so will lessen the hassle and stress, and more importantly, allows one to keep their assets and ensure financial stability.
