Whether you’re holding onto a small nest egg or a multi-million dollar investment portfolio, everybody wants to keep as much money as possible in their pockets.
But in a world where the vast majority of legal and regulatory systems are designed to disrupt capital accumulation, that objective is harder to accomplish than you might imagine.
Today, taking ownership of even a modest share of assets will expose you to a variety of risks that you may not fully understand until it’s too late.
I know that this might sound like unnecessary paranoia, but as someone who has spent the past 20 years or so working to achieve financial freedom, I can tell you that building real, lasting wealth can be extremely difficult if you’re not prepared for the challenges that come with it. In other words, getting rich is easy – staying rich is much more difficult.
Anyone that has listened to my podcast knows that this is a topic that I always keep coming back to. Whenever I get the chance, I make sure to hammer home the importance of diversification because I know how flimsy the illusion of comfort can be.
Over the past couple of decades, we’ve been through multiple major recessions, real estate bubbles, massive political upheavals and at least a couple of currency collapses. With all that going on, you better believe that you need a backup plan.
Now, that doesn’t just mean spreading your wealth across different stocks, commodities, ETFs, REITs, and bonds. It’s not even just about purchasing property and other market-resistant tangible goods (although I am a big believer in using gold and silver as hedging devices).
To me, real diversification applies as much to the lifestyle you lead as to where you park your money. From your skillset to your income streams to the language you speak and your place of residence, you should have multiple options available in every sphere of your life.
Which brings me back to the concept of asset protection; I recently spoke to an extremely well-respected professional in this field by the name of Joel Nagel. Joel is the founder and managing partner of Nagel & Associates, LLC, a law firm that specializes in offshore asset protection strategies, internationalization, and estate planning amongst other things.
Now, when I’m with experts, my general approach is to shut up and listen because every word coming out of their mouths might be worth millions of dollars to me someday. Joel definitely didn’t disappoint on that front.
While he acknowledged that the term asset protection might have gained somewhat of a negative reputation in this post-Panama Papers world, he stressed that the days of shady tax evasion schemes are long gone. The truth is that you simply can’t stash away millions of dollars in an unnamed Swiss bank account anymore (for reasons that I’ll get to in a moment).
As Joel described it, offshore asset protection strategies are all about setting up walls and safeguards that will separate you from the various threats to your wealth. Although your foreign bank accounts might technically be visible to any government agent or attorney with sufficient authority, the layers of red tape that you’ve placed between your money and those external parties should deter all but the most determined individuals from actually accessing them.
At this point, you might be asking – is all this really necessary? Dig a little deeper and you’ll see that it definitely is. Let me break it down for you.
Now, this is a risk that pretty much everyone can relate to. If you’re holding assets in a tanking economy, then you’re at risk of losing a significant portion of your net worth – and it could happen in the blink of an eye. Studies show that the average US household lost around $70,000 in the last recession. Meanwhile, in the Eurozone, collapsing financial systems saw a number of large deposits simply disappear as banks tried to cover up their massive losses.
With this kind of volatility around, storing your wealth in a single country should be a red flag for anyone, regardless of whether they’re protecting ten thousand dollars or ten million.
Carrying on from that point, I want to talk a little bit about the inherent instability of so-called fiat currencies. Now, there was a time when every country based the value of their paper bills on their gold reserves. This so-called gold standard kept the value of most currencies relatively stable and ensured that governments couldn’t just print money when they were running low, because every note was actually worth its weight in gold.
In 1971, Nixon abolished the gold standard. Since then, we’ve seen unprecedented levels of inflation and interest rate volatility, as governments have attempted every trick in the book to keep their currencies floating within a stable range. The end result is that a dollar today is worth a lot less than a dollar twenty years ago, and will, in turn, be worth a lot more than a dollar twenty years from now.
The only way to get around this issue is by holding multiple currencies so that you can spread out gains and losses and hopefully break even in the long run. Of course, you need an offshore bank account to do that.
Here’s the elephant in the room. A lengthy court case can wipe out even the cushiest asset portfolio in a couple of years. If you’re in a particularly litigious country like the United States, where $310 billion dollars are spent on settlements and attorney’s fees every year, then this should be a constant concern.
It should be noted that this isn’t just a danger for doctors and corporate executives. The average entrepreneur can be targeted with claims of wrongful termination, workplace injuries, reputational damage or even vehicular accidents that occur on the commute to your office. If you’re involved in any of these commonplace incidents, then you can bet that you’ll soon be hearing from a lawyer that’s hell-bent on going after all of your assets.
In fact, frivolous lawsuits are all but incentivized by the US legal system, because most lawyers are able to work on a contingency basis, which essentially means that they only get paid if they win. Of course, it only costs a minimal amount of money to file a case, so even if these ambulance chasers only end up winning a small fraction of their cases, they’re still making out like bandits in the long run.
However, if you move your assets offshore into a country where asset holders are prioritized over plaintiffs, then you’ve got a whole different proposition. Add in an airtight legal structure such as a trust or an offshore company and you’ve built a few more walls between you and any circling legal sharks.
Death and Taxes
Surprisingly, both of these issues relate to asset protection in a number of ways. In my next blog post, I’m going to explain how an offshore company can be a critical tool in your fight against the long arm of the tax agency.
Until then, you can learn more about my asset protection strategies in my new infographic report 15 Global Strategies to Protect Your Wealth. If you’re more of an aural learner, feel free to check out my podcast interview with Joel Nagel which covers a lot of these topics in more depth.
ABOUT THE AUTHOR:
Mikkel Thorup is the host of The Expat Money Show podcast and the author of the #1 Best-Selling book Expat Secrets. He has spent nearly 20 years in continual travel around the world, visiting more than 100 countries including Colombia, North Korea, Zimbabwe, and Iran.
His goal now is to help Expats just like you to generate additional streams of income, eliminate your tax bill, and take advantage of offshore structures so you can travel the world freely and never have to worry about money again.