Strategy 5 – Risk management

December 22, 2018 | Joshua Opheim


Ensure your family’s continued financial security

You have worked hard to accumulate your assets, so it’s important that you take precautions to protect them from the various risks that are a part of life. When it comes to protecting your wealth, there are three primary risks that you should plan for:

Unforeseen liabilities

Depending on your employment, business and personal activities, there is always the chance that you will be faced with unforeseen liabilities. Unexpected liabilities can arise in different ways, including from lawsuits, negligence claims, obligations connected to acting as a director of a public company and giving warranties on the sale of your business. It is critical to note that asset preservation planning is not about defrauding legitimate creditors – it’s about restructuring the ownership or deployment of your assets using common and legal strategies at a time when you have no existing or foreseeable claims. In addition to any professional, business, car or house liability insurance you can purchase, the following are some typical strategies that may protect your assets:
  • Gifts. Although giving assets to a family member reduces the amount of assets you have that are available to cover your personal liabilities, it also increases the assets subject to the family member’s creditors. Furthermore, other than gifts to a spouse, making gifts to family members may potentially trigger a taxable capital gain, which is a tax implication that needs to be considered.
  • Trusts. Transferring assets to a trust results in a change of legal ownership of the assets transferred, thus reducing your personal assets subject to creditors. There may also be a loss of some or all of your control over these assets. It is important for you to be confident that the trustee is someone who will protect and manage your assets in the best interests of your beneficiaries. Consider a corporate trustee for this purpose due to their reputation and expertise in managing trust assets. In addition to domestic trusts, offshore trusts may provide protection from creditors, as those trusts are governed by the laws of another country, and it may be difficult for a creditor to pursue a court action in a foreign jurisdiction.
  • Life insurance. Based on provincial laws and court precedents, if an insurance policy is structured properly, the investment component of an insurance policy is not subject to creditors.
  • Corporation. If you are a business owner and you have accumulated surplus assets in your business that are not needed for operating expenses, then consider transferring these assets to a holding company. This can help protect the assets from the operating company’s creditors. In addition, consider the pros and cons of having your company contribute to an Individual Pension Plan (IPP) in order to boost your retirement assets. As a bonus, the assets in an IPP are creditor protected.

Risk of market downturns

As indicated in “Strategy 2” diversification is one of the golden rules of investing to reduce your risk of losing capital due to market downturns. Traditionally, diversification has meant allocating your assets among the three main asset classes (cash, fixed income and equities) as well as among different geographic areas and sectors of the economy. More and more people with $1 million-plus investment portfolios are considering alternative investments for further diversification to protect assets and boost returns. Speak to us about different alternative investment options.

If you are an incorporated, self-employed business owner or professional looking to boost your retirement savings, or an employer looking to enhance retirement benefits for a key employee, an IPP may be a solution.

Risk of income loss

If you become disabled or die, are you confident that your family will have the financial resources to maintain their lifestyle? Adequate disability and life insurance coverage should be a top priority when it comes to planning your finances. Without the proper coverage, you risk rapidly depleting assets you have worked so hard to accumulate and having a much lower standard of living. You should also have a discussion with your insurance representative on the costs and benefits of critical illness and long-term care insurance.