The wealthiest families in the world utilize a powerful legal tool to protect their assets. More important, it can be used by people who are in the process of building wealth. People like you.
The tool is called transference. In particular, “risk transference.” Risk transference:
1. Identifies the risk of incurring a loss.
2. Measures the risk.
3. Assigns part of the risk (typically the riskiest part) to a third party.
When you buy a car, you insure it against loss due to an accident. In this case, you are transferring the risk to the insurance company.
When you incorporate a business, you transfer your liability to a separate entity. If, for example, you’re a plumber, this means your personal assets would not be at risk if, say, you dropped a heavy pipe on someone and they filed a lawsuit or lien against you.
As a homeowner, you could transfer the risk of losing your home by placing it into a living trust. This gives you an additional level of protection – above and beyond your homeowner’s insurance.
For example, if a neighbor were critically injured by a rock thrown by your lawnmower, they could sue you. And your personal assets could be at risk. But if your property were in a living trust, it would no longer be considered your asset. That puts it out of reach.
Multi-national corporations utilize risk transference all the time.
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