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.
A disaster like the Exxon Valdez oil spill could have ruined the company. But Exxon was protected, to a degree, because some of its assets had been placed into a trust or holding company.
When the owners of the New York Yankees wanted to build a new stadium, here’s how they applied the risk transference tool:
1. They identified the risk. In this case, it was the cost required to build and maintain the stadium.
2. They measured the size of the risk. In this case, it was about $1.5 billion.
3. They assigned the riskiest part of the investment – the cost to build the stadium – to third parties by issuing tax-exempt bonds. And they assigned the second-riskiest part – the cost of ongoing maintenance – by making a deal with the City of New York to pick up a chunk of the plumbing, heating, cooling, security, grounds maintenance, taxes, etc.
I’m not a Yankees insider, so this may not be exactly how the deal went down. But I’m sure it’s pretty close.
There’s something else the wealthy understand about risk transference that you can take advantage of …
Most people believe the wealthiest families in the world are focused on accumulating as many assets as possible. This may be true some of the time. But in many instances, they accumulate assets and then release the rights to them.
Here’s what I mean …
Wealthy entrepreneur Ted Turner is the largest landowner in the United States. He owns about 17 ranches in 10 states. In New Mexico alone, he owns more than 1 million acres. According to some reports, his properties have been set aside in a living trust. The trust will eventually revert to the Turner Foundation, an Atlanta-based organization with the goal of preserving the environment.
And get this. Turner and his family will continue to have full access to those assets.
Here’s another example …
On the coast of Maine, there is a long-standing conservation land trust that now encompasses Acadia National Park. It was formed by John D. Rockefeller in the 1920s. The trust ensured that no one would build or develop land around the Rockefeller compound. It also ensured that the donated property would never be abused in some way. But that was secondary to the primary purpose of the trust: risk transference for the Rockefeller family.
And another example …
A group of 19 wealthy entrepreneurs shrewdly capitalized on Colorado’s conservation laws by acquiring ranch land and putting it into a conservation land trust. The trust protects the land from developers, and the tax benefits are utilized to offset expenses. Meanwhile, the entrepreneurs maintain the use and enjoyment of their asset.
And another example …
Billionaire John Malone (#190 on the Forbes Richest American list) recently purchased about 7,500 acres of pristine property in Western Maine on Spencer Lake. He already controlled about 8,000 acres in the area, and this acquisition gave him complete ownership of the lake’s shoreline. The investment was placed into a trust.
You can transfer the risk of losing just about any asset you can think of – vacant land, your home, your business, vehicles, your savings account, your IRA – by placing it into a separate legal entity or trust. Any competent attorney can help you. You might also want to check out LegalZoom.com, a valuable online legal service.
Let’s say you purchase 50 acres of land adjoining a National Park. You could release the rights to some of that property – in particular, the public access areas – to the park. You would still enjoy the property and the view as much as before. But now you’ve released the rights to the areas that are most at risk for liability claims.
Or let’s say you own a small fishing camp in Wisconsin. It consists of a few buildings, 10 acres of land, a dock, two boats, and a waterfront easement. You could place all these assets into a living trust. Then, if you were sued personally or if your business were sued, the assets would be protected. The trust, not you, would legally own them – though you could continue to use them to the fullest.
A living trust is one of the best ways to enjoy the benefits of risk transference. In most cases, you would appoint yourself as “trustee.” This would give you the legal right to sell, build, develop, or reassign the assets in the trust any way you see fit.
I’m not rendering legal advice, here. You’ll need to check with an experienced attorney for specifics. But I think you will find that risk transference – especially as it relates to trusts and incorporations – is a powerful asset protection tool. And not just for the wealthy.
If you’re intrigued by this tool, you may be interested in hearing about more of the wealth preservation tools and tactics I’ve discovered. I’ll send you my Special Report – “10 Ways to Remove Risk From Your Life” – free of charge when you subscribe to our new service The Liberty Street League.
The Liberty Street League was created with one goal in mind: to bring groundbreaking ideas for wealth creation to individuals who are seeking better, smarter ways to make money. If that sounds like you … look into it.