There is a great deal of ‘election year uncertainty' about the economy among successful people and their advisors right now, and a number of people have asked ask me what kind of asset protection and ‘financial prepping' they should be thinking about.

Using the very worst scenario possible as a “crash test”, the 2008 recession, here are some basics that helped determine who lost, who survived and who even prospered during the five very tough years that followed.

What Separated Wealthy People from Their Money?

The post 2008 economic downturn we experienced here in Arizona and across the U.S. affected nearly every imaginable business channel.

Starting with those in real estate where the majority of my state's wealth was concentrated, we saw developers, builders, contractors and others lose a lifetime of hard work in as little as forty-eight months. Some of it was due to a complete lack of diversification, they said things like, “I make 30% a year in my dirt deals, why would I give money to a financial advisor?” which was a good response until the music stopped, and they didn't, for several years.

A Terrible, Perfect Storm

What these business owners (and everyone else) then experienced was a combination of the following, to name just a few:

•            Significant decreases in their income

•            Loss of access to credit that they had used for years and surprise ‘collateral shortfalls' that created insolvency in otherwise solvent businesses. I was surprised how many successful people did not have a personal relationship with a banking team that knew them and their business and that could have helped them through tough times as a partner, rather than as creditor.

•            Loss of 30-50% of their home equity, a significant asset in “house-proud” parts of the valley where the HNW live.

•            Stalled or negative investment momentum for those that did actually have investments outside real estate or their other primary businesses.

•            A lack of complete and sophisticated legal counsel on the deals they were in; I'm amazed how many people signed personal guarantees for 100% of the debt in a given deal when they owned 25% or less of the project – this is just plain old “bad lawyering” or in many cases “no lawyering”

•            A near complete lack of liquidity and diversity in the concentration of their assets.

•            Increased litigation exposure on every imaginable front including among and between partners and investors, employee lawsuits, the list is staggering.

•            The lack of any kind of defensive legal and financial planning (asset protection) and a fatal reliance on traditional estate planning (death planning) alone. Most of these folks were one big, undivided and collectible bucket of money with everything in their own name or in a revocable trust (makes no difference in a lawsuit).

·      A lack of sophisticated personal and business tax advisory and financial advisory relationships that their high income and net worths deserved. These were very successful people that were good at doing something that MADE them a significant amount of money. They were not however, getting the advice they needed to predictably KEEP as much of what they earned as legally possible.

So How Did Other People Survive and Even Prosper During the Same Time? 

It's interesting to note that at the same time we saw an economic climate with so much loss, other individuals survived and even prospered! Some of those people were just lucky, others planned for success, often with the help of top advisors who actually looked at the client as a holistic being with many moving pieces, not just as an account holder, estate planning client, etc.

However they got there, the survivors and winners shared some common traits: 

-              They and their advisors were aware of potential exposures and were proactive in addressing them.

-              They were able to make their personal, family overhead commitments from existing resources for an extended period of time, even without additional cash flow.

-              They were willing and able to adjust their lifestyles and expenditures to current economic conditions. They lived very well, but well within their means, as opposed to at the limits of their means.

-              They had assets that allowed them to meet existing business financing burdens and other fixed costs in a form that they were able to liquidate at minimal delay and expense. This included a fixed and disciplined allocation to cash or cash equivalents.

-              They had top counsel in place on tax, business and estate issues, and that counsel used a variety of strategies that not only served the primary planning goals but also protected those assets for the family.

-              They were advised to “safety wrap” assets in various legal entities that had legitimate business purpose and segregated their assets from their personal and professional liability. Simple examples include the use of LLC's for investment real-estate, the use of Limited Partnerships to own and control non-qualified investment accounts, and the use of appropriate types of irrevocable trusts as opposed to dumping everything into their revocable living trusts (financial suicide).

-              Their planning included both legal and well thought out financial tools, like life insurance and annuity products that protect certain assets (including from bankruptcy) by statute*.

-              They had great credit and personal relationships with bankers that allowed them to agree on terms that were best for all parties involved, and had these relationships with several institutions.

-              They had long term assets that were able to be made liquid with minimal penalty and delay, despite that liquidation not being part of the original plan, i.e. long-term investments with an escape or liquidity plan built in. This liquidity allowed many I personally worked with to take advantage of current pricing and inventory in real estate, as just one example, and some of them doubled their net worth.

Regardless of wether you are concerned about the election or not, these “financial survival traits” are best practices that you need to develop the right team of professional resources on today. Expand the scope of your inquiry and discussions with your advisors to include these issues now, while you still have the most predictable, cost effective and legal options available. You cannot make many of these moves in a time of crisis and after 20 years of protecting some of the most successful people in America, the number one asset protection mistake I see wealthy people make remains the same: doing nothing.

*As an example, an individual with a net worth of $150 million was bankrupted by leveraged real estate exposures and was left with just a single post-bankruptcy asset to start over with, the statutorily protected cash value of his life insurance policy which amounted to high seven figures.