Protecting Your Assets During a Recession

October 4, 2022

A recession has been looming in the background of our economy for a while now. If things play out as they have historically, we'll see a rise in financial litigation cases as we become more and more aware of our economic downfall. 

Additionally, it's no surprise that people begin to panic when there's a dip in our economic well-being. They'll try to avoid as much financial loss as possible, and some people might even move to litigation to seek financial security. The last thing investors and businesses want is to be an easy target during this time.

In times of looming recession, it's best to start implementing an asset protection plan. This will not only protect your assets but can also offer you peace of mind as financial instability rises. While making a plan might seem complex, working with an Indianapolis asset protection attorney can help. 

What is a Recession?

A recession is a notable decline in economic activity during a specific timeframe. From an expert perspective, it occurs when rising levels of unemployment, a negative gross domestic product (GDP), and an overall decline in economic activities exist for a sustained period of time.

During a recession, jobs are lost, the economy struggles and businesses make fewer sales, affecting the overall economic output. A recession depends on several factors. They include:

  • High-interest Rates: With high-interest rates, consumers are unable to borrow money. This implies that consumers will spend less, particularly when purchasing houses or vehicles.
  • Deflation: As demand reduces, so do prices. Deflation is the opposite of inflation. It occurs when the costs of goods and services are reduced due to a decline in demand. This downward spiral ultimately results in increased unemployment rates and a reduction in economic activity.
  • Asset Bubbles: These occur when prices of stocks, real estate, commodities, and bonds rise rapidly without underlying essentials such as an equal demand rise to justify the price increase. Asset bubbles ultimately lend a hand in creating inflation. 
  • Loss of Consumer Confidence: Consumers who worry about the economic state tend to save and spend less. Since 70% of the gross domestic product depends on consumer spending, the entire economy is disrupted.
  • Economic Shock: Occurs when an unpredictable event causes an economic disruption. As we move away from the initial shock of the Covid-19 pandemic, we can see its effects lingering in our economy. 

Assets that Require Protection

Several assets require protection during the recession period. They include retirement plans, home equity, and company interests. Asset protection is not only necessary for the wealthy or for individuals who own homes. Having your assets protected is recommended, no matter your financial status. 

Ways to Protect Your Assets

Bankruptcy, divorce, and lawsuits made against you can put you at a financial risk. Asset protection helps ensure you don't lose your hard-earned wealth. Some of the ways to protect your assets include:

  • Creating an Asset Protection Plan: Preparedness involves developing a solid plan and sticking to it whenever the situation requires you to react. This applies to different aspects of life, and investment is one of them. Formulating a plan before a recession is essential. You'll have a blueprint detailing what to do when problems occur in real time.

An asset protection plan allows you to act decisively when the recession hits. Better still, you can develop several plans that account for several economic conditions. The plan should include short, medium, and long-term measures to weather market uncertainties. 

  • Leverage Low-Yield Investments to Reduce Risk: If you want to hedge your profits, moving to low-yield investments like mutual funds, bonds, and exchange-traded funds (ETF) is advisable. Although they may not create similar outsized returns of high-yield investments, they're subject to fewer fluctuations.
  • Consider a Revocable Living Trust: A revocable living trust is a contract or agreement between a trustee and a trustor. The trustee has a fiduciary responsibility to manage the trust as per the requirements of the trust and shouldn't act in a manner that can harm the beneficiaries or the trust.

The trustee maintains control over the trustor's property during their lifetime and facilitates asset distribution after the trustor's death. The revocable trust can help shield your assets from creditors during a recession. The best thing is that you can alter the terms of your living trust or entirely revoke it.

Get Help from Indianapolis Asset Protection Attorneys

Various asset protection strategies can come in handy when the economy is experiencing instability. At Applegate and Dillman Elder Law, we’ll help you keep your wealth for yourself and your heirs through asset protection strategies like receivables financing, trusts, limited family partnerships, and real estate gifting.

We understand all state and federal tax laws and know the best legal strategies to ensure you maintain as much wealth as possible during this period. Contact us online or call us at (317) 492-9569 to schedule a consultation with an Indianapolis asset protection attorney.

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