To Pittsford, such plans for his clients start with ample liability insurance. In addition to maximum coverage on home and auto policies, HNW clients need hefty amounts of umbrella excess liability insurance. “A client with $5 million in net worth might have a $3 million umbrella,” he says, “someone worth $10 million might have a $5 million umbrella, and so on.” The umbrella policy can pay claims in excess of or not covered by auto or homeowners liability limits.
Pittsford states that he is not an expert on property and casualty insurance so his role is to help clients find such experts and work with them. “I prefer independent agents who can get policies from multiple insurers,” he says. “When HNW clients are going to meet with their agent, I remind them to be thorough in describing their needs.” Pittsford will send memos to clients in the market for liability insurance, reminding them that the policy should cover their homes, their boats, their planes, etc. “The insurance agent should know how many trips they take outside the U.S., for example,” he adds, “and who is driving what.”
Updating is important, too, if Junior gets a driver’s license and now can choose from among the vehicles in the client’s garage. “If a client buys a home or adds a pool to an existing one,” Pittsford says, “I’ll encourage bringing that information to the agent handling the liability coverage.”
Beyond insurance, Pittsford’s asset protection plans focus on asset ownership. “Too many clients come in here with all of their assets owned outright or jointly with their spouse,” he says. “They haven’t considered the potential liability.” Pittsford generally suggests creating an entity to hold some of those assets, such as a limited liability company (LLC), a corporation, or a trust.
“An HNW client might own a business with real estate and some trucks,” he says. “I’ll suggest using not only an LLC for the company but also separate LLCs for the property and for the trucks. Then, if a truck should cause an accident, the liability may be limited to the assets in that LLC, rather than the all of the client’s business and personal assets.” Similarly, a client who owns multiple rental properties might hold them in multiple LLCs, to restrict claims if someone is injured on one of those properties.
Currently, Pittsford is working with a client whose assets include part of a 15,000-acre ranch. “With his brothers and his cousins,” Pittsford says, “there are eight family members on the deed. I’m advising this client to move the ranch into an LLC, and to have an attorney draw up an operating agreement. One portion of the agreement could prohibit transfers outside of the family in case of death, disability, divorce, or personal bankruptcy.” Such a provision, Pittsford notes, also might provide some asset protection as creditors may find little merit in going after a minority stake in an entity with limited liquidity opportunities.
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