Egesa FM Talkshow: Five Wise Ways of Protecting Our Assets

 My Presentation at Egesa FM Kanyeka Talkshow on Monday 12th Oct. 2020 at 9.30pm

Host: Sorobi Moturi Erastus 

Guest: Chacha Nyaigoti Bichang'a, Personal Financial Coach & Author of "Mastering Your Money"

Topic: Wise Ways of Protecting Our Assets

Key areas of focus

1. Meaning of the term "asset" and "asset protection"

2. Examples of assets 

3. Why we need to protect assets

4. 5 main ways of protecting assets

5. Parting shot/conclusion

Meaning of an asset

An asset is anything you own that has monetary value and can generate income.

 * Examples: livestock,  crops, trees, chicken,  handcart/mkokoteni,  motor cycle, business of any kind, rental house or building (not residential one),  land (leasing or farming, not an idle land), stocks,  unit trusts,  govt securities, savings in bank accounts (earning interest) etc. 

Asset protection means the process of safeguarding our assets from wastage or any unforeseen loss due to theft, death of breadwinner, divorce/separation, illness/incapacitation, misuse or mismanagement, claims, lawsuits, etc.

Why protect your assets

1. To avoid unnecessary conflicts,  wrangles or fights - among family members: parents,  children,  siblings, relatives and partners in case of lack of proper asset planning/estate management, proper ownership of property or insurance cover. 

2. To cushion your assets against unnecessary claims or lawsuits resulting from damages,  injury of staff,  accidents, fire outbreak or calamity. This happens when you don't have insurance to protect your assets (to be discussed in detail). 

3. To prevent losing your credibility, or integrity. Asset protection creates order and harmony among family members, partners, friends,  relatives and business interests. It creates boundaries (ring fencing your assets) and ways of handling disputes through writing will, property ownership structures, etc. 

Note. 

Asset protection helps you safeguard your hard-earned investment or property from  any loss or total wastage. 

It is a way of protecting against parasitic predators like family members in case of conflicts, greedy relatives, unscrupulous agents/brokers, lawyers due to court cases/huge legal fees,  friends,  competing business interests, employees stealing from business, KRA in case of  tax penalties, banks' extraneous charges and accumulating loan default arrears, thieves/robbers etc.

Asset are generally classified into two according to the level of risk involved:

1. Dangerous assets. Have high risk potential e.g. motor cycle, motor vehicle, tools and equipment, rental real estate,  commercial property or business. 

2. Safe assets. Have less liability or risk. Like crops, livestock, chicken, individually owned bank accounts, stocks,  bonds or even cash at hand. 

Note.

Dangerous assets require certain insurance policies, and different form of ownership to mitigate loss/liability to the owner. 

5 wise ways of protecting assets

1. Estate planning/management. Deals with management of property to avoid conflicts. E.g. During death of breadwinner,  divorce,  dissolution of partnership and wrangles among partners. Comprise two components: will and trust.

i. Writing will. Very emotive and misunderstood subject due to various misconceptions/myths (Western/not African,  meant for the rich and bad omen that lead to death). Oral wills existed in African societies. 

A legal document indicating how assets will be managed and shared among beneficiaries in case of death or incapacitation. 

It helps to prevent conflicts among family members,  relatives in case of death or divorce. 

A letter of wishes, though not legal,  also spells out how property is to be shared. 

ii. Trust. A case where one transfers property to another and gives guidelines on how trustee will manage and distribute assets on behalf of 3rd party (beneficiaries).

2. Ownership of property/assets

 Takes different forms depending on number of investors,  purpose of investment and future prospects.

i. Company. Legal entity,  body without soul. Can sell,  buy, sue or be sued. Popular for holding real estate like land,  building, commercial property or business. Has shareholders and directors. Good to form family company and appoint professional managers for posterity. 

ii. Sole proprietorship. Single person owns property. Easy to start,  less costly and easy to control but the death of owner may lead to its collapse. 

iii. Partnership. Two or more people own business or property, share profits and losses equally. Competing interests and lack of legal structures lead make it more risky.

3. Insurance

A formal contract that protects business or assets against any unforeseen risk. Like illness,  death,  fire outbreak,  theft,  loss of job,  accidents,  or forced/early retirement.

*It is a very emotive and misunderstood due to misconceptions (meant for vehicles, those with a lot of wealth and God is our protector). 

It has several advantages: protection of what is valuable, safeguarding your family and dependents, reduction of liability and easy management of risks. 

Insurance can be short-term for protection of individuals or property (medical/health, personal cover or general liability) or long-term covering life-changing events like death,  disability or retirement (pensions and life assurance) 

4. Pension

Monthly contributions for retirement.  Can benefit family in case of death.  Can be contributory or non-contributory for employees. Business persons, and farmers can have private contributors schemes like Mbao Pension to contribute a minimum of Kshs.20 per week.  Can be accessed upon attaining 50 years and tax free at age 65 years. Check your pension statements and update list of beneficiaries often. 

5. Tax compliance

Taxation is a system govt imposes levies on people  and gets money to provide essential services like free education, health and defence. Different taxes but most common  ones are: PAYE (Pay As You Earn) for employees,  VAT (Value Added Tax) for businesses and WHT (Witholding Tax)  for investments in paper assets (shares,  unit trusts). 

Failure to pay tax is criminal and punishable in a of court of law. Filing returns in time before 30th June is important. Otherwise tax penalties can wipe away your net gains and lead to closure of business. 

Parting shot

Asset protection is one of the most important ways of mastering your money. Working hard to acquire assets is crucial but if you don't protect them,  it will lead to a total loss. You need write a will,  go for insurance policies as per your needs, form limited liability company for proper management of your business, contribute to pension and adhere to tax compliance requirements.

For more details, get a copy of my book, "Mastering Your Money," which is a step-by-step practical guide for any one keen on attaining personal financial freedom.

Thank you.