Building Assets

One of the most important and common practice for legacy builders is building assets. This is very important to both builders and beneficiaries because of the values assets add to each of them.

Assets play a great role in building legacies for several reasons: they are tangible, useful and diversified. Assets vary in terms of market value, depreciation and liquidity. It is very essential to understand the differences between various types of assets and the risk factor that comes with each one of them. It is also very important to note that personal preferences and risk aversion play a big role in this regard. For example, a person who doesn’t like to take big risks would probably build assets that are more commercial since they are more likely to be marketable with time.

Assets range between liquid, less liquid and fixed assets. General classification is current assets, those who could be liquidated within one year, fixed assets, who are less liquid, and intangible assets such as patents, trademarks, goodwill, etc. Some of them depreciate and others appreciate. Let’s start with the most liquid to the least liquid:

● Cash: cash is king; it is very important to build a good lump sum for your inheritors. No matter what your investments are, no matter how big or small your business is, cash is always essential because it is liquid, can be used in all circumstances, in all countries with the least possible hassle. Cash can be mobile; unlike fixed assets such as building and land…Cash can be converted to any currency and be transferred from any country using your mobile phone. To make any transaction, buy any asset, transfer any property, or simply enjoy your lifestyle, cash is the main tool to get you there. The question is, where to put that cash. The answer is diversifying. Some of it must be on hand, for daily purposes, a bigger part must be in the safe, for regular emergencies. The biggest part must be in the bank to keep it safe and to fight against inflation as much as possible. Beneficiaries won’t always have the best awareness on what you left them but everyone loves and appreciates cash. So build it well.

● Accounts receivables: this might seem weird to digest but let’s explain to have the full picture. First, let’s define account receivables. Those are amounts to be received from the client. For example, if you invoice a client $10,000 for your product or service, he/she pays $3,000 as a down payment then the remaining $7,000 go to accounts receivable. Suppose you have a bigger business, this amount could become millions. It is very important to have contracts with each client in this regard, because if unfortunate death occurs, you need of proof for the transaction; here comes the role of the contract and the invoice. If they are well structured and the mode of payment is clear and legalized, then those receivables could be very supportive for the heirs.

● Inventory: the products you sell could be easily liquidated and used as cash. Imagine you sell computers or furniture or any other product that has a fair shelf life; this will be very helpful to be transferred to liquid cash. However, it is important to make sure that heirs can have enough knowledge to sell them, your clients will always have the need to buy them or having the right staff to support in this regard. More details about this matter will be explained in the “business legacy” section.

● Gold and other precious metals: it is true that their prices fluctuate over time but history has proven that the value will be always growing upwards over the long term. The storage will be easier to handle and they are universally approved to be valuable.

● Equipment and vehicles: they are important but their problem is with fast depreciation. Suppose you have computers for the value of $20,000, in a couple of years they will fully depreciate and become almost invaluable. They could definitely be used for the sake of running the business but their usability won’t endure long. Instead, try to focus on investments that are more long term oriented such as the following ones.

● Collectibles: whether coins, jewelry, carpets, special furniture, arts, collection cars or other pieces of art, most of these assets will appreciate in value over time and could become worth lots of money. It is very important to educate your heirs about their value because it is very common for them not to know their value and sometimes getting rid of them thinking they are junk. It might seem unrealistic but really sometimes old coins or an old painting could look awful for the new generations who understand very little about arts.



● Real estate:

o House: these days a house is worth much more than just its financial value. It saves a big hassle for the heirs because it is not easy to find a good quality house for a fair price. The two main disadvantages are: they depreciate over time and heirs might not like the location. However, they can renovate them, sell them or even rent them. A small tip in this regard, buy smaller house because the more prices are increasing, the less likely you will find people to invest in them. The future will be for smaller apartments.

o Shop: the main advantage of having shops is that the demand on them is more likely to be found. They make a good investment because there will always be people who rent a shop for a small business, open a restaurant or use it a storage space.

o Office: a good investment that will usually generate good returns just like shops. Small offices are always demanded because of their competitive prices and convenient uses. Heirs will either use them for their own businesses or rent them and make steady monthly returns.

o Warehouse: not very common investments but they are good ones. A warehouse is usually a hidden goldmine because there’s frequently a shortage on supply and people always need them for small factories, storage, parking or many other uses.

o Building: this needs a good budget. However, the beauty about having your own building as a legacy for the next generation is that you can design it the way you want, do the partitions as you see convenient, and distribute fairly to the heirs without worrying about future potential disputes.

o Land: the only asset that doesn’t depreciate. Old generations highly focused on buying lands because of this great added value. However, the main issue with lands is that it is not easily liquidated. Usually it is also hard to rent compared to an office for example. The beauty about lands is that they offer several advantages:

▪ They appreciate in value compared to assets that depreciate over time.

▪ They can be used for different projects: depending on the area, the altitude, the size of the land and the neighborhood style, the heirs can decide to build their own projects there. Whether they decide to build a hotel, a building, a villa, or simply an entertainment project…the opportunities are very vast and it gives the owners the freedom to use their imagination and implement the project of the dreams. At the same time, the land can be rented in case the owners want to benefit from financial returns on the short term and then make their own dream concepts on the long term…

No matter what the asset is, it always brings a good economic and emotional value to its owners. As a rule of thumb, always invest in appreciating assets such as real estate and gold. The most important thing to consider is to keep monitoring the distribution and diversification of your portfolio. After all there’s no right and wrong. However, what you need to keep an eye on is the transfer of ownership costs. For example, in case of death, real estate must be transferred to the heirs and this could have significant registration costs that sometimes are not available on hand. Here comes the role of your financial advisor to keep valuating your assets and give you the right life insurance coverage to cover the costs of transferring those properties to the next generation. Suppose you own real estate for the value of $10,000,000 and the estimated cost of transfer of those properties could double in case of death to reach an average of %20 of their value. This means your heirs would need $2,000,000 in cash to be able to do that transfer. Here with a simple life insurance coverage you can buy that risk and ensure your legacy is going from one generation to another without losing from its financial value. Otherwise, those assets will remain legally un-transferred and beneficiaries would not be able to rent them or sell them. This would leave them with lost opportunities and lots of financial burdens that you could have avoided with a simple signature and a fair insurance premium.