This is part 1 of a 3 part posting.

Wealth preservation typically focuses on protecting assets against creditors’ claims and lawsuits, but it’s also important to protect wealth from erosion by fraud and identity theft. There’s a common misconception that fraud victims usually are unsophisticated, but there’s no shortage of sophisticated investors who’ve been seduced by the promise of generous returns.  And, according to the Federal Trade Commission, 10 million people fall victim to ID theft every year.  This three part posting offers safeguards against fraud and ID theft.

Protecting your assets against fraud and ID theft

A fundamental estate planning objective is to provide financial security for your loved ones.  To achieve that objective, your estate plan must include strategies for creating wealth (financial planning), preserving wealth (asset protection) and distributing wealth cost effectively (tax planning).

Wealth preservation typically focuses on protecting assets against creditors’ claims and lawsuits, but it’s also important to protect your wealth from erosion by fraud and identity theft.

Fraud can happen to anyone

When it comes to fraud, the most dangerous attitude to have is: “It can’t happen to me.” There’s a common misconception that fraud victims usually are unsophisticated. True, fraudsters often target neophytes with get-rich-quick schemes, but there’s no shortage of sophisticated investors who’ve been seduced by the promise of generous returns.

Just consider the Bernard Madoff debacle.  Madoff’s $50 billion Ponzi scheme snared corporate CEOs, wealthy celebrities, prominent investment funds, universities, not-for-profit organizations and other experienced investors. Many of these investors lost millions of dollars. Some lost billions.

Although there are no guarantees in the investment world, the best way to protect yourself against fraud is to do your homework and seek professional advice. Even in the Madoff scheme, there were warning signs that might have tipped off cautious investors, including:

• Returns that were unusually high and consistent given the volatility of the markets,
• Investment strategy explanations that likely wouldn’t have held up to closer scrutiny,
• Use of the same investment strategy for every investor, regardless of his or her circumstances, and
• Lack of involvement of a third-party brokerage firm.

It appears that many investors had an emotional response to the prospect of enormous monetary gains and skimped on their due diligence on the basis of Madoff’s reputation as a highly successful and well-respected investment advisor. A qualified, independent investment advisor can help you take emotion out of the equation and evaluate your investment options objectively and thoroughly.

In the next posting on this topic we will discuss simple things you can do to keep your identity safe.