Let A LLC Be A Key In Protecting Your Assets

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4th Dec 2015

Litigation is becoming even more ubiquitous than in recent years. Lawsuits, once much more rare, are now quite common and settlements or judgments can be high. Losing a lawsuit due to an accident or another unforeseen event could destroy your finances, even with insurance coverage.  So, what are some of the alternatives to protect yourself from the litigious public?

New York Times article by Paul Rubin noted, “The United States is already the most litigious society in the world. We spend about 2.2% of gross domestic product, roughly $310 billion a year, or about $1,000 for each person on tort litigation, much higher than any other country. This includes the costs of tort litigation and damages paid to victims. About half of this total is for transactions costs, mostly legal fees.”

If you’re concerned about what could happen to your investment accounts in the event of a lawsuit, you may want to consider establishing a Limited Liability Company, or LLC, for some of your assets. A brokerage account titled in the name of your LLC can provide some protection from creditors.

Common brokerage-account types are trust, individual, joint tenants with rights of survivorship and tenants in common. Accounts that are titled as trust, joint tenants or tenants in common have some advantages in the event of the death of one of the parties, but do not offer any additional protection from creditors.

Our law firm has worked with clients who have accounts titled in the name of their trust, an IRA account and have some assets in an LLC account.  It costs money to establish an LLC, and there is also an annual filing fee. Laws that govern LLCs vary greatly from state to state as well. Nevada and Wyoming are some of the best states in which to establish an LLC because of their charging-order rules. Currently, the costs of a Wyoming LLC are much lower than in Nevada.  However Utah LLC’s perform adequately for almost all situations.

Once the LLC is set up, you can open a brokerage account in the name of the LLC and transfer existing assets. Then you can buy and sell stocks and bonds within the LLC just like you would in an account that is titled differently.

LLCs can also provide for some tax advantages. Legitimate business expenses like transaction costs, management fees and research materials can be easier to write off.

You can’t wait until you’re served with a lawsuit to transfer assets into an LLC. In the legal world, that is known as a fraudulent conveyance. You have to set one up and fund it before a legal action against you is initiated.

If you’re concerned about protecting your assets from lawsuits, an LLC may be a helpful tool. Consult with a competent attorney and your tax advisor to see if it makes sense for your situation.

Contact our experienced attorneys for a free consultation.