Tahoe-Truckee Market Beat: Protecting assets with an LLC
Special to the Sun
The United States is considered to be the most litigious society on earth. Some people may debate that statement, but I think it’s fair to say that lawsuits are very common in the US.
A New York Times article by Paul Rubin stated, “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.”
There are steps investors can take to protect their investment accounts from lawsuits. Qualified retirement accounts, like IRAs, have some protection from creditors and the amount varies from state to state.
One way to help protect non-qualified investment accounts is by forming an LLC, which stands for Limited Liability Company. By placing assets inside an LLC, you can get some protection from lawsuits.
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 to establish LLCs in. Currently, the costs of a Wyoming LLC are much lower than in Nevada.
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 under your individual name.
Common account types are individual, joint tenants with rights of survivorship and tenants in common. Accounts that are titled as 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.
You can’t wait until you’re served with a lawsuit to transfer assets into an LLC that is known as a fraudulent conveyance. You have to set one up and fund it before someone sues you.
If you’re concerned about protecting your funds from lawsuits, an LLC may help. Consult with a competent attorney and your tax adviser to see if it makes sense for your situation.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.