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LLC Friendly State

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  • LLC Friendly State

    I'm in the LLC friendly state (creditors can only issue a charging order). I was thinking about forming an LLC with my spouse for investing at a brokerage firm like Fidelity (make us both 50/50 partners and thus prevent creditors for going after the money). This would be a taxable account, which is one account that has poor protection from creditors. Would this idea work?

  • #2
    Unless you live in a community property state, you'd be creating a partnership that needs to file a Form 1065 tax return each year.  Partnership returns can be tricky to do on your own and for just holding a brokerage account it may not be worth the cost of filing that additional return.

    I can't speak to the asset protection piece but I wouldn't recommend this from a tax perspective because of the additional administrative work you're creating.

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    • #3
      Multimember LLCs are increasingly being considered as asset protection vehicles for single individuals as well as couples.  I don't think this has been well litigated however.  One concern for a husband/wife only is at least the possibility that they will be considered "one person" for litigation.  Best analogy is that husband/wife Self Employed 401K plans are not offered ERISA protection as they are not considered to have any "employees".

      I'd discuss this with a good estate planning attorney in your state.  Also discuss a Family Limited Partnership for this purpose, as they are more established in law.

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      • #4
        Agree with the above. If your state offers TBE titling (Tenancy By the Entirety), you might consider that.
        Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          Thanks for all the quick responses. My state is a community property state and unfortunately can't use TBE in my state for asset protection (definitely would have). FLP looked like a good idea until I read it basically requires lawyers to set up and will cost >1K. Not sure if you can put brokerage accounts into them either.

          LLC seems a lot more simpler with half the cost. Also, this would not be for asset protection solely, which I read pretty much doesn't work. It would be an actual business with goal of generating a profit (I would make this clear in my operating agreement). I guess a lawyer trying to sue me would have to be really aggressive to go after something with no/little legal precedent. Also, wouldn't it be difficult for them to even find this linked to me.

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          • #6
            Always interested in learning new things, but always a little hesitant to pursue a strategy I've never heard about! Keep us posted.

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