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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.


    • #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.


      • #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 and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


        • #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.


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