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  • Asset Protection options for taxable account

    I fielded this question from a reader. It's not my area of expertise, so I thought I'd share the inquiry with the collective minds that gather here:

    "I'm opening up my taxable account and I'm given these options:

    1. Joint tenants with right of survivorship

    2. Tenants in common

    3. Tenants by the entirety with right of survivorship (for married couples only)

    it appears that the 3rd option provides some protection against lawsuits so that if I were sued they couldn't go after my taxable account funds as they belong to both me and my wife as a single entity and cannot be broken up.  Am I missing anything with this?  Would you recommend option 3 when setting up my account?"

  • #2
    If your reader lives in a state that permits tenants by the entirety for a bank/brokerage account, then it's probably a good idea.  Most states limit this kind of asset protection to real estate -- for example, if a doctor and husband own house as TBE, doctor loses a lawsuit, judgment creditor can't foreclose on the house because creditor can't reach husband's interest -- however, the creditor can receive up to 50% of the proceeds if the house is sold.  I'm not sure how the mechanics would work for a TBE brokerage account in the event of a judgment.  Perhaps the creditor could only levy against 50% of the dividends and any realized capital gains?

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    • #3
      OT - love your new logo!
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Tenants by the entirety is great if your state allows it. Then both spouses have to be sued (successfully) before a dime can be paid out of that account.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #5
          Good question, but need clarification from what type of risk?

          If general risk overall, like slip and fall in front of your house or car accident, a simple Umbrella policy would be easier to manage over time.

          If the person is a professional, should be working under a Corp to avoid personal risk.

          Ultimately, if you want to look poor and have minimal ways to 'discover' your true assets, one can setup a corporate LLC and funnel funds through that.  We've done that in the past higher risk investments -- real estate and retail ventures -- but those risks are different from equities risks (being sued and them grabbing your assets).

           

           

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          • #6
            I was about to start a new topic with the same exact question but found this so will try to rebump--> My situation: doctor, live in NJ, married, ready to finally start ou) taxable account. Seeing as we have already agreed that the taxable will be funded by our joint account, and since we will be starting it after marriage, we are certainly willing to just split it in half in case of divorce. Is tenants by entirety the best for a taxable to protect against lawsuits against either of us? Also, will it matter in case of a medicaid/medicare/disability situation should it arise for one of us in the future?   We also have an umbrella policy (but that doesnt cover malpractice judgements), W2 employees so no LLC option, wife is physical therapist.

            Also will it matter if one of us becomes incompetent, and money from the taxable account is needed, can the other spouse still sell shares from the account on their own?

             

            thanks

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            • #7
              How about placing assets inside a single member or multi-member LLC formed in Wyoming or Deleware?

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              • #8
                How about a Limited Partnership arrangement for your taxable account. Get a local attorney to write it up. Have a legitimate business purpose, say easier gifting to family members or preservation of family wealth. Certainly better than an offshore account. Most States (all?) have a charging order as only remedy. LP's are not ironclad, but better than a completely exposed brokerage account.

                How will you protect future wages or your accounts receivable?

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                • #9


                  3. Tenants by the entirety with right of survivorship (for married couples only) it appears that the 3rd option provides some protection against lawsuits so that if I were sued they couldn’t go after my taxable account funds as they belong to both me and my wife as a single entity and cannot be broken up.  Am I missing anything with this?  Would you recommend option 3 when setting up my account?”
                  Click to expand...


                  This is my understanding. It's something I'm considering as well.
                  Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

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                  • #10




                    I fielded this question from a reader. It’s not my area of expertise, so I thought I’d share the inquiry with the collective minds that gather here:

                    “I’m opening up my taxable account and I’m given these options:

                    1. Joint tenants with right of survivorship

                    2. Tenants in common

                    3. Tenants by the entirety with right of survivorship (for married couples only)

                    it appears that the 3rd option provides some protection against lawsuits so that if I were sued they couldn’t go after my taxable account funds as they belong to both me and my wife as a single entity and cannot be broken up.  Am I missing anything with this?  Would you recommend option 3 when setting up my account?”
                    Click to expand...


                    For sure option 3 if available in your state. It isn't in mine.
                    Helping those who wear the white coat get a fair shake on Wall Street since 2011

                    Comment


                    • #11







                      I fielded this question from a reader. It’s not my area of expertise, so I thought I’d share the inquiry with the collective minds that gather here:

                      “I’m opening up my taxable account and I’m given these options:

                      1. Joint tenants with right of survivorship

                      2. Tenants in common

                      3. Tenants by the entirety with right of survivorship (for married couples only)

                      it appears that the 3rd option provides some protection against lawsuits so that if I were sued they couldn’t go after my taxable account funds as they belong to both me and my wife as a single entity and cannot be broken up.  Am I missing anything with this?  Would you recommend option 3 when setting up my account?”
                      Click to expand…


                      For sure option 3 if available in your state. It isn’t in mine.
                      Click to expand...


                      This is a good resource to see what's available in your state.
                      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                      • #12




                        How about placing assets inside a single member or multi-member LLC formed in Wyoming or Deleware?
                        Click to expand...


                        At that point you need to start asking yourself how much hassle and money you're willing to spend to protect against something that has a very, very low chance of happening.
                        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                        • #13
                          When consulting with an asset protection attorney he did mention that a Limited Partnership is probably the gold standard in domestic asset protection. Set up with a "Shell" LLC as the General Partner and having you and your wife as separate limited partners.  In most states charging orders are the only remedy against a limited partner in most judgments.

                          However, LP's have a considerably cost associated with start up costs and tax filing.  Another option is a single member of multiple member LLC in Wyoming or Deleware , which offer charging order protection even to single member LLC's. LLC's are considerable cheaper to set up and function as a pass through for tax purposes.

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                          • #14
                            I live in a state which recognizes "Tenants by the entirety".  Currently my joint account with Vanguard is registered as "Joint tenants with right of survivorship".  Because Vanguard doesn't allow a TOD designation with their joint accounts, I've thought about transferring (or re-registering) the account as a Trust Account.  Does anyone know if there is the same asset protection with a Trust account as a Joint Tenants by the Entirety account?  I called Vanguard, and they said that changing my current JTWROS to either a Trust account or a Tenants by the Entirety account would involve opening another account, and then they would just transfer all of the assets to that account.

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