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Putting your taxable investment account into a Trust

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  • Putting your taxable investment account into a Trust

    Say you max out all retirement accounts, and have a significant amount of income left over. Lets estimate 10k/month that you want to invest in a taxable account with Vanguard. If you wanted to protect this from any malpractice claims, what would be the best way?

    I've heard a Trust is the only way to protect it but was hoping other people that may have done this would have more details or care to comment on this?

    Would you lose control of the money? Anyone know of examples of a taxable account being protected because of a trust? Any insight would be much appreciated.

  • #2
    A revocable (living) trust will not protect your investment accounts from creditors. You would have to place your investment accounts in an irrevocable trust which is almost certainly inappropriate as you lose control of your property. The use of irrevocable trusts is more common among UHNW families.

    Probably the best way for you to protect your taxable accounts is to have plenty of umbrella insurance and, if possible, choose to live in a tort reform state.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Yep -- Living Trust is for probate avoidance; not malpractice.

      Individual protection:  umbrella policy is fast/broad/easy

      Medical protection:  consider LLC/Scorp may help personal exposure;  Tort Reform state of california!

       

       

      Longer answer:  An asset protection mechanism is using properly setup LLC : shares bought (or gifted) and you as the manager.  Your own individual LLC share may be at risk if found libel, but the mechanism of retrieving those funds is blocked until liquidated.  There are poison pill mechanisms to protect, but really complex and not worth it unless you have a ton of money (or risk) that's beyond a simple umbrella.

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      • #4
        personal umbrellas generally do not protect against professional malpractice claims.

         

        You can form an irrevocable trust. Yes, you would give up some control. Better make sure you trust your spouse, or whoever your trustee might be.

         

        In some states, a homestead exemption clause means you should put extra cash toward paying off your house.

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        • #5




          personal umbrellas generally do not protect against professional malpractice claims.
          Click to expand...


          You are exactly right. I was focused on overall protection and not the topic of @ShahMD 's original question.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            ShahMd It is very unusual even if you lose a case and your appeal that a plaintiff will not take your insurance money and call it a day.  If this really worries you and your field is litigious it makes more sense to increase your malpractice coverage than to set up some sketchy trust.  You need to make sure your carrier is solid and will put the bucks in to defend you.  I am an OB/GYN I have been through a trial but I did not really worry about my personal assets.

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            • #7
              It depends on your state, but where I live, money held in a joint account with my wife is not seizable in a malpractice verdict against me.

              More importantly, this scenario is ridiculously unlikely, to the point that unless you are actually trying to harm people, operating when intoxicated, or are otherwise criminally stupid, it will not be an issue.

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              • #8
                Common question among docs until they realize how low the risk is.

                But yes, putting it in an irrevocable trust would protect it from an above policy limits malpractice suit that wasn't reduced to policy limits on appeal. Yes, it would no longer be your money. Putting it in an irrevocable trust is the legal equivalent of giving the money away. Since it is no longer yours, they can't take it from you in a bankruptcy situation.

                General asset protection principles including buying malpractice and personal liability insurance, learning the asset protection rules for your state, maxing out retirement accounts, taking advantage of tenants by the entirety titling, and considering state-specific tactics like paying off a mortgage if there is a big homestead exemption or using cash value life insurance if it is protected in your state. Only then, if you really want to, should you look into more "advanced" techniques, knowing none of them are 100% other than giving the money away.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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