LLC Brokerage Account: Everything You Need to Know

An LLC brokerage account offers many of the same benefits as a bank account and forming an LLC can protect your assets and estate planning.3 min read

An LLC brokerage account offers many of the same benefits as a bank account. Forming an LLC is not just ideal for businesses, they are great options for protecting your assets and for estate planning. The main reason is because of the limited liability protection they offer. When properly formed, funded, and managed, an LLC will be treated as its own legal entity and shields its assets from personal liability.

Overview of Brokerage Accounts

It doesn't matter whether you have just started out or have millions in returns, any brokerage accounts you have need to be protected. These are some of the easiest assets for a creditor to get ahold of. Remember that you may not have much in your accounts now, but your account may grow down the line.

One of the benefits brokerage accounts offer is flexible ownership options, many of which may work well with your estate plan, or you can even move them offshore. These are important tools for helping you build an asset protection plan that is both effective and allows you to retain control over portfolio distributions.

Estate Planning and Asset Protection

One option to protect your assets is to set up a domestic asset protection trust (DAPT). This is a domestic trust that helps you protect your assets from creditors. Your assets are transferred into it when the trust is formed, which is comparable to an LLC. Another option is the foreign asset protection trust (FAPT), which is like a DAPT. The difference is it is formed overseas. Trusts that are set up overseas in a country without full faith and credit for judgments in the United States provide an additional layer of protection for your brokerage accounts.

Other types of trusts, like a revocable living trust, may also be used to protect assets. It's more limited than other options, but they may have countervailing benefits applicable to estate planning purposes. If you are looking to protect your brokerage accounts, it's very important to consider all sides of the equation.

Converting Personal Investments Into an LLC

You can transfer assets from a corporate investment account into your LLC. You need to first ask yourself what you are trying to accomplish. LLCs will act as a pass-through in order for dividends, capital gains, and interest to pass through to your personal returns. If your primary objective is asset protection, a better structure would likely be a properly drawn trust. It's recommended that you meet with an attorney who specializes in this area and is familiar with the laws in your particular state.

If your purpose is to disguise assets, you can accomplish this in other ways and skip the filing fees and LLC reporting requirements. When you title your assets in a trust, the name of the trust does not have to be attached to you, but you will still file personal tax returns.

Benefits of an LLC to Protect Your Assets

The United States is extremely litigious. This means lawsuits are very common and settlements can often be very high, sometimes six figures or more in a serious accident. These unforeseen events could be absolutely devastating to your bank account. Your LLC brokerage account can offer limited protection from creditors.

Brokerage accounts that are common include:

If you have brokerage accounts that hold title as trust, joint tenants, or tenants in common, you will have some benefits in the event one party passes away, but it won't offer any added protection from your creditors. Don't forget that LLCs cost money to set up and there are also annual fees. LLC laws will vary by the state you choose to establish it in. Two of the most favorable states to set up an LLC in include Wyoming and Nevada.

Once you set up the LLC, you are allowed to open the brokerage account in the LLC's name and transfer any assets. You are also allowed to sell and buy stocks and bonds within the LLC, much like you would do with an account that has a different title. LLCs can also offer several tax advantages. It may be easier to write off some genuine business expenses, like:

  • Management fees
  • Research materials
  • Transaction costs

Just know that you cannot wait until a lawsuit is served to decide to create an LLC and transfer assets. That is what's known as fraudulent conveyance.

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