What is the best way to protectively title investments and other liquid assets?
Here you have several good options. One option is to title your cash, CDs, mutual funds and other liquid investments to one or more limited partnerships (LPs). We most frequently use LPs to protect liquid investments because; 1) the LP lets you control these assets; 2) your LP interest cannot be claimed by your creditors; 3) the LP is tax-neutral; 4) the LP gives you maximum ownership and operating flexibility; and 5) the LP lets you better plan your estate and reduce your estate taxes. The LP is both versatile and protective. Most comprehensive asset protection plans include at least one limited partnership. But the limited partnership is only one option. Some planners recommend limited liability companies (LLCs) because they too are COPES (limiting creditors only to the charging order). But we prefer the limited partnership for these assets because the limited partnership is designed to own 'safe' assets and the LLC is preferable for business purposes and to own non-residential real estate. Moreover, the limited partnership provides for discounted estate tax valuations and finally, the limited partnership can simultaneously own the client's multiple LLCs or C corporations and thus serve as the foundation for their entire plan.
Some clients use domestic trusts to hold their investments. Revocable living trusts are not recommended to own these assets because they provide no protection. On the other hand, irrevocable trusts require you to relinquish control and beneficial enjoyment of these assets. Domestic asset protection trusts (DAPTs) can be self-settled; that is the settlor can also be a beneficiary. However, DAPTs have their own limitations and restrictions. There are, of course, other options, but these are the most typical ways to protect investments.
Which is your best option? That depends upon your personal situation, the value of these assets, your estate plan, and your financial and tax objectives. That's why you should involve your financial planner, tax advisor and insurance professional in your planning. You not only want to protect these assets, but also structure them correctly considering your other goals. Remember, your financial professionals are important members of your wealth protection team and they are essential to a coordinated, integrated plan.