Texas offers excellent creditor protection compared to other states. Our Texas bankruptcy laws are better than the federal ones when it comes to protections, but retirement is protected even under the federal program. Until recently, retirement benefits were not protected from long term care. There are still some problems with protecting them from it, depending on whether you are receiving required minimum distributions or not.
When we think about asset protection, we think more about protecting the spouse at home after the other spouse goes into a nursing home and making sure that they don’t go bankrupt taking care of their loved one. Long term care is the biggest creditor that we face.
Asset protection in an LLC is definitely better than in a corporation. The problem is that single member and married couple LLCs do not always give you a lot of asset protection. When you have a single member or even a married couple, you have total control. We layer your asset protection so instead of you personally owning that LLC, maybe an irrevocable trust owns it or a portion of it. That way, we layer the protection to make sure that it is harder for creditors to get to you. In order to get to you, they have to get through the trust. A lot of civil litigators don’t know enough to head down that path. Sometimes, the more complicated we make it, the easier it is to give you some credit protection.
An LLC can own just about anything other than retirement benefits, since collecting retirement benefits is a taxable event. An LLC can own investment accounts, businesses, real estate, and many other assets.
Whether or not your LLC goes through probate depends on how well your LLC is set up. Operating agreements can be used to help the LLC avoid probate. We use a lot of trust planning to assign the LLC to a trust, so the trust owns the membership interest of the LLC. This gives you the ability to avoid probate by doing some additional planning, as having a better estate plan can prevent your LLC from going through probate. If you are doing will-based planning, it is all going to go through probate. We often see that most people do not prepare sufficient operating agreements when setting up their LLC, which makes it more difficult to avoid probate.
If there is no good operating agreement for your LLC and you pass through probate, the membership interest of the deceased spouse is going to pass to the surviving spouse. That is assuming that other things are correct and that you have a husband and wife who share the same children. If you have a blended family, then the step-kids may end up with the membership of the LLC. It is crucial to set up a thorough and tailored estate plan to prevent leaving assets to the children of the spouse or disinheriting children.
For more information on protecting retirement assets from creditors, a strategy session is your next best step. Get the information and legal answers you are seeking by calling (281) 885-8826 or schedule your strategy session online here.