Although tax-deferred retirement plans generally are protected from creditors, stocks, bonds, and mutual funds that you hold outright enjoy no such protection. Indeed, liquid securities are usually the first assets a creditor will go after.
In some states, life insurance policies and annuity contracts are beyond the reach of creditors. If you live in such a state, you might want to do your investing inside a protected variable annuity or variable life insurance policy. Either way, you can direct your investment among several types of professionally managed subaccounts.
Another approach is to transfer your securities into a family limited partnership (FLP). Assuming no fraud was involved, creditors can’t attach FLP assets, force the partnership to distribute its assets, or dissolve your FLP. If you’re the general partner, you maintain 100 percent control over FLP assets.
Instead of an FLP, you might want to create a limited liability company (LLC) to hold the family’s securities because an LLC offers more asset protection. With an FLP, the general partner can be sued but LLCs offer asset protection to all members.
