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Nov 29 2010 12:00AM


There will be ‘sudden wealth’ coming my way soon. Should there be any tools in place before I accept the funds, such as a trust or investment limited liability corporation (LLC), in which to place the funds before investing?


FPA member Dennis M. Patrick, CFP® ChFC, of Morris Financial Concepts, said “a specific answer to your question is difficult without more detailed information about your situation, but there are three primary questions you need to consider."

  1. What is the source of the money? “This is important because it determines the tax cost basis and will determine how much flexibility you have on positioning and investing,” Patrick said. “If it was inherited, it may receive a ‘step-up’ in basis. If it is a result of a law suit settlement, it may be taxable.”
  2. What kind of access do you need to the money? “The more access and control you need, the less protection you will be able to create for the assets,” Patrick said. “A living trust is a good start to place assets, but is limited on the protection it offers. There are other types of family partnerships, charitable remainder trust and the like that can offer more protection, but are considerably more complex.”
  3. How does this new money fit into your current financial position? “Does the new money create an estate tax issue for you?” Patrick asked. “Is saving on estate tax important to you? How much of the money do you intend to spend during your lifetime, and do you want to pass along any to your heirs?”

As you can see, Patrick said there are a lot of issues to be clarified before he could make any specific recommendation, and all of the planning techniques described above require legal documents that need to be drafted by an attorney. “I do not think an LLC to hold the investment is a wise idea, but there is some planning that can take place before you receive the money,” he said. “I think it is very important for you to consult with a financial planner to discuss how to utilize this new money to best achieve your financial goals. In my opinion, this is as important as creating the legal structure around the assets.”

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