Lawsuits and taxable accounts

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ChinchillaWhiplash
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Lawsuits and taxable accounts

Post by ChinchillaWhiplash »

If you lose a lawsuit and have your taxable account taken, do you have to liquidate the holdings? Or would it be transferred in kind, so to speak, to the new owner? If you do have to liquidate the holdings and turn it into cash for a settlement, do you have to pay capital gains on any growth? Just a general question here. Not currently involved in a lawsuit. Hold any snarky comments to yourself or direct it toward some noob please 8-) Seems like too many on here are getting salty and need to remember that folks posting on here just want good information. This used to be a good place to get that info. Let’s try and keep it that way from now on :wink:
AlohaJoe
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Re: Lawsuits and taxable accounts

Post by AlohaJoe »

In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
dbr
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Re: Lawsuits and taxable accounts

Post by dbr »

You can do some reading in a search such as this one: https://www.bing.com/search?q=garnishin ... EC4CDEC55F

If this is a real concern you probably should consult an attorney regarding liability protection. An obvious precaution is to own personal liability insurance. In the case of the IRS or seizure of property for delinquent property taxes the rules are specific to those cases.
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Lee_WSP
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Re: Lawsuits and taxable accounts

Post by Lee_WSP »

If you lose a lawsuit, a judgment is issued ordering you to pay the judgment amount. Nothing more, nothing less.

You seem to be confusing this with the bankruptcy process.
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Re: Lawsuits and taxable accounts

Post by Vanguard Fan 1367 »

AlohaJoe wrote: Wed May 05, 2021 7:49 am In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
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ResearchMed
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Re: Lawsuits and taxable accounts

Post by ResearchMed »

Vanguard Fan 1367 wrote: Wed May 05, 2021 2:28 pm
AlohaJoe wrote: Wed May 05, 2021 7:49 am In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
Such a transfer would indeed be problematic, probably considered some flavor of fraudulent transfer.

But what does that have to do with what AlohaJoe wrote?
I understood his post to refer to "it doesn't matter how you raise the money, and the plaintiff wouldn't necessarily know the specifics of one's assets as long as they get the money." That is, one could have a taxable account to liquidate; one could have some rental properties to liquidate; one could have some nice jewels to sell; etc.

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Stinky
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Re: Lawsuits and taxable accounts

Post by Stinky »

I believe that if I lost a lawsuit and was personally liable for $100k, the plaintiff would want $100k of cash from me.

He wouldn’t care what tax consequences, if any, I would bear in raising the $100k. That’s my problem.
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Re: Lawsuits and taxable accounts

Post by sport »

Stinky wrote: Wed May 05, 2021 3:41 pm I believe that if I lost a lawsuit and was personally liable for $100k, the plaintiff would want $100k of cash from me.

He wouldn’t care what tax consequences, if any, I would bear in raising the $100k. That’s my problem.
What if someone being sued wanted to use some highly appreciated securities to pay the debt. Would it be possible for them to make a deal to pay the 100K debt with 102K worth of the securities? If so, what would the cost basis be for the plaintiff?
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Re: Lawsuits and taxable accounts

Post by HootingSloth »

sport wrote: Wed May 05, 2021 4:01 pm
Stinky wrote: Wed May 05, 2021 3:41 pm I believe that if I lost a lawsuit and was personally liable for $100k, the plaintiff would want $100k of cash from me.

He wouldn’t care what tax consequences, if any, I would bear in raising the $100k. That’s my problem.
What if someone being sued wanted to use some highly appreciated securities to pay the debt. Would it be possible for them to make a deal to pay the 100K debt with 102K worth of the securities? If so, what would the cost basis be for the plaintiff?
Transfer of stock in satisfaction of a legal liability is a taxable exchange so the transferring party still recognizes capital gain equal to the fair market value of the transferred stock less their tax basis. See, e.g., United States v. Davis, 370 U.S. 65 (1962). The transferee would take a fair market value basis.
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Re: Lawsuits and taxable accounts

Post by sport »

HootingSloth wrote: Wed May 05, 2021 4:10 pm
sport wrote: Wed May 05, 2021 4:01 pm
Stinky wrote: Wed May 05, 2021 3:41 pm I believe that if I lost a lawsuit and was personally liable for $100k, the plaintiff would want $100k of cash from me.

He wouldn’t care what tax consequences, if any, I would bear in raising the $100k. That’s my problem.
What if someone being sued wanted to use some highly appreciated securities to pay the debt. Would it be possible for them to make a deal to pay the 100K debt with 102K worth of the securities? If so, what would the cost basis be for the plaintiff?
Transfer of stock in satisfaction of a legal liability is a taxable exchange so the transferring party still recognizes capital gain equal to the fair market value of the transferred stock less their tax basis. See, e.g., United States v. Davis, 370 U.S. 65 (1962). The transferee would take a fair market value basis.
So, that would not seem to be a good idea.
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Re: Lawsuits and taxable accounts

Post by Gill »

Transferring an asset to satisfy a pecuniary obligation is treated as a sale of the asset by the transferor.
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Re: Lawsuits and taxable accounts

Post by HootingSloth »

sport wrote: Wed May 05, 2021 4:14 pm
HootingSloth wrote: Wed May 05, 2021 4:10 pm
sport wrote: Wed May 05, 2021 4:01 pm
Stinky wrote: Wed May 05, 2021 3:41 pm I believe that if I lost a lawsuit and was personally liable for $100k, the plaintiff would want $100k of cash from me.

He wouldn’t care what tax consequences, if any, I would bear in raising the $100k. That’s my problem.
What if someone being sued wanted to use some highly appreciated securities to pay the debt. Would it be possible for them to make a deal to pay the 100K debt with 102K worth of the securities? If so, what would the cost basis be for the plaintiff?
Transfer of stock in satisfaction of a legal liability is a taxable exchange so the transferring party still recognizes capital gain equal to the fair market value of the transferred stock less their tax basis. See, e.g., United States v. Davis, 370 U.S. 65 (1962). The transferee would take a fair market value basis.
So, that would not seem to be a good idea.
Correct. This strategy doesn't work.

The tax question in these kinds of matters is almost always about whether a settlement payment can be properly characterized in such a way that it is either tax deductible by the defendant (e.g., as an ordinary and necessary business deduction) or is excludable by the plaintiff (e.g., as damages received for a personal physical injury). This involves a complex and very fact sensitive analysis under the so-called "origin of the claim" doctrine. A tax lawyer should be brought in early on in the settlement process (or better yet, before pleading documents are even filed) to do the most good in supporting such a tax position. Trying to play around with in-kind transfers after the fact is not a workable strategy. The question of the tax treatment of settlement amounts often comes up as an afterthought when it can be too late to do very much.
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Re: Lawsuits and taxable accounts

Post by Stinky »

sport wrote: Wed May 05, 2021 4:14 pm
HootingSloth wrote: Wed May 05, 2021 4:10 pm
sport wrote: Wed May 05, 2021 4:01 pm
Stinky wrote: Wed May 05, 2021 3:41 pm I believe that if I lost a lawsuit and was personally liable for $100k, the plaintiff would want $100k of cash from me.

He wouldn’t care what tax consequences, if any, I would bear in raising the $100k. That’s my problem.
What if someone being sued wanted to use some highly appreciated securities to pay the debt. Would it be possible for them to make a deal to pay the 100K debt with 102K worth of the securities? If so, what would the cost basis be for the plaintiff?
Transfer of stock in satisfaction of a legal liability is a taxable exchange so the transferring party still recognizes capital gain equal to the fair market value of the transferred stock less their tax basis. See, e.g., United States v. Davis, 370 U.S. 65 (1962). The transferee would take a fair market value basis.
So, that would not seem to be a good idea.
I think that’s the “understatement of the day”. :oops:
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Re: Lawsuits and taxable accounts

Post by stan1 »

ChinchillaWhiplash wrote: Wed May 05, 2021 7:45 am Not currently involved in a lawsuit.
Consider an umbrella policy or other insurance as appropriate.
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Re: Lawsuits and taxable accounts

Post by anon_investor »

Vanguard Fan 1367 wrote: Wed May 05, 2021 2:28 pm
AlohaJoe wrote: Wed May 05, 2021 7:49 am In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
Which is why you work with a lawyer to set up trusts to shield assets from lawsuits BEFORE any bad stuff happens.
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Re: Lawsuits and taxable accounts

Post by ballons »

If you are at the "accounts being taken" stage you either lied about having money to pay up and/or did an illegal transfer to avoid paying.

You will be given ample time to do whatever is required to write the other party a check. The other party has zero obligations to deal with your tax consequences.
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Re: Lawsuits and taxable accounts

Post by J295 »

Good responses hootingsloth and Gill.

Execution on assets, including brokerage accounts, does occur when judgments are not voluntarily satisfied.
Last edited by J295 on Wed May 05, 2021 5:28 pm, edited 1 time in total.
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Re: Lawsuits and taxable accounts

Post by Lee_WSP »

anon_investor wrote: Wed May 05, 2021 4:28 pm
Vanguard Fan 1367 wrote: Wed May 05, 2021 2:28 pm
AlohaJoe wrote: Wed May 05, 2021 7:49 am In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
Which is why you work with a lawyer to set up trusts to shield assets from lawsuits BEFORE any bad stuff happens.
Only works theoretically with DAPT trusts only available in some states and have yet to be tested to the best of my knowledge. Otherwise pretty much every state does not recognize grantor settled trust protections in case of bankruptcy, which is actually what you're saying.
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Re: Lawsuits and taxable accounts

Post by bogledogle »

ChinchillaWhiplash wrote: Wed May 05, 2021 7:45 am If you lose a lawsuit and have your taxable account taken, do you have to liquidate the holdings? Or would it be transferred in kind, so to speak, to the new owner? If you do have to liquidate the holdings and turn it into cash for a settlement, do you have to pay capital gains on any growth? Just a general question here. Not currently involved in a lawsuit. Hold any snarky comments to yourself or direct it toward some noob please 8-) Seems like too many on here are getting salty and need to remember that folks posting on here just want good information. This used to be a good place to get that info. Let’s try and keep it that way from now on :wink:
Yes, you would pay in us dollars - check probably, not cash. Assuming you do not have cash and want to comply with the judgement, you would probably liquidate, pay your taxes and pay the other party. Why do you ask?
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Re: Lawsuits and taxable accounts

Post by inittowinit »

I work in this field and the only correct answer here is that you need to consult with a debt collection defense attorney in your state of residence to understand the state-level laws governing post-judgment account levies.
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Re: Lawsuits and taxable accounts

Post by anon_investor »

Lee_WSP wrote: Wed May 05, 2021 5:28 pm
anon_investor wrote: Wed May 05, 2021 4:28 pm
Vanguard Fan 1367 wrote: Wed May 05, 2021 2:28 pm
AlohaJoe wrote: Wed May 05, 2021 7:49 am In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
Which is why you work with a lawyer to set up trusts to shield assets from lawsuits BEFORE any bad stuff happens.
Only works theoretically with DAPT trusts only available in some states and have yet to be tested to the best of my knowledge. Otherwise pretty much every state does not recognize grantor settled trust protections in case of bankruptcy, which is actually what you're saying.
I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
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Lee_WSP
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Re: Lawsuits and taxable accounts

Post by Lee_WSP »

anon_investor wrote: Wed May 05, 2021 6:29 pm
Lee_WSP wrote: Wed May 05, 2021 5:28 pm
anon_investor wrote: Wed May 05, 2021 4:28 pm
Vanguard Fan 1367 wrote: Wed May 05, 2021 2:28 pm
AlohaJoe wrote: Wed May 05, 2021 7:49 am In general lawsuits don't result in your "accounts being taken". They result in a dollar amount judgment being levied and they don't know, or care, how you raise the money to pay for it. How would the court, or the person suing you, even know you have a taxable account in most cases? It isn't like turning over your entire financial life is part of discovery.

So, yes, it could result in you having to liquidate your taxable account and paying taxes.
I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
Which is why you work with a lawyer to set up trusts to shield assets from lawsuits BEFORE any bad stuff happens.
Only works theoretically with DAPT trusts only available in some states and have yet to be tested to the best of my knowledge. Otherwise pretty much every state does not recognize grantor settled trust protections in case of bankruptcy, which is actually what you're saying.
I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
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anon_investor
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Re: Lawsuits and taxable accounts

Post by anon_investor »

Lee_WSP wrote: Wed May 05, 2021 6:33 pm
anon_investor wrote: Wed May 05, 2021 6:29 pm
Lee_WSP wrote: Wed May 05, 2021 5:28 pm
anon_investor wrote: Wed May 05, 2021 4:28 pm
Vanguard Fan 1367 wrote: Wed May 05, 2021 2:28 pm

I have "heard" that if you do something like transfer your assets to your wife after getting sued that transfer may be overturned.
Which is why you work with a lawyer to set up trusts to shield assets from lawsuits BEFORE any bad stuff happens.
Only works theoretically with DAPT trusts only available in some states and have yet to be tested to the best of my knowledge. Otherwise pretty much every state does not recognize grantor settled trust protections in case of bankruptcy, which is actually what you're saying.
I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
A spendthrift that enters into shady business ventures... likely not a BH. :twisted:

If you suddenly had $100 million (e.g. won the lotto), how much umbrella insurance would you need?
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Re: Lawsuits and taxable accounts

Post by Lee_WSP »

anon_investor wrote: Wed May 05, 2021 6:42 pm
Lee_WSP wrote: Wed May 05, 2021 6:33 pm
anon_investor wrote: Wed May 05, 2021 6:29 pm
Lee_WSP wrote: Wed May 05, 2021 5:28 pm
anon_investor wrote: Wed May 05, 2021 4:28 pm

Which is why you work with a lawyer to set up trusts to shield assets from lawsuits BEFORE any bad stuff happens.
Only works theoretically with DAPT trusts only available in some states and have yet to be tested to the best of my knowledge. Otherwise pretty much every state does not recognize grantor settled trust protections in case of bankruptcy, which is actually what you're saying.
I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
A spendthrift that enters into shady business ventures... likely not a BH. :twisted:

If you suddenly had $100 million (e.g. won the lotto), how much umbrella insurance would you need?
It's a trick question. Nothing has actually changed between what you'd likely be sued for. Unless you were making minimum wage and were essentially judgement proof to begin with.

Of course, if it makes one feel better, go ahead and get More. Sleeping is important.
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Re: Lawsuits and taxable accounts

Post by afan »

Lee_WSP wrote: Wed May 05, 2021 6:33 pm

SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will.
Great to have so many lawyers on the thread.
Would anyone create a SLAT that gave the beneficiary discretionary withdrawal powers? Wouldn't that destroy the asset protection AND kick the assets back into their estate? What would a SLAT with that provision accomplish?
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Re: Lawsuits and taxable accounts

Post by anon_investor »

Lee_WSP wrote: Wed May 05, 2021 8:18 pm
anon_investor wrote: Wed May 05, 2021 6:42 pm
Lee_WSP wrote: Wed May 05, 2021 6:33 pm
anon_investor wrote: Wed May 05, 2021 6:29 pm
Lee_WSP wrote: Wed May 05, 2021 5:28 pm

Only works theoretically with DAPT trusts only available in some states and have yet to be tested to the best of my knowledge. Otherwise pretty much every state does not recognize grantor settled trust protections in case of bankruptcy, which is actually what you're saying.
I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
A spendthrift that enters into shady business ventures... likely not a BH. :twisted:

If you suddenly had $100 million (e.g. won the lotto), how much umbrella insurance would you need?
It's a trick question. Nothing has actually changed between what you'd likely be sued for. Unless you were making minimum wage and were essentially judgement proof to begin with.

Of course, if it makes one feel better, go ahead and get More. Sleeping is important.
Call me cynical, but I think if someone came into a $100 million windfall, he/she would likely get targeted more for lawsuits. So increasing umbrella insurance at least a little probably makes sense.

But I wonder what kind of trusts or other asset protection could be set up. Obviously if he/she had kids, trusts for kids could be set up for future expenses. Not sure what could be done for current living expenses. Maybe some kind of family office? I am not sure what the liability protections are for that.
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Re: Lawsuits and taxable accounts

Post by dbr »

anon_investor wrote: Thu May 06, 2021 10:13 am
Lee_WSP wrote: Wed May 05, 2021 8:18 pm
anon_investor wrote: Wed May 05, 2021 6:42 pm
Lee_WSP wrote: Wed May 05, 2021 6:33 pm
anon_investor wrote: Wed May 05, 2021 6:29 pm

I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
A spendthrift that enters into shady business ventures... likely not a BH. :twisted:

If you suddenly had $100 million (e.g. won the lotto), how much umbrella insurance would you need?
It's a trick question. Nothing has actually changed between what you'd likely be sued for. Unless you were making minimum wage and were essentially judgement proof to begin with.

Of course, if it makes one feel better, go ahead and get More. Sleeping is important.
Call me cynical, but I think if someone came into a $100 million windfall, he/she would likely get targeted more for lawsuits. So increasing umbrella insurance at least a little probably makes sense.

But I wonder what kind of trusts or other asset protection could be set up. Obviously if he/she had kids, trusts for kids could be set up for future expenses. Not sure what could be done for current living expenses. Maybe some kind of family office? I am not sure what the liability protections are for that.
The My Pillow guy, if I am not mistaken, has been sued for $1.3 Billion. Of course we don't know if they will get it and I don't know if that is a business or a personal defendant, but if he is the sole owner . . . and the grounds are defamation simply by making public statements.

Here is more and I think the other defendants are simply individual persons and not companies, LLCs, trusts, or whatnot, but a lawyer can straighten than out:

https://www.minnpost.com/community-voic ... %20billion.
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Lee_WSP
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Re: Lawsuits and taxable accounts

Post by Lee_WSP »

anon_investor wrote: Thu May 06, 2021 10:13 am
Lee_WSP wrote: Wed May 05, 2021 8:18 pm
anon_investor wrote: Wed May 05, 2021 6:42 pm
Lee_WSP wrote: Wed May 05, 2021 6:33 pm
anon_investor wrote: Wed May 05, 2021 6:29 pm

I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
A spendthrift that enters into shady business ventures... likely not a BH. :twisted:

If you suddenly had $100 million (e.g. won the lotto), how much umbrella insurance would you need?
It's a trick question. Nothing has actually changed between what you'd likely be sued for. Unless you were making minimum wage and were essentially judgement proof to begin with.

Of course, if it makes one feel better, go ahead and get More. Sleeping is important.
Call me cynical, but I think if someone came into a $100 million windfall, he/she would likely get targeted more for lawsuits. So increasing umbrella insurance at least a little probably makes sense.

But I wonder what kind of trusts or other asset protection could be set up. Obviously if he/she had kids, trusts for kids could be set up for future expenses. Not sure what could be done for current living expenses. Maybe some kind of family office? I am not sure what the liability protections are for that.
How would other people know about it? They're far more likely to be the target of scams, not lawsuits. You can't target the defendant. The odds of causing something truly heinous remain the same unless you change your lifestyle (most people probably do). It's not exactly a cetaris parabis comparison.

But if it were, the odds remain the same, the amount most plaintiffs would accept to go away remains the same, the only risk left is the fat tail risk of a claim above let's say 2 million dollars (I think that's about where a lot of BH's who have umbrella land on) and the odds of the plaintiff wanting to pursue the claim and attempt to go after personal assets (not exactly a popular practice).

Either way, like I said, I'd want a bit more protection to sleep well at night. So yes, since I do not currently have anywhere near 100 million dollars, I would buy significantly more umbrella insurance depending on how much each extra million costs.

If you're rich enough to be a 0.1% er, there are several tools that can be used, but they all involve giving up most control over the asset. It's very similar to purchasing insurance for the rest of us. Socking away 1/10th to 3/10ths of the *new* family fortune in trusts is just good insurance. They're unlikely to need it anyway and the bigger goal is to pass it on to the next three or four generations. That's about the extent of my knowledge on that particular issue.

One of the best trusts IMO is the inherited trust where the beneficiary is the trustee and has effective control over it, but is able to keep it behind an accounting wall very similarly to how you keep the LLC accounts separate from personal accounts. If the beneficiary doesn't need the money and it's just there as an "oh snap!", you can limit the distributions to HEMS or require a co trustee (I like this approach better).
Last edited by Lee_WSP on Thu May 06, 2021 11:50 am, edited 1 time in total.
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Lee_WSP
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Re: Lawsuits and taxable accounts

Post by Lee_WSP »

afan wrote: Thu May 06, 2021 10:04 am
Lee_WSP wrote: Wed May 05, 2021 6:33 pm

SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will.
Great to have so many lawyers on the thread.
Would anyone create a SLAT that gave the beneficiary discretionary withdrawal powers? Wouldn't that destroy the asset protection AND kick the assets back into their estate? What would a SLAT with that provision accomplish?
The biggest booby traps the drafter has to tip toe around are the power of appointment rules in 2035, 41, & 38. There are a few others I can't recall off the top of my head, but avoiding inclusion in the estate is the biggest purpose of the SLAT so allowing the beneficiary trustee complete control and having it kicked back into the estate would defeat the purpose.

*I'm over simplifying this as this is a very complex topic and thousands of pages of CLEs have been written on it, so take this post as an invitation to do more research on the subject if so inclined.

https://www.law.cornell.edu/cfr/text/26/20.2041-1
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Re: Lawsuits and taxable accounts

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dbr wrote: Thu May 06, 2021 10:58 am
The My Pillow guy, if I am not mistaken, has been sued for $1.3 Billion. Of course we don't know if they will get it and I don't know if that is a business or a personal defendant, but if he is the sole owner . . . and the grounds are defamation simply by making public statements.

Here is more and I think the other defendants are simply individual persons and not companies, LLCs, trusts, or whatnot, but a lawyer can straighten than out:

https://www.minnpost.com/community-voic ... %20billion.
He's being sued for intentional and repeated false defamatory statements that he could have very easily not made or not make publicly. So, that one is a behavioral issue.

Defamation is an intentional tort. Meaning you intended to do it and intentionally, knowingly, or should have knowingly caused harm to a plaintiff.
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Re: Lawsuits and taxable accounts

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anon_investor wrote: Thu May 06, 2021 10:13 am
Lee_WSP wrote: Wed May 05, 2021 8:18 pm
anon_investor wrote: Wed May 05, 2021 6:42 pm
Lee_WSP wrote: Wed May 05, 2021 6:33 pm
anon_investor wrote: Wed May 05, 2021 6:29 pm

I forget all my trust law from barbrip, but maybe husband makes a trust with wife as beneficiary and vice versa.

Ample umbrella insurance is likely the easiest option (that is what I do).
SLATS could work (depends on the state and how it treats the term grantor), but half the assets are still up for grabs if the beneficiary trustee has the ability to withdraw at will. Besides, if you're that wealthy.....

Insurance is clearly the first, and IMHO, the only necessary defense to tort suit claims.

Not being a spendthrift or going into shady business ventures is the other part.

But...you know, what do we know?
A spendthrift that enters into shady business ventures... likely not a BH. :twisted:

If you suddenly had $100 million (e.g. won the lotto), how much umbrella insurance would you need?
It's a trick question. Nothing has actually changed between what you'd likely be sued for. Unless you were making minimum wage and were essentially judgement proof to begin with.

Of course, if it makes one feel better, go ahead and get More. Sleeping is important.
Call me cynical, but I think if someone came into a $100 million windfall, he/she would likely get targeted more for lawsuits. So increasing umbrella insurance at least a little probably makes sense.

But I wonder what kind of trusts or other asset protection could be set up. Obviously if he/she had kids, trusts for kids could be set up for future expenses. Not sure what could be done for current living expenses. Maybe some kind of family office? I am not sure what the liability protections are for that.
Interesting conversation. The below article highlights some key steps to take when thinking about protecting one's assets from lawsuits.

https://www.assetprotectionplanners.com ... g/5-steps/
Wealth is not about having a lot of money; it's about having a lot of options.
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