Asset Ownership: A Hidden Strategy To Reduce Your Risk
You’ve worked hard to earn your wealth. Do you put as much energy into protecting it?
The way you hold your interests in your company can have long-term implications. Holding assets in the right accounts and structures can help protect against many forms of risk, such as
- An unexpected separation from the company,
- The legal obligations of a marriage or a divorce,
- A tax obligation suddenly come due, or
- Debts you or a spouse may owe.
Hold it in your name—or not?
One question to ask yourself is whether you want assets in your name only, or held by some other entity.
You can hold assets entirely in your individual name, or with other parties, like a spouse or business partner. Or you can do it through a structure such as a limited liability company (LLC) or revocable trust. Each form of ownership carries different stipulations and levels of risk, but taking your name off some holdings can reduce your personal liability.
“Owning a house through a revocable trust rather than in one’s individual name could provide you with protection from unwanted publicity,” says Carolyn Reers, Wealth Advisor at J.P. Morgan Private Bank. “Also, holding assets in a revocable trust can allow you to avoid the cost and delay of state probate proceedings, as well as provide for the management of assets in the event of incapacity.”
An LLC can protect your personal assets against creditors and litigation risks. Shifting assets to a spouse’s name might also keep these assets from exposure.
Transfer your wealth sooner rather than later
Moving wealth out of your name can benefit you and those you wish to support. You can do this by making gifts outright or through trusts. “Gifting shares of company stock into an irrevocable trust can allow you to remove those shares, plus all future appreciation, from your taxable estate,” Ms. Reers says.
And if you’re thinking about transferring your wealth, don’t wait long. Transferring assets you expect to grow in value over time can bring you significant potential tax savings. And thoughtful planning and structuring can help you preserve wealth as it moves from generation to generation.
Be tax-savvy about your options
If you hold equity in your company, take time to learn about the tax and other implications of exercising or holding your interests in the company, including restricted shares, non-qualified stock options (NQSOs) and incentive stock options (ISOs). You might want to hang onto some assets and exercise others.
Always name your beneficiaries
You may hold a significant portion of your wealth in company-sponsored 401(k) accounts and other tax-deferred compensation arrangements. Check your beneficiary designations regularly to make sure they reflect your intentions as they evolve.
“These are just some of the ways we help clients think through the implications of how they hold their assets,” Ms. Reers says. “Correct asset holding is key to the long-term health of a client’s overall wealth picture.”
Important Information
This material is intended to help you understand the financial consequences of the concepts and strategies discussed here in very general terms. The strategies discussed often involve complex tax and legal issues. Your own attorney and other tax advisors can help you consider whether the ideas illustrated here are appropriate for your individual circumstances. JPMorgan Chase & Co. does not practice law, and does not give tax, accounting or legal advice. We are available to consult with you and your legal and tax advisors as you move forward with your planning.
The views and strategies discussed here may not be suitable to all investors. This information is provided for informational purposes and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Past performance is not indicative of future returns.
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Investors should be cautious when holding a highly concentrated stock position, which is generally defined as any individual holding that constitutes more than 30% of overall investment holdings. Tax consequences, including the avoidance of capital gains through selling, do not eliminate the risks of overexposure to a particular company or business sector.
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