Using Business Trusts To Protect IRA Assets

When you have an individual retirement account (IRA), you may believe your investments are protected. After all, if you are not a doctor, corporate executive or professional in a litigation-prone field, you may feel there is little that could cause you to lose your assets when it comes to investing.

Are My Assets at Risk?

Unfortunately, there are a lot of ways in which your assets, IRA-related or personal, can be at risk. Filing for bankruptcy, divorces, and civil lawsuits are all possible ways to lose your assets. In fact, if your minor causes a car accident, you will likely be the one to pay the price. You are also considered at fault even for accidental injuries that occur on your property, like a slip and fall.

Protecting Your Investment Assets

Fortunately, there are state and federal laws that enable you to protect many of your assets from certain types of situations.

  • IRA Protections: Whether you have a traditional or Roth IRA, you have certain inherent protections. In particular, the contributions and gains in your IRA are protected from bankruptcy proceedings through an inflation-adjusted cap. In other words, up to $1 million of your IRA funds can avoid bankruptcy judgements and remain in your account. If your contribution steps from the rollover of a qualified plan, like a 403(b) or 457(b), they are completely protected, regardless of amount.
  • Qualified Employer-Sponsored Plans: Plans that are employer-sponsored, like SEP and SIMPLE IRAs, are exempt from bankruptcy garnishments as well. If your plan is also subject to the Employee Retirement Income Security Act (ERISA), it is protected from any case that may award your assets to another party.

Business Trusts: Protection that Goes Deeper

Additional asset protection is a smart way to further ensure your property and finances stay in your hands, regardless of the legal situations occurring in your life. To do this, most financial advisors recommend you create a legal entity, of which you are the manager or trustee, through which you invest your IRA funds. This IRS-approved strategy separates your personal assets from those owned by your trust.

Full Confidentiality

When you form a business trust, there is no legal requirement to publicly file. The trust agreement, also referred to as a Declaration of Trust, can remain private. There is also no automatic publication of the trustee’s name, ensuring your identity remains private as well. This is important because it allows you to prevent creditors and lawyers from easily identifying your full net-worth should a lawsuit be filed against you.

Disregarded Entity

For federal and state income tax purposes, a business trust is classified as a partnership. However, partnerships that have a sole owner are “disregarded as an entity separate from its owner.” Once this occurs, the entity becomes exempt from filing federal income taxes. As a business trust, vice a LLC, earnings are also exempt from filing state income taxes as well.


Last Updated: 
March 21, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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