Financial Planning

Wealth Management Solutions For Traders

Financial planners for time and eternity have recommended the use of insurance, incorporation and spendthrift trusts as Commonwealth protection strategies.  In the current legal environment, however, insurance may be insufficient because of the prohibitive cost, liberal exclusions, and coverage limits.

As a friend of mine states, “insurance companies are your best friend while you are paying premiums, however many times when you file a claim they try to figure out why they should not have to pay it.”

Incorporation is fine if the owners of the company know or learn how to properly manage it, and adhere to the requirements the IRS has.  It is quite a different world when you have to remember to document all of your expenses properly, keep your books up to date, and file your taxes.  In my 20 years of working with traders, one truth has made itself visible:  A trader likes to trade, study the market, and do everything possible to become a better trader.  That leaves little time to manage his corporation or LLC in a proper manner. When behavior like this takes place, it allows judges and the IRS an easy road to pierce the corporate veil.

Stock Trading

Traders Accounting Covers Trading Entity Consulting Services

Appropriate behavior can be learned and takes very little time if you have a plan.  This is why at Traders Accounting when we set up a business entity for one of our clients, we also provide a free consultation and coaching for the trader to ensure they know what needs to be done, and how to do it in a productive manner.

As for spendthrift trusts, they have always been of limited use as they are not recognized in all states.

No law requires traders to hold their assets for the benefit of their creditors, in fact, federal and state laws have long recognized the use of statutory exemptions, limited liability entities (corporations, limited partnerships, and LLC’s) and other ways of limiting one’s liability.

Protecting Your Wealth

Legitimate wealth protection planning does not involve hiding or destroying assets, evading taxes, fraudulently transferring property to family members or friends, preparing or signing false or misleading documents, or otherwise committing fraud or perjury.  If done properly, nothing is illegal or unethical about wealth protection planning.

The threat of financial ruin can come from many sources, such as lawsuits arising from the traders own alleged negligence, or from the negligence of persons within the traders sphere of responsibility.  The list of potential threats is almost endless, and is seemingly limited only by the creativity of the plaintiff’s attorneys or the zealousness of governmental agencies.

Trader Tax

Tax Planning and Wealth Preservation

Trader tax planning is an essential part of wealth preservation, however tax planning while lowering a traders tax obligations, will not in itself create any wealth preservation. Wealth preservation is the process of preserving a trader’s assets by minimizing taxes and protecting assets from creditors and insurance losses, and will require both tax planning and wealth protection planning (asset protection planning).

Build Wealth and Protect Your Assets

As we become more successful in our trading or real estate investments, we need to keep each group of assets away from the others.  As an example, trading in itself does not contain a lot of liability concerns, (short of fraud).  However, if you or a member of your family has a personal accident in which your insurance will not completely cover,  and you had your trading account in your name, they court could certainly take your trading account to satisfy the result of the lawsuit.

With this in mind, we should always remember to keep our different groups of assets away from each other through the use of a business entity. (LLC, partnership or corporation)  This is particularly true if you are a real estate investor.  We know that you can be sued for anything or nothing in our litigious society.  You can be sure that if your tenant has an accident that you can be blamed for, you will receive a little request for money.  Please ensure that you have your different groups of assets in different entities so that if you have to pay the tenant out of your real estate business, no one will be able to get close to your trading money.

Tax planning is an essential part of wealth preservation. However, if wealth protection planning does not complement tax planning, a trader’s wealth remains in peril.  Reductions in tax liability are of little consolation to a trader facing a motivated plaintiff and his personal injury attorney.  Without a wealth protection plan in place, you and your family are at risk.

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