When you purchase an asset, one of the most fundamental decisions you face is how to hold that asset—determining who will be the owner of record. This decision might seem trivial early in your investing journey when you simply hold everything in your name. As your portfolio grows, however, the structure of ownership becomes increasingly important.
For some investments like IRAs and 401(k)s, the decision is largely made for you through your chosen custodian. But for real estate investments, bank accounts, and brokerage accounts, you have significant flexibility in how you hold these assets.
Many investors overlook this critical decision, yet it carries substantial implications for your tax obligations and liability exposure. How you hold each asset should align with your broader estate, tax, and asset protection strategies to create a cohesive financial framework
As a reminder, this isn’t advice, this is simply my perspective based on my personal situation and understanding – consult with your own professionals before making any decisions about how you should be holding your assets. If you want more depth than provided here, I also recommend reading [1].
Considerations for Asset Ownership
When choosing how to hold my assets, I typically consider 3 things:
- Liability Protection
- Privacy Preservation
- Efficient Transferability
Liability Protection: Isolate Potential Risks
Liability protection serves as my primary consideration when determining how to hold an asset. For investments with significant liability potential, such as rental properties, I use Limited Liability Companies (LLCs) unless compelling reasons exist not to do so. The LLC creates a protective barrier between the specific property and my broader investment portfolio. Further, I avoid owning these LLCs directly. Instead, I establish a Wyoming holding company to own the property LLCs. While this structure does not provide additional protection from liabilities generated by the property itself, it does shield the assets from personal liabilities I might incur—for example, if I were found at fault in an automobile accident resulting in a judgment against me. Wyoming offers particular advantages here because of its restrictions on creditors taking control of LLCs.
For lower-risk assets such as limited partnership interests in syndications or standard brokerage accounts, I place them in separate entities. This compartmentalization isolates these safer investments from riskier ones, helping ensure these assets remain accessible even if problems arise with a higher-risk holding. While offshore asset protection trusts represent the gold standard in this area, they exceed what most investors (including me) need. Unless your net worth surpasses $10 million, simpler strategies typically suffice.
Privacy Preservation: Reduce Your Profile
Living in the United States means accepting the reality that legal action can be initiated for almost any reason. As your wealth increases, so does your likelihood of facing frivolous lawsuits, which consume valuable time and financial resources. One effective strategy to minimize these nuisance suits is creating the appearance of limited asset ownership.
The effectiveness of privacy measures depends on your willingness to invest money and effort into this protection. For example, when purchasing a rental property through an LLC, the owners and managers of that entity may appear in public records in many jurisdictions, making your connection to the property relatively easy to discover. This transparency can be reduced by establishing a holding LLC in a privacy-friendly jurisdiction like Wyoming, which maintains confidentiality regarding ownership and management information.
In my own investments, I have primarily operated in states with public LLC records, so privacy has not been my foremost concern. Someone with adequate expertise could identify my rental properties without extraordinary effort. While additional structures could make this more difficult, skilled investigators can often combine information from various sources to determine ultimate ownership with high probability. Given that properties owned by ultra-high-net-worth individuals like Oprah Winfrey or Jeff Bezos can be identified despite their resources, no system I implement will fully prevent a determined investigator from making the connections
Efficient Transferability: Integrating with Your Estate Plan
The final consideration involves how your ownership structure aligns with your estate plan and facilitates asset transfer upon your death. This integration should represent a straightforward application of your existing estate planning documents. In my case, my Wyoming holding company is not owned directly by me but by my revocable living trust. This arrangement ensures that when I die, the shares transfer according to the trust provisions and avoid probate proceedings. Similarly, I designate my trust as the beneficiary of my IRAs and bank accounts.
Many married couples hold their primary residence in their own names as joint tenants with rights of survivorship. While this arrangement simplifies title transfer upon death, it carries tax and estate planning implications that warrant careful consideration. If you have established a trust, evaluate whether property ownership through the trust might better serve your objectives. Depending on your situation, you might also explore alternative ownership structures (e.g. LLCs land trusts) or holding property as tenants in common.
For instance, joint tenancy does not provide a full step-up in basis when one spouse dies, potentially creating additional tax liability when the property is eventually sold. Scenarios also exist where surviving spouses remarry and the property ultimately passes to beneficiaries contrary to the deceased spouse’s intentions. No universal solution exists for property title holding, but your decision should result from deliberate planning that accounts for your specific tax situation and estate objectives, rather than default arrangements.
Making Ownership Decisions That Serve Your Long-Term Goals
Asset ownership structure may prove inconsequential if everything proceeds smoothly during your ownership period and you sell before death. However, if complications arise or you still own the asset when you die, ownership structure can become tremendously important. By thoroughly evaluating your options before taking ownership and periodically reviewing these decisions as circumstances change, you minimize potential problems. Given the modest effort required to make informed ownership decisions, this preparation represents a wise investment in your financial future.
For additional reading:
This article is my opinion only, it is not legal, tax, or financial advice. Always do your own research and due diligence. Always consult your lawyer for legal advice, CPA for tax advice, and financial advisor for financial advice.