Exemption Planning: What State Law Already Protects

Exemption planning is the use of protections that state and federal law already provide, before any trust or entity is considered. Every state exempts some property from the claims of most creditors, and the first step in any asset protection plan is to find out how much of a person's wealth those exemptions may already cover.

This page explains the two largest exemptions, homestead and retirement accounts, the smaller ones that are often overlooked, and where exemption planning stops.

What is exemption planning?

It is planning around the property the law already protects. A creditor who wins a judgment can generally collect from a debtor's non-exempt property, while exempt property is generally off the table. Exemption planning asks two questions. Which assets already qualify, and could more of a person's wealth qualify, legitimately and in advance?

Consider a hypothetical. A surgeon in Florida owns a $2 million home on a quarter-acre lot, holds $1.5 million in a 401(k), drives a $60,000 car, and keeps $3 million in a brokerage account. Under Florida law, the home's equity and the 401(k) are generally protected. Only $5,000 of the car is, and none of the brokerage account. About half of the surgeon's wealth sits inside an exemption.

Now change one fact. The same surgeon lives in Pennsylvania, which has no homestead exemption beyond a $300 general exemption. Unless the home is held in a form that protects it some other way, its $2 million of equity may be reachable, and the protected share falls by more than half. The assets are identical. The state is not.

The state you live in decides most of the answer. That is the first rule of exemption planning.

Homestead: usually the largest exemption

For most people, the home is the largest exempt asset. Florida and Texas protect a qualifying primary residence without a dollar cap, within acreage limits. Most other states cap the exemption, and the caps vary widely, from $5,000 in Kentucky to $1,000,000 for a declared homestead in Massachusetts. Some states also require a recorded declaration before the protection attaches.

Bankruptcy adds a federal limit. Under 11 U.S.C. § 522(p), equity acquired within 1,215 days before filing is generally capped at $214,000, whatever the state allows. Our homestead guide lists every state's figure, checked against each statute in October 2026.

Retirement accounts: usually the second

Retirement accounts are often the next-largest exemption. Employer plans covered by ERISA, such as most 401(k)s, are generally protected by federal law. IRAs depend more on state law outside bankruptcy, and that protection ranges from unlimited, to a dollar cap, to amounts reasonably necessary for support.

In bankruptcy, federal law protects traditional and Roth IRAs up to $1,711,975 for cases filed on or after April 1, 2025, and SEP, SIMPLE, and rollover funds without that cap. Our retirement asset protection guide covers each state's rules.

The smaller exemptions

Beyond the home and retirement accounts, most exemptions are small. They exist to leave a debtor the basics of daily life, not to shelter wealth. They are still worth knowing, because they apply without any planning and cost nothing.

These examples were checked against each statute in October 2026:

Three federal protections apply in every state. Social Security benefits are exempt under 42 U.S.C. § 407. Veterans' benefits are exempt under 38 U.S.C. § 5301, except from claims of the United States. And for ordinary debts, federal law generally caps wage garnishment at 25% of disposable earnings (15 U.S.C. § 1673), with higher limits for support orders. Our page on public benefits exemptions covers these in more detail.

Can someone simply move wealth into exempt assets?

It is tempting to conclude that the answer is to move everything into exempt property, by paying down the mortgage, funding an annuity or buying a larger home. The idea has three limitations.

First, most exemptions have caps, and the smaller ones are small. Second, many of the most valuable assets people own, such as brokerage accounts, business interests, and second homes, generally have no exemption at all. Third, and more importantly, a conversion made to defeat a creditor can be undone.

Florida's statute on fraudulent asset conversions lets a creditor reverse a conversion into exempt property if the debtor made it "with the intent to hinder, delay, or defraud the creditor," even when the creditor's claim arose after the conversion. This is significant because timing, again, decides the outcome. In other words, the same move can be ordinary planning years before any dispute and a reversible conversion after a demand letter.

Where exemption planning stops

Exemptions protect a floor, not a fortune. For someone whose wealth is mostly a qualifying home and qualifying retirement accounts, state law may already do most of the work, and a trust may add cost without adding much protection. That is a real advantage of living in a strong-exemption state.

However, for someone with significant assets outside those categories, such as liquid investments or the proceeds of a business sale, the exemptions may leave most of that wealth exposed. That is where an offshore trust such as a Cook Islands Trust may address what the exemptions leave. It is irrevocable, requires independent trustee involvement, carries ongoing costs, and cannot properly be used to defeat a known creditor. We decline engagements structured to defeat a known creditor.

Exemption planning, then, is less a strategy than an inventory of which assets the law already protects, in which state, and up to what amount. It costs nothing to take, and it is worth taking before any claim exists.