What Is Asset Protection?
Asset protection is arranging your financial affairs so your home, business and other assets are harder to seize in a lawsuit. The main strategies and timing.
Blake Harris · Florida Bar #86486, Colorado Bar #459423 min readAsset protection is the process of arranging your financial affairs to safeguard your home, business, personal property, and other assets from being seized in a lawsuit.
What Can Be Protected?
Nearly any asset can benefit from protection, including real estate, businesses, and personal property, alongside assets that are already legally exempt from lawsuits.
Common Asset Protection Strategies
- Exemption Planning: Utilizing state and federal laws that automatically shield specific assets from creditors.
- Insurance: Serves as a primary buffer and provides a legal defense, though coverage limits and policy exclusions apply.
- LLC Formation: Limits personal liability associated with high-risk assets like real estate or operating businesses.
- Domestic Asset Protection Trusts (DAPTs): Available in states like Nevada, Alaska, and Wyoming. They allow you to be both the settlor and beneficiary, though local court jurisdictions present some limitations.
- Foreign Asset Protection Trusts (FAPTs): Offer strong protection because foreign trustees are not bound by U.S. court orders.
Key Considerations and Timing
- Who Needs It: Doctors, business owners, investors, executives, and individuals whose net worth exceeds $1M–$2M.
- What It Protects Against: Unknown future creditors, business disputes, tort claims, and civil judgments.
- Limitations: Asset protection is not a tool for tax evasion or avoiding existing, known creditors. Transferring assets to avoid a known creditor can be deemed a fraudulent conveyance and overturned by a court. We decline engagements structured to defeat a known creditor.
- Timing: Planning must be done in advance of any active or threatened litigation.
If your net worth is over $2M and you would like to discuss setting up an asset protection structure, our firm offers comprehensive planning for a flat fee of $25,000, plus $7,000 annually.
Frequently asked
Frequently asked questions
Asset protection is the process of arranging your financial affairs to safeguard your home, business, personal property, and other assets from being seized in a lawsuit. It generally uses exemptions, insurance, LLCs and trusts, put in place before any claim exists.
It combines tools that each cover a different risk - state and federal exemptions, insurance, LLCs, and domestic or foreign asset protection trusts. Put in place in advance, the combination can make assets harder for a future creditor to reach.
Yes, when it is done before a claim exists. A transfer made to defeat an existing creditor can be voided under voidable-transfer law, often called fraudulent-transfer law, so timing and intent decide most cases.
Before any lawsuit is filed or threatened. A transfer made after a claim arises can be voided by a court, so planning generally has to come first.
Your options narrow sharply. Exempt property generally stays exempt, but a transfer made after a claim arises can be voided. We decline engagements structured to defeat a known creditor.
No. A properly structured trust is generally tax-neutral, and an offshore trust is reported to the IRS every year.
Doctors, business owners, investors and executives often consider it, typically once their net worth exceeds $1 million to $2 million. For an offshore trust, we use roughly $2 million as a working threshold, not a rule.