The 10 Rules of Asset Protection

Examine both inside and outside liability.

Protecting assets requires a comprehensive evaluation of all potential risks, both internal (inside liability) and external (outside liability). Inside liability arises from activities related to the asset itself, such as a tenant suing over a property owned by your LLC. Outside liability originates from unrelated personal issues, such as being sued individually for a car accident.

Work with your attorney to map out all possible risks. Consider liability insurance for inside risks and robust ownership structures for outside risks. Tailor your asset protection strategies to address vulnerabilities from all directions.

You cannot turn-over what you don’t control.

Retaining ownership control over your assets can weaken your asset protection plan. For example, assets held in an LLC where you are the sole member may be more vulnerable to creditor claims compared to assets held in a Multi-Member LLC. Similarly, if you have distribution rights over a corporation or trust, creditors could argue you have control and attempt to seize those assets. Minimize your personal control where needed while maintaining functionality.

Don’t hinder or delay your creditors.

Asset transfers made with the intent to avoid paying creditors—especially after litigation has started—can be deemed fraudulent or voidable. Courts take a dim view of such transfers, often imposing harsh penalties. Plan and transfer assets well in advance of any potential litigation.

Ensure you remain solvent after any transfers and avoid any actions that might appear to defraud creditors. Consulting with an asset protection attorney before transferring or encumbering assets.

Don’t hide your assets or it hurts worse.

While privacy is important, actively hiding assets (e.g., falsifying ownership records or failing to disclose them) can lead to severe consequences, including penalties, criminal charges, or the loss of protection for the hidden assets.

Use legitimate structures like trusts, LLCs, and corporations to legally separate ownership and maintain privacy. Disclose assets when legally required but avoid voluntary over-disclosure.

You cannot be sued for what you don’t own.

Assets you no longer legally own cannot be seized to satisfy personal liabilities. By transferring ownership to asset protection trusts or entities where you lack direct control, you create barriers that protect these assets from creditors. Consider using an asset protection trust to hold valuable assets.

You cannot be sued for everything you own.

Creditor exemptions and nest egg protection are available in many states. Familiarize yourself with the exemptions available in your state. Strategically use these exemptions to shield your most important assets, such as your primary residence or retirement savings, from creditor claims.

Shift risk strategically.

Liability insurance can serve as a first line of defense in asset protection, but it should not be your sole strategy. Contractual indemnifications can shift liability to other parties, further insulating your assets. For instance, in business contracts, requiring a partner or vendor to carry insurance and indemnify you can provide significant protection.

Select insurance coverage that aligns with your risk profile and augment it with strong contractual protections. Regularly review your policies and agreements to ensure they remain effective.

You can’t squeeze blood out of a turnip.

Strategically use legitimate encumbrances, such as mortgages, business loans, or UCC security interests, to make your assets less appealing to creditors. However, ensure these arrangements serve a valid business purpose and are not merely for creditor avoidance.

Death and taxes are unavoidable.

Effective asset protection must integrate estate planning and tax strategies. Without proper planning, your assets may be subject to estate taxes or become vulnerable to claims during probate.

Use tools like irrevocable trusts, gifting strategies, and estate tax planning to balance asset protection, minimize taxes, and ensure a smooth transfer of wealth to your heirs.

Choose jurisdictions carefully.

The laws governing asset protection vary significantly across jurisdictions. Some states and countries provide stronger protections for trusts and LLCs, while others have more lenient rules regarding creditor access. However, administrative burdens, costs, and legal obligations in each jurisdiction must also be considered.

Research the asset protection benefits of different jurisdictions, including costs and ongoing compliance requirements. Consider working with professionals to evaluate the long-term viability of your chosen jurisdiction.