Asset Protection: How It Works and Strategies

Asset protection strategies can legally shield assets from lawsuits, creditor claims or unwanted beneficiaries.
Dalia Ramirez
By Dalia Ramirez 
Edited by Tina Orem

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What is asset protection?

Asset protection is a set of strategies and planning techniques used to legally shield individual or business assets from legal judgments, seizure, taxes, creditor claims or unwanted beneficiaries such as former spouses. Asset protection strategies can include trusts, limited liability corporations (LLCs), umbrella insurance and prenuptial agreements.

Asset protection is especially important if you’re in a high-risk occupation or have high-value assets. Most asset protection strategies work by moving property into a separate entity, and many double as estate planning tools.

Federal law generally considers qualified retirement plans “exempt” and off-limits to creditors. Some state laws also shield other assets, such as personal property, your primary residence, life insurance benefits, corporations and annuities. A state homestead exemption, for example, may protect your primary residence from creditors and sometimes property taxes

Cornell Law School. homestead exemption. Accessed Oct 17, 2023.
. However, not all valuable property is protected. Creditors, lawsuits or even family members who petition to receive a portion of your estate could successfully make claims on those assets.

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What is the best form of asset protection?

There are several instruments that people can use to protect their assets. It may be best to protect your assets before they need protecting, as the legal process can take some time. You’ll want to be prepared in case of a lawsuit or estate dispute.

If your asset protection strategy isn’t in place before a creditor's claim occurs, you could be held liable for defrauding creditors. Consider working with an experienced estate planning attorney to ensure you protect your assets legally and in correct form.

Asset protection trusts

An asset protection trust is an irrevocable trust you can set up to protect assets from creditors. They can be domestic (within the U.S.) or offshore (held outside the U.S.). Domestic trusts aren’t allowed in all states, but offshore trusts often cost more to set up

American Bar Association. Asset Protection Planning. Accessed Oct 13, 2023.

  • Asset protection trusts can work as an alternative to a prenuptial agreement, and they’re best for those with a high net worth or those in professions at increased risk for lawsuits, such as doctors and real estate developers.

  • Like other trusts, they remove assets from a grantor’s estate and thus can reduce estate taxes. Asset protection trusts can also help minimize state taxes.

Insurance policies

An umbrella insurance policy adds to an existing insurance policy, such as homeowner’s or auto insurance. An umbrella insurance policy can raise your liability limits if you want to protect more assets

Insurance Information Institute. What is an umbrella liability policy?. Accessed Oct 13, 2023.

If you’re a doctor or other healthcare or service provider, malpractice or professional liability insurance can protect some of your assets if you lose a lawsuit.

Limited liability companies (LLCs) and Family Limited Partnerships (FLP)

Transferring assets into a limited liability company (LLC) or family limited partnership (FLP) keeps them separate from your personal property. Both options allow you to retain control over the property while protecting it from creditors.

Retitling real estate

You can protect property from creditors by transferring it to another person, but be careful who you transfer it to; they could leave the property vulnerable to their own creditors. Transferring property through a trust may provide more legal protection.

Prenuptial agreements

To protect your assets before getting married, consider drafting a prenuptial agreement. This legal document can help protect your assets in case of divorce, protect an inheritance for children from previous marriages and even protect one spouse from the other spouse's debts.

Local asset protection strategies

Asset protection laws vary by state. Here are a few state-level rules to be aware of:

  • Domestic asset protection trusts are permitted in Alabama, Alaska, Connecticut, Delaware, Hawaii, Indiana, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming


  • Homestead exemption laws protect your primary residence from creditors. The amount you can exempt varies by state, but some states, such as Florida and Texas, offer unlimited exemption, protecting the entire property.

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