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Protect Your Assets
Home Asset Protection Protect Your Assets
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America has become the most litigous society in the world!  Just read the paper or turn on the television, the our country is living through a litigation explosion with expanding theories of liabilities and outragious jury awards.  What can an business persons and professionals do to help minimize one's vulnerability to law suits and judgments.  The answer is Asset Protection.


  1. Secretly hiding assets;
  2. Fraudulently conveying assets to other relatives and friends for the purpose of avoiding paying credtiors;
  3. Giving assets away after losing a case;
  4. Evading taxes; and
  5. Other criminal methods of hiding assets.


  1. Security:  by organizing and arranging assets in a legal manner that assist in preserving much of the value of an individual or families' assets if attacked by creditors, judgment liens, and frivolous lawsuits.  Asset Protection does not guarantee that a creditor will not be able to attach one's assets. 
  2. Privacy:  reduce the number of assets that can be seen in public records.


To achieve this goal, an attorney will combine business, estate, family planning, along with asset protection methods.  However, asset protection does not deal with the secrecy of hiding assets, fraudulently transferring property or other fraudulant methods to avoid creditors.  These methods, in most cases, can protect assets before liability is incurred, or these methods can make it very expensive for plaintiffs to file a lawsuit.  These methods may not work for everyone.  Please consult a lawyer if you can benefit from asset protection, and if so, which methods are best for your specific needs. 


  1. California Statutory Exemption
  2. Asset Protection Trusts
  3. Limited Liability Company (LLC)
  4. Limited Liability Partnership (LLP)
  5. Professional Corporations
  6. Overseas Trusts
  7. Domestic Trusts
  8. Equity Stripping
  9. Estate Plan


Unfortunately, in California, the only secure exemption of any significant amount is certain retirement plans.  Other exemptions such as Homestead and Life Insurance are limited but may protect part of these assets.  In addition, there are other limited exemptions:

  • Aid to needy;
  • Alimony;
  • Bank Deposits deposited from Social Security Administration;
  • Building Materials used to repair residence (up to $2000);
  • Burial plot
  • Business and professional licenses;
  • Certain personal property;
  • Compensation to crime victims;
  • Lost future earnings;
  • Personal injury recoveries;
  • Social Security;
  • Tools of the trade (up to $6075 or $12,150 if both spouses in the same trade);
  • Unemployment compensation;
  • Union benefits from labor disputes;
  • Veteran’s benefits;
  • Wages (limited);
  • Worker’s compensation; and
  • Wrongful death recoveries (limited).

Therefore, asset protection is recommended for estate and business planning.


1.  Spendthrift Trusts

Under California Law, both income and principal of a Spendthrift Trust can be protected.  However, the protection ends after distributions become due and payable.  In addition, the Spendthrift Trust does not protect against liability for spousal and child support.  In addition, liability for necessities such as food, shelter and other necessities of life may not be protected.

The advantage is that a parent or grand parent can establish a spendthrift trust for a child or grandchild.  Once the spendthrift trust is set up, the principal and income will be protected against most liabilities against the child or grandchild.

2.  Discretionary Trusts

The Discretionary Trust is a powerful asset protection tool.  The advantage is that the trustee has almost complete discretion to pay trust income and principal to or for the benefit of the beneficiaries.  Thus, the trustee, in most cases, does not have to pay the beneficiaries’ debts or liabilities. 

The disadvantage is that this trust weakens the rights of beneficiaries, who must rely on the trustee to exercise discretion to make distributions.  However, beneficiaries of a Discretionary Trust are protected against Trustee Abuse of discretion.

3.  Support Trusts

The Support Trust instructs the trustee to pay only as much income and principal as is necessary for the 1) beneficiary’s medical and financial support, beneficiary’s educational and financial support, 3) only beneficiary’s education support, etc.  The beneficiary’s interest in a Support Trust is not subject to the beneficiary’s creditor’s claims.  However, once the payments are distributed, then the distributed amounts are subject to the creditor’s claims.  For additional protection, the Support Trust should include a Spendthrift clause to protect any undistributed income.

4.  Other Trusts

There are other asset protection trusts that may or may not help protect assets in California:

    • Dynasty Trusts may work in Alaska and Delaware; and
    • Foreign Asset-Protection Trusts are ineffective for assets in California.


There are many advantages of changing a business entity from a sole proprietorship or partnership to a limited liability company.  First, if the Limited Liability Company (LLC) is properly set-up, shareholders enjoy limited liability.  Thus, personal assets of the members may not be attached to bay business debts and liabilities.  Second, Limited Liability Companies offer income tax advantages over corporations because members and shareholders are not subject to double-taxation, like corporations.  Third, the cost of setting up a limited liability company is usually less than forming a corporation.

The disadvantages include 1) different LLC laws in some states, 2) the income tax treatment is not certain because LLCs are fairly new, and 3) the Articles of Organization must be properly drafted to avoid future problems with membership interests; and 4) the executor, executrix, administrator or personal representative of the member has the right to exercise all of the member’s rights for the purpose of settling the member’s estate.  However, an attorney can draft documents giving the personal representative instructions to perform Buy-Sell Agreement or Devise in the Will a competent person to run the LLC.

In addition, LLC is not available for professional services requiring state licensing like attorneys, accountants, dentists, physicians, general contractors, etc.  Also, LLC is not available for banks, insurance and trust companies.


Unlike LLCs, a Limited Liability Partnership may be formed for the purpose of partners engaging in accountancy, architecture, dentistry, law, medicine, etc.  Like the LLC, members also enjoy limited liability.  The disadvantage is that all the partners must meet California licensing requirements for the profession in which they are engaged.  In addition, the partners must provide security for malpractice claims against the partnership. 


The main advantage of a professional corporation is that shareholders will not be personally liable for the corporation’s debts such as rent, loans, contracts, etc.  Shareholders of professional corporations also have limited liability from malpractice of their associates.  In addition, shareholders can enjoy certain fringe and retirement benefits for corporate employees that are not available to self-employed persons.

The disadvantages include the shareholder will still be liable for his own malpractice obligations or from his or her work that he or she has supervised.  However, the professional can carry malpractice insurance.  In addition, most professional corporations will be treated as “personal service corporations” subject to a 35-Percent flat rate on taxable income of the corporation.  Also, professional corporations will be subject to the $800 minimum California State Franchise Tax.

The following professions must provide malpractice insurance within specified limits:

  • Accountants;
  • Attorneys;
  • Chiropractors;
  • Dentists;
  • Optometrists; and
  • Osteopaths.

The following professions do not address shareholder liability or security for claims, or they do not have corporation rules:

  • Architects;
  • Medical Doctors;
  • Psychologists;
  • Physical Therapists;
  • Speech-Language Pathologists and Audiologists;
  • Acupuncturists;
  • Physician Assistants;
  • Podiatrists;
  • Nurses;
  • Pharmacists;
  • Clinical Social Workers and Marriage, Family and Child Counselors; and
  • Certified Court Reporters.


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