Frequently Asked Questions

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What is asset protection?

Asset protection is a field of law dealing with shielding assets from claims of creditors. Asset protection does not deal with estate planning or tax planning, but simply protecting assets from financial predators.

How does asset protection work?

Asset protection is based on the basic principle that virtually any and every asset that you own can be seized by a creditor. Any asset that you do not own cannot be seized from you. Consequently, asset protection aims to remove you from the legal title to your assets, but allows you to continue controlling your assets and enjoying the economic benefits of your assets.

Does asset protection discourage lawsuits?

Yes. Plaintiffs will come after you if they think there are assets they can seize. If they cannot seize your assets, or if you make it sufficiently expensive to seize your assets, they will, often, not bother to sue you in the first place.

Does it really work?

Yes. In practice, a well-structured asset protection plan will discourage the plaintiff from suing you in the first place. Even if you are sued, an asset protection plan will make it very difficult, and sometimes impossible, for a plaintiff to reach your assets.


Our roughly compiled statistics are as follows. Approximately 90% of clients come to us after being sued or after something “bad” happens to them. Of these 90%, plaintiffs cease their collection efforts entirely some 60% of the time. 35-38% of the time our clients negotiate a favorable settlement with the plaintiff. The remaining 2-5% of cases, plaintiffs continue their collection efforts, sometimes successfully, but mostly unsuccessfully. While past performance is not a guarantee of future results, a well structured asset protection plan should be extremely effective.


No, but there are exceptions. While one needs to be mindful of the fraudulent transfer laws, one also needs to consider the practical implications of planning. Often, even if a lawsuit has been filed against you, it is not too late to plan. We will make that determination on a case by case basis. Generally, even if you are planning after the fact, you can achieve very favorable results and protect your assets.


No. While some unscrupulous promoters aim to sell their unsuspecting clients over-complex structures just to be able to charge more money, complexity does not necessarily equal more protection. Sometimes something as simple and inexpensive as a limited liability company may be your best bet.

Is asset protection expensive?

It varies, but generally no. And it is certainly not as expensive as losing all your assets to a creditor. It is always cheaper to plan ahead of time, and it is always cheaper to use domestic structures. Costs and fees will also vary depending on who you retain, how aggressively the plaintiff will pursue your assets, to what extent you want to go to protect your assets. For example, you can hire a Nevada promoter to set up an LLC and pay $300. You will be very happy with that price until you realize that you needed a trust and not an LLC and you may now lose your assets. Do not shop for asset protection based on price, shop based on competence.

How do I pick the right asset protection attorney?

First, avoid promoters at all costs. They usually aim to sell you a product, like a Nevada corporation or a foreign trust. That may not necessarily be the best structure for you. Every asset protection plan should be custom tailored. Second, when picking your attorney make sure that asset protection is the attorney’s primary practice area. Third, make sure that the attorney has tax and estate planning expertise, because tax and estate planning issues are always implicated in asset protection. Finally, make sure that the attorney has experience defending his or her asset protection structures in court.

If I have insurance, do I need asset protection?

Yes. As a matter of fact, the vast majority of our clients have insurance. Yet, they still need our services. While insurance will cover most claims, it will not cover all claims, and you may have insufficient policy limits. Everyone should have umbrella insurance, but is very difficult to get coverage in excess of $4 million. Many claims will exceed that amount.

Is asset protection legal and ethical?

Yes, if it is implemented in a legal and ethical manner. Asset protection relies on common corporate, estate planning and tax planning structures.

Does my living trust protect my assets?

No. Because you have the power to revoke a living trust, a creditor can force you to revoke the trust. The assets then revert to your name, and the creditor will then get them from you. In many states, the creditor can go after the assets of your living trust directly.

Does hiding assets work?

Sometimes. If you are dealing with a lazy or an unsophisticated creditor, hiding or camouflaging assets may work. We do not recommend it. Many creditors are intelligent, knowledgeable and aggressive. They will use private investigators to unearth your assets and will then seize the assets from you. With a proper asset protection plan you should be able to disclose the plan to your creditors, and it would still effectively shield your assets from creditors’ claims.

Would a Nevada corporation protect my assets?

No. If you own valuable assets through a corporation, Nevada or otherwise, a creditor will be able to seize the stock of the corporation from you. Once the creditor owns the stock, the creditor can liquidate the corporation and get its assets. Any corporation would do a poor job of protecting your assets. Instead, use a limited liability company or a limited partnership.

Can I simply gift assets to family members?

Yes, but it will not be an effective asset protection tool. Any intelligent creditor would challenge a gift to family members as a fraudulent transfer and set it aside, allowing the creditor to reach the transferred assets.

Are there tax consequences to asset protection?

Not if the plan is properly structured. Asset protection should be tax neutral. This means that your bottom line tax liability should not change. All structures used in asset protection are either disregarded for income tax purposes, or are flow-through entities like partnerships or S corporations.

Do I need to worry about property tax reassessment?

Not with a carefully structured plan. We make certain that any time we are planning to protect your real estate, there will be no change in ownership and no reassessment for property tax purposes.

Can I keep control over my assets?

That depends on a multitude of factors. Often times the answer is yes. Sometimes, you may have to give up control, at least for a period of time, and trade it off for increased protection.

How is Jacob Stein different?

Jacob Stein has a solid background in tax and estate planning, and is a certified tax law specialist. He has a nationwide reputation and impressive credentials and is AV rated by Martindale-Hubbell (the highest rating awarded to attorneys). He is a published author and highly sought after speaker.  Anyone can set up an LLC, or a residence trust or complete an equity strip. Not many know when to use which structure and their relative effectiveness under given circumstances.

What is a Fraudulent Transfer?

Thoughts of fraudulent transfers induce great fear and trepidation, and they have replaced the boogey man in the closet to scare children into being good. Because of their name, fraudulent transfers are often equated with fraud, and would be transferees visualize dark prison cells and hefty monetary penalties.

However, under California law, if a transfer is fraudulent, that usually means that the creditor can set aside the transfer and proceed after the transferee to recover the transferred asset. For example, a patient files a malpractice suit against Dr. Brown. Dr. Brown promptly transfers his golden scalpel to his uncle, for safe-keeping. The patient-creditor has no connection to the uncle and cannot sue the uncle to recover the scalpel. However, if the creditor proves that the transfer of the scalpel by Dr. Brown to his uncle was a fraudulent transfer, the creditor can set aside the transfer and get the scalpel from the uncle. (If the creditor successfully establishes that a transfer is fraudulent, then the uncle (the transferee) is deemed as holding the transferred property in trust for the creditor.)

Consequently, if a creditor proves that a transfer is fraudulent, that simply makes the transfer ineffective. If the debtor has no means to protect her assets other than to engage in a transfer that may be fraudulent, what is the down-side to the debtor in engaging in such a transfer? In the worst case scenario, the debtor loses her assets, which is exactly the same position she would have been in had she not engaged in the transfer in the first place. Nevertheless, there is a definite upside in engaging in the transfer because there is usually no certainty that a creditor would bring a fraudulent transfer action, that the creditor would then be successful in proving a fraudulent transfer, and then manage to actually recover the asset from the transferee.

This practical implication of a fraudulent transfer is rarely discussed in the asset protection literature. Lawyers should never advise clients to engage in a fraudulent transfer, and knowingly engaging in a fraudulent transfer is certainly unethical. However, because this area of the law is so often unclear, when it cannot be determined with any certainty whether a transfer will be deemed fraudulent, and the debtor is left with no other choices, the debtor should consider taking the more aggressive approach to asset protection planning. Again, what is the downside?

Finally, in some cases, debtors can engage in a fraudulent transfer without any recourse by the creditor. For example, in Retirement Plans, a transfer into an ERISA qualified retirement plan cannot be set aside by a creditor even if it is fraudulent. Fraudulent transfer laws are state statutes and are always trumped by the application of federal statutes (ERISA).

Personal Residence Trusts

No possession is more crucial to protect from a lender’s claim than the home you live in. For a lot of people, the home represents the largest part of their personal wealth. It can also have great sentimental value.

The personal residence trust is one of the most commonly used ways to safeguard a home. This is a very cost-effective structure to implement, it is very straightforward as well as being extremely effective. You tend to find that asset protection lawyers use this form of trust on a regular basis for their clients. That is because they know they provide the security that the clients need. So, how do these personal residency trusts work?

A personal residence trust is an irrevocable trust. The word “irrevocable” can come across as being very intimidating to the majority of people. Because, nobody wants to get involved with anything that is irrevocable, especially if it is going to involve the house that they live in.

The good news is, irrevocable means that no one person (like a lender or a plaintiff) would be able to influence you to withdraw the trust fund. If the trust fund is drafted correctly, you can have the right to revoke it. For example, California law allows the beneficiary and the trustee of a trust the ability to revoke a trust just by signing a basic document. Also, a trust protector can be appointed, and they will also have the right to revoke the trust, change the trust document, and if need be, change the trustee.

Due to the fact that the trust is irrevocable, the possessions that are in the trust are not legally owned by you. Technically speaking the trust now owns your home. Therefore, as you do not own the title to your home, a lender cannot take it from you. Your legal connection to your home is the same as your legal connection to any major building in California (e.g. The Getty Centre in Los Angeles). It is not your asset and as such, no one can connect it to you.

The personal residence trust allows you to live in your home for the rest of your life. As you no longer own the property you must pay rent to live there. You must ensure that your children and other members of your family are named as beneficiaries on your death. This form of agreement is also like a living trust.

Transferring the property into a personal residence trust doesn’t incur any income tax liability. Also, there is no need to pay any property tax or even any reassessment of property tax. A federal statute prevents your bank from doing anything with your mortgage if the ownership of the house is transferred to a personal residence trust. 

As you are appointing another person as the trustee of the personal residence trust you will still maintain the ability to sell or refinance the property. Any specific requirements you feel you need to have built into the trust can be accommodated for.

Once the trust is set up there is no need for any annual fees or filing registration procedures.

A personal residence trust is a cost-effective way of ensuring that you can live in your own home and preserve control over the property. The beauty of setting up this type of trust is that you have the reassurance that irrespective of what happens your home cannot be taken from you by any creditor. The benefits of a personal residence trust make them a favorite technique for most asset protection practitioners.

You will have to decide who you are going to appoint as the trustee or guardian of your trust fund. You or your wife/partner cannot be the trustee. It has to be someone that you can totally trust and have faith in to comply with your wishes.


Qualified Personal Residence Trust (QPRT)

A qualified personal residence trust (QPRT) is a particular type of trust that enables its creator to remove a personal residence from their estate in an attempt to reduce their gift tax liability when they transfer assets to a beneficiary.

Qualified Personal Residence Trusts permit the proprietor of the home to continue to reside in the home for a specific amount of time with “retained interest” in the house; but as soon as that period is over, what interest is remaining is classed as “remainder interest”, and as such is transferred to the beneficiaries of the trust.

The property value during the “retained interest” period and the length of the trust depend on the Applicable Federal Rates proved by the Internal Revenue Service (IRS). As the owner only retains a portion of the value means the property will fall below the fair market value and as such will incur a lower gift tax rating. Plus, unified credit will also lower the gift tax liability.

If a qualified personal residence trust (QPRT) expires before the death of the grantor, then the house can be included in the deceased estate, and as such, could be taxed.

The risk depends on establishing the length of the trust agreement, combined with the possibility that the grantor will die before the trust expires. In theory, a longer-term trust can benefit from a smaller amount of remainder interest given to the beneficiaries, which subsequently decreases the gift tax; however, this is only beneficial to younger trust holders who could live well past the end date of the trust.

A qualified personal residence trust is not the only qualified trust available. There is a bare trust and a charitable remainder trust. In a bare trust, the recipient has the absolute right to the trust’s assets (both financial and non-financial, such as property and antiques), and the income generated from the assets (such as rental income from properties or bond interest).

In a charitable remainder trust, a benefactor might offer an income interest to a non-charitable recipient with the rest of the trust going to a charitable organization. The charitable remainder annuity trust (CRAT) and charitable remainder unitrust (CRUT) are two types of charitable remainder trusts.

In each of these trusts, the benefactor gets an income tax deduction from the present value of the remainder interest.

Who will you appoint as the trustee or the protector of your trust?  It should not be you or your spouse.  It should be someone you trust.


Why is community property bad for asset protection?

Under community property laws each spouse is deemed to own all of the community property assets. Because a creditor can seize from you all the assets that you own, if either spouse is sued, all of the spouses’ assets are exposed to the lawsuit. In non-community property states (like New York), the separate property of one spouse is not subject to the claims of creditors of the other spouse. Fortunately, all community property states allow their residents to opt out of the community property system.

How effective is a prenuptial agreement?

Very. A prenuptial agreement is one of the most effective asset protection tools available. The separate property of one spouse is not reachable by the creditors of the other spouse. Because a prenuptial agreement cannot possibly be a fraudulent transfer, it can never be challenged by a creditor. A prenuptial agreement can be structured so that it does not address issues like divorce, alimony, etc., but simply protects both spouses from each other’s creditors.

When should I consider a transmutation agreement?

Any married couple with substantial assets should consider a transmutation agreement. This is a simple written agreement that allows spouses to easily convert their community property into separate property. The transmutation agreement does not address divorce, alimony or any other issue. It simply ends community property and creates separate property. This is usually the very first step in the asset protection planning process for spouses.

Can I simply quitclaim assets to my wife?

Not effectively. Some states require a written agreement, like the transmutation agreement, in order for the quitclaim to be effective. Even then, a quitclaim, like a transmutation agreement, may be subject to a fraudulent transfer challenge.

How do I protect my residence?

There are approximately 6 different techniques of protecting a personal residence. They include: the residence trust, a friendly equity strip, a bank equity strip, a sale to a friendly party, a sale to a third-party, a transfer into a single-member LLC. There is no one solution that works best for everyone. We will make the determination of what would work best for you, on a case by case basis.

Does the homestead exemption protect my residence?

In some states, the homestead exemption will protect your residence. For example, in Florida and Texas the exemption may be unlimited. In most states the exemption is in the $50,000 to $100,000 range. For example, in California, the homestead exemption may be $50,000, $75,000 or $125,000, depending on your age and living arrangement. In the current real estate market, the homestead exemption is not very meaningful.

How effective is a friendly lien?

Not very. A friendly lien is asking your uncle Jack to record a deed of trust against your property. The idea is that the lien will “eliminate” the equity in your real estate, and discourage the creditor from suing you. That may work if the creditor is lazy or incompetent. Any competent creditor will be able to set aside a friendly lien without any difficulty. We have seen it happen.

When do I use an LLC?

Limited liability companies and limited partnerships are used very frequently in asset protection. They are used to protect such assets as investment real estate, intellectual property, operating businesses and other. These entities are not used, and should not be used, to protect a personal residence. Depending on your circumstances, they should not be used to protect liquid assets.

What is a family limited partnership?

A family limited partnership is a marketing term used to describe limited partnerships. It is nothing more than a limited partnership where all the partners are family members. Consequently, a family limited partnership works in exactly the same way as any other limited partnership or limited liability company to protect your assets.

The Family Limited Partnership (FLP) is an excellent asset protection and estate planning vehicle. Here is how it works. The general partner (“GP”) manages and controls the FLP and must have unlimited liability. A U.S. corporation, wherein husband and wife are 100% shareholders, may act as the FLP’s GP to mitigate unlimited liability. The limited partners (“LP”) hold equity interests, but no decision-making authority over the partnership. The spouses then fund the FLP with a closely-held business or businesses. Initially, the spouses will hold 100% of the GP and LP interests.

After formation, the spouses may gift some or all LP interests to their children though an irrevocable children’s trust and perhaps to other family members, outright or in trust. Significantly, the value LP interests are discounted for gift tax purposes to reflect two principals. The first is that a LP is a non-controlling interest because the GPs manage and control the assets. The second is that there is no ready market for the sale and transfer of the LP interest and in fact, the partnership interest will restrict any sale or transfer. Thus, the spouses are able to transfer a significant amount of partnership assets at a significant discount, typically between 30% and 50%.

Significantly, a FLP provides a strong layer of protection between the limited partner’s interest and creditors. Even in the event of a judgment, the judgment creditor must obtain an additional court ruling called a charging order to attempt to receive profit distributions from the partnership. A charging order grants the creditor the debtor’s share of the distributions from the FLP. However, the GP remains in control of distributions to the partners. Thus, if the GP decides not to make distributions, the creditor gets nothing. Even so, if the partnership has undistributed profits, the creditor must pay tax on the FLP’s undistributed profits that were never received. This deters creditors from obtaining charging orders.

The result? Husband and wife reduce their estate taxes, with no loss of control over the underlying assets and obtain significant asset protection against potential creditors.

Lastly, if spouses are nonresident aliens of the United States, their gifts of LP interests to their U.S. resident children should be completely free of gift tax. The reason is that gifts of intangible assets by nonresident aliens are not subject to U.S. gift tax.

Why are LLCs better than corporations?

LLCs and limited partnerships are better than corporations because unlike corporations these entities protect their own assets from your lawsuits. For example, if you own assets through a corporation and you are sued, your creditor will be able to seize the stock of your corporation. Once the creditor seizes the stock of your corporation, they will be able to take the assets you hold in the corporation. Because interests in LLCs and limited partnerships are not subject to attachment, they cannot be seized by a creditor. Therefore, the assets you hold in these entities are protected.

In which state should I form my LLC?

It varies. We frequently use Delaware and Nevada. But we also frequently use California for our California clients, or Florida for our Florida clients. We also frequently form LLCs offshore. Depending on your assets, which states they are in, and other factors, we will help you determine which state is best for you.

Should my asset protection trust be irrevocable?

Yes. If you have the ability to revoke a trust, like you do with a traditional living trust, a creditor can force you to do so, and then will get your assets. An irrevocable trust is treated as a separate legal person. If you have no visible control over the assets of the trust, your creditors will not be able to reach the assets of the trust. In many states an irrevocable trust simply means that no one can force you to revoke the trust, but you retain the ability to do so, at your discretion.

How do I retain control over an irrevocable trust?

There are a number of ways. Most importantly, you should appoint a friendly trustee. A friend or a family member who would look after your best interests and who would comply with your requests.

Is my IRA protected?

Not under federal law, and not under the laws of many states. For example, California will protect the IRA only if you have no other assets, and even then the protection is very limited. Anyone who has a substantial IRA should consider rolling the IRA over into an ERISA-qualified plan, like a 401(k) plan.

What about Retirement Plans?

Retirement plans present a significant planning opportunity for asset protection.

Qualified Plans: Qualified plans provide significant asset protection because they must include anti-alienation provisions mandated by ERISA and therefore are excluded from the debtor’s bankruptcy estate. Common ERISA plans include defined benefit plans (like a pension plan), defined contribution plans (like a profit sharing plan), and plans to which employees make voluntary contributions (401(k) plans).

However, to obtain ERISA protection, owner and non-owner employees must be covered under the plan to maximize the plan’s asset protection benefits. Sole proprietors are not protected under ERISA and must rely on nonqualified plans (discussed below).

ERISA protection applies to bankruptcy under the Bankruptcy Code 541(c)(2). Even outside of bankruptcy, there are only very limited exceptions where a creditor can reach the assets of an ERISA plan, including criminal conduct relating to an ERISA plan, traditional support obligations for spouse and children, and federal tax liens.

Perhaps the most telling evidence of ERISA’s protection is the Supreme Court’s decision in Guidry v. Sheetmetal Pension Fund. In Guidry, a union official embezzled money from the union and transferred it to his union pension plan. The union official was convicted of the crime of embezzlement and the union attempted to recover the embezzled proceeds from the pension plan. The Court held that the money in the pension plan could not be reached by creditors because of ERISA’s anti-alienation requirements. Prior to this case, various courts and states had carved out exceptions to ERISA’s anti-alienation provision. However, the Supreme Court declared that exceptions to the anti-alienation rules were not justified by ERISA. Thus, the protection afforded by ERISA’s anti-alienation provisions applied regardless of how distasteful the debtor’s behavior may have been or any applicable state public policy reasons (including a state’s fraudulent transfer laws).

In response to Guidry and other cases like Guidry, Congress carved out several exceptions to the protection afforded by ERISA. These exceptions include: (i) a criminal violation of ERISA; (ii) a judgment, order, decree, or settlement agreement in connection with a violation of the fiduciary provisions of ERISA; or (iii) a settlement between the Secretary of Labor and the participant or settlement agreement between the Pension Benefit Guaranty Corporation and the participant in connection with a violation of ERISA’s fiduciary duties. These exceptions obviously apply only to criminal conduct and only to conduct relating specifically to an ERISA plan. Consequently, Guidry and its progeny continue to provide full protection to ERISA plans.

What about Nonqualified Retirement Plans

Nonqualified plans are generally not protected by ERISA, but may be protected by state statutes that exempt retirement plans from creditor claims. The protection afforded by each state varies, based on the applicable statute and its interpretation by the courts.

For example, California protects “private retirement plans.” The California statute provides that private retirement plans are protected from creditors, both before and after distribution to the debtor, and defines private retirement plans to include: (i) private retirement plans; (ii) profit sharing plans; and (iii) IRAs and self-employed plans. Under California law, plan assets continue to be exempt even following the distribution from the plan. Similar to ERISA, an exception is carved out for child support obligations. California’s protection, although seemingly broad is not without a limitation as the protection of a nonqualified plan focuses principally on defining the so-called “private retirement plan” and determining the amount that the debtor will need to have to provide for retirement needs.

Are offshore structures always more protective?

Yes. Simply by moving the governing law of the LLC or a trust offshore, you may be forcing the plaintiff to litigate offshore, which is always more expensive for the plaintiff than litigating domestically. Many offshore jurisdictions have asset protection built into their laws.

What are the advantages of a foreign trust?

When properly structured, it makes your liquid assets unreachable. Often times, even if you set it up after the lawsuit has been filed.

Are there disadvantages to foreign trusts?

It is usually more expensive to set up than other asset protection structures. However, if you are facing the possibility of losing all your assets to a creditor, it always makes sense to pay for a foreign trust.

What are the tax consequences of foreign trusts?

None. A foreign trust will neither increase nor decrease your taxes. It is treated in exactly the same manner as your living trust. You will continue to report the income of the trust on your income tax return.

Are foreign trusts always effective to thwart creditors?

Yes, if properly structured. In the three primary foreign trust jurisdictions (Saint Vincent, Cook Islands, Nevis) there have been over 15,000 asset protection trusts set up. There have been approximately 6 reported cases of creditors successfully piercing a foreign trust. All 6 cases involved trusts that were poorly drafted, and some included debtors who engaged in egregious criminal conduct.

Can I keep my money in the U.S.?

Yes. Just because the trust is governed by the laws of a foreign country, it does not mean that the trust holds its money in that country. The trust can have a bank account in the U.S., own a mutual fund in Switzerland, and real estate in Tuscany. However, if you are being pursued by a very aggressive creditor, we recommend that the assets of the foreign trust be outside the U.S.

How can I make sure that no one steals my money?

Some clients worry that the foreign trustee supervising their trust may run off with their money. We work with large and very reputable trust companies and we have maintained relationships with these trust companies for years. But, if that is not enough, we can set up an advanced foreign trust structure that would allow you to remain in complete control of your assets. No one but you will have signature authority on the bank account of the trust.

Is it safe to invest money offshore?

Yes, and often much safer than investing in the U.S. Many European financial institutions have been around for hundreds of years. They have survived world wars and financial catastrophes. These are usually very large institutions that simply do not advertise their services in the U.S. and are not well known to U.S. investors. It surprises many Americans to find out that many of the world’s largest banks are names that they have never heard before. For example, BNP Paribas is larger than either Bank of America or JP Morgan Chase.

What are my investment choices?

There are numerous investment choices available offshore. Private bank accounts (currently paying between 5-6%), brokerage accounts (with returns ranging up to 30%), guaranteed annuities 9with returns between 1-10%) and many others. While we are not investment advisors, we would be happy to introduce you to our contacts in the offshore investment world so that you can learn about your options.