Learn more about asset protection.

Asset Protection for Professionals and Business Owners

Asset protection planning involves making prudent decisions today to protect yourself, your business, and your hard-earned assets from loss due to lawsuits, creditors or bankruptcies. This type of legal planning is especially prudent for professionals and business owners, whose personal assets could be at risk due the nature of their employment.

Statistically and anecdotally, we all know that the number of divorces, lawsuits and bankruptcies is staggering. While no one believes lightning will strike them, wealth created through a lifetime of work, saving and investing can be lost overnight if these forms of man-made lightning do strike. To protect your assets from such disaster, proper risk management strategies should be given careful consideration. These strategies include exempting your assets from the claims of creditors, limiting your liability through legal entities, and transferring your risk through insurance.

Exempting Assets in California

The first line of defense against creditors or in a bankruptcy proceeding is the protection offered certain assets under state and federal law. These are referred to as “Exemption Statutes.” The federal rules are straightforward, but state laws vary and federal exemptions are not necessarily available to residents in every state. For example, federal bankruptcy exemptions are not available in California. You can download a listing of California’s asset exemptions online here. Once you have identified the protected asset classes available to you under applicable law, it may be prudent to maximize your protection by converting non-exempt assets into exempt assets. However, there are certain pitfalls to this approach, including the possibility that your transfer could be considered a “fraudulent conveyance” or transfer.

Limiting Liability for Professionals & Business Owners

Many entrepreneurs operate their businesses as sole proprietors rather than through a legal entity, such as a Corporation or a Limited Liability Company. Whether their business is home-based or in the Fortune 500, these business owners are attracted by the informality of sole proprietorship. They also do not want to incur legal fees to create and maintain a legal entity. However, in addition to other advantages, conducting business through a legal entity may offer substantial risk management benefits.

While lawsuits brought against a sole proprietorship are really lawsuits against the owner's personal assets, lawsuits against a properly created and maintained legal entity are really lawsuits against the entity's assets. Nevertheless, the selection of an appropriate legal entity is critical for managing your risk.

Asset Protection Trusts

A trust can be an effective way to place assets outside the reach of creditors, especially if you are attempting to protect assets for your children or other heirs. Assets you place in a properly drafted trust for your children (or other beneficiaries) may be completely shielded from their creditors in nearly all circumstances, including court judgments, bankruptcy and divorce.

However, when you place assets in trust for your own benefit, creditor protection is more difficult to achieve. This type of trust is called a Self-Settled Trust (one in which the trust maker is also the trust beneficiary). A Self-Settled Trust can potentially provide a creditor protection if the trust is properly drafted, structured and sited. Under these circumstances, a number of asset protection strategies are available, including the use of offshore and certain domestic trusts sited in jurisdictions such as Alaska or Delaware, with favorable state laws.

Transferring Risk with Insurance

When was the last time you reviewed the details of your liability insurance program with your insurance professionals? Are your policies current? Are the coverage limits adequate and are the deductibles reasonable? Have you scrutinized the policies for loopholes? Remember: the fundamental philosophy of any insurance coverage is to pay a premium you can afford to transfer a risk you cannot afford. Take time to understand both the risks you have retained and the risks you have transferred.


Los Angeles Estate Planning Attorney Richard Grain assists clients with Estate Planning, Wills, Trusts, Revocable Living Trusts, California Probate and Estate Administration, Estate Tax Planning, Estate Planning for the LGBT Community, IRA and Retirement Planning, Asset Protection, Family-Owned Businesses, and Special Needs Planning in Los Angeles and Ventura Counties; Los Angeles, Beverly Hills, West Hollywood, Hollywood, Los Feliz, Silverlake, Burbank, Glendale, Pasadena, Sierra Madre, San Marino, South Pasadena, Monrovia, Arcadia, La Canada, Flintridge, Altadena, Culver City, Westwood, Santa Monica, Sherman Oaks, Studio City, North Hollywood, Encino, Tarzana, Woodland Hills, Hidden Hills, Calabasas, Thousand Oaks, Agoura Hills, Westlake, Oak Park, Malibu, Canoga Park, Venice, Reseda, Granada Hills, West Hills, Chatsworth, Moorpark, Simi Valley, Valley Village, Century City, Atwater Village, Highland Park, Mount Washington, Glassell Park, Eagle Rock, La Crescenta, Montrose and Universal City.

Please feel free to contact the firm if you or a family member is in need of legal assistance with California Probate or Estate Administration, California Estate Planning, California Wills and Trusts and Estates or California Tax Planning Strategies.

Richard Grain focuses on California Estate Planning, Wills, Trusts, Estates, Probate Administration, Estate Tax Planning, and Estate Planning for the GLBT Community.

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