An asset-protection agreement is a way to protect your assets against future creditors. There are three main types:

  • Self-Settled Asset-Protection Trusts
  • Corporations (S Corporations, C corporations, and LLCs)
  • Partnerships

Some strategies are deceiving or even illegal scams. The above agreements are common legal ways to protect assets.

One strategy is dividing your assets among corporations, partnerships, and trusts.

Self-Settled Asset Protection Trusts

When you transfer assets into a self-settled asset protection trust, they are no longer yours and cannot be claimed by creditors. However, not all assets can be transferred. Also, trusts can't protect against past creditors or certain types of creditors, and some states and circumstances don't allow for them.

To create a trust, the person opening it, or the trustor, must permanently transfer the assets and seal the terms. No one can access what's in the trust except the trustee, who can approve payments to you or family members.

Giving something to a friend or relative isn't effective.

There are a few different types of trusts. A living trust (inter-vivos) is when assets are transferred while the trustor is still alive, while a testamentary trust is created after the trustor dies and leaves behind a living trust or will.

A revocable trust can be amended, partially dissolved, or fully dissolved by the trustor. These options are not available for an irrevocable trust, which makes this option much stronger.

Recently, a lot of states have decided to pass laws allowing trusts:

  • Alaska
  • Delaware
  • Hawaii
  • Mississippi
  • Missouri
  • Nevada
  • New Hampshire
  • Ohio
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Virginia
  • West Virginia
  • Wyoming

You can't get arrested for setting up a trust properly. However, the trust won't work if you avoid debt fraudulently.

Creditors get judgments, or the amount of money owed, from courts and take them to where your assets are registered. You can plan to protect assets for a year or two until the creditor gives up. About 85 to 95 percent of the time, the creditor won't put in the effort it takes to get past an asset protection plan.

You can't make a trust to avoid creditors who are currently after your assets. A trust also might not work if a creditor comes after you soon after you've set it up.

If your state doesn't allow trusts, you can set one up in another state. Assets that can't be physically moved may not get protection.

Sometimes things like child support, alimony, taxes, or high-cost emergencies must be taken from the trust.

If you don't have a plan, now is the time to set one up. They only get more secure as they get older.

An internal claim is when someone can only go after business assets. An external claim is when someone can go after your personal assets.

Some things, like real estate, are considered dangerous assets. Others, like bank accounts, are considered safe. Safe assets usually don't need to be separated or even leave your possession, but dangerous assets should never reside with other assets.


C corporations (businesses), S corporations, and limited liability companies (LLC) are all corporations that can protect assets. There's no personal liability for members or shareholders when it comes to corporate debts, breaches of contract, or personal injuries to outside parties.

However, professionals who perform personal services are still susceptible to liability. A doctor who forms and works for his/her company might still be liable for injuries caused during the treatment of one of his/her patients.

An S corporation is different from a C corporation in that it can be taxed at the shareholder level.

LLCs offer the same protections as C corporations and the same tax treatments as S corporations, but they don't have to jump through as many hoops.

A creditor can try what's called “piercing the corporate veil,” and if the creditor can prove the corporation isn't separate from its members, he/she can go after their assets.


When two people want to do something business-related together, they can create a general partnership. However, this setup is not ideal, because both partners are responsible for all debts and obligations. Either person can act on behalf of the other whether or not they consent to it or even know about it. This is considered unlimited liability.

Limited partnerships require at least one general and one limited partner. The general partner manages everything and takes responsibility for all debts and obligations. The limited partner has very little control, but they are only responsible for their contributions.

Nowadays, it's more common to go with an LLC because this type of business is more convenient, flexible, efficient, and cost-effective without sacrificing protection.

If you need help with creating a trust, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.