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Why You Probably Don't Need More Asset Protection

Updated: Nov 26, 2020

Often, I'm approached by clients who ask me about setting up "living wills and living trusts" because they heard from a friend or neighbor that "they need asset protection." My first response is always, "What are you trying to protect against? Are you being sued?" Luckily, the answer is something along the lines, "No, not right now but what if I get sued?" My typical follow-up question is, "What are you trying to protect?" Often, the answer is, "My house. And, oh, I have a retirement account." This is the point where I will overtly nod my head in agreement but shake my head subtly. [Note: despite its confusingly similar name, a living will is not the same as a will and I'll reserve that explanation for another time.]

Can I Protect My Assets from a Lawsuit?

From a big picture perspective, "asset protection" is about preserving your hard-earned money from annoying debt collectors. Whether it's the random telephone-call-where-your-conversation-may-be-recorded or it's the constable-showing-up-at-your-front-door-with-a-citation, your goal is to retain as much money as possible in your personal ledger. But, if you're already in the middle of a lawsuit or there's a specter of potential litigation, then you've already missed the window to shelter your assets. Creditors can clawback unscrupulous transfers under the Texas Uniform Fraudulent Transfer Act and any transfer intended to hinder, delay, or defraud a creditor will certainly be scrutinized in court. This is not to say that you're out of options but it will be challenging to find legitimate strategies against post-judgment collection efforts.

What Protections Are Already Provided by Federal and State Law?

Is it then necessary for most families to devise complicated schemes that involve off-shore bank accounts, shell corporations, or leather-bound trusts? Surprisingly, the answer is "probably not". First, it's expensive to set up and maintain asset protection strategies when compared to the nominal level of protection gained. Second - and most importantly - many of your assets might be exempted from creditors already. Federal law already protects qualified retirement accounts, such as 401(k), pension, and profit-sharing plans, from creditors. Texas law provides additional protections by shielding your homestead residence, life insurance policy, and monthly wages from creditors. Furthermore, Texas families can protect up to $100,000 in personal property, such as household furniture, vehicles, and jewelry. You can also keep two horses, 12 heads of cattle, and 120 chickens!

So ... Does My Family Really Need Asset Protection?

Again, you have to ask yourself what you're seeking protection from and what you're trying to protect. The threat of a vague and improbable lawsuit should not be cause for anxiety. Instead, you need to identify a specific risk that you are trying to mitigate. Are you in a profession, such as being a medical doctor, that's susceptible to lawsuits? Do you own rental property where tenants are likely to complain? Alternatively, you need to identify a specific purpose that you are trying to obtain. Do you have a family member who needs to qualify for Medicaid or Social Security Disability Income? Do you have minor or adult children that benefit from the safeguarding of assets until they reach an approved level of maturity?

Not every family needs to formalize an asset protection strategy but every family should have an understanding of how their assets can be protected.

Written by Jack Fan. If you have questions or remarks, please email us at

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