Asset Protection in 2026: Exemptions, Asset Protection Trusts, LLCs, and the Look-Back Rules

Most of the protection a household has from lawsuits comes from three unglamorous sources: liability insurance, the retirement accounts it already owns, and the state law exemptions for homes and certain other assets. Trusts and LLCs add to that, but only if they are set up well before any claim exists. A transfer made after an accident or a default can be reversed under voidable transfer law, and in federal bankruptcy the look-back for transfers to self-settled trusts is ten years.

This guide explains the legal mechanics: which assets are exempt and up to what limits, how domestic asset protection trusts and LLC charging orders work, what the look-back periods are, and where insurance fits. It is general information, not legal advice. Creditor law is mostly state law and differs a great deal from state to state, so the right plan depends on where you live and what you own. How trusts are taxed, including GRATs and SLATs, is in our trust planning guide, and the broader plan for affluent households is in the high net worth planning guide.

The order that matters

Asset protection works in layers, and the cheapest layers come first:

1. Liability insurance, which pays claims and defense lawyers.
2. Exempt assets, which creditors cannot take at all, such as ERISA plans and, depending on the state, home equity, IRAs, life insurance cash values, and annuities.
3. Entities, which separate the risks of a business or a rental property from the rest of your wealth.
4. Trusts, which can put assets out of your creditors' reach if you give up enough control and act early enough.

Retirement accounts

Employer plans covered by ERISA, such as most 401(k), 403(b), and pension plans, must include an anti-alienation clause. The Supreme Court held in Patterson v. Shumate (1992) that such plan interests are excluded from the bankruptcy estate, and ERISA also blocks most judgment creditors outside bankruptcy. The main exceptions are the IRS and a former spouse with a qualified domestic relations order. A solo 401(k) that covers only the owner (and spouse) is not an ERISA plan, so outside bankruptcy its protection depends on state law.

IRAs are protected in federal bankruptcy under Section 522 of the Bankruptcy Code, with a cap on contributory traditional and Roth IRAs. The cap is adjusted every three years. For cases filed from April 1, 2025 through March 31, 2028, it is $1,711,975, up from $1,512,350, according to the Judicial Conference notice in the Federal Register. Money rolled over from an employer plan does not count toward the cap, and neither do SEP and SIMPLE IRAs. Keeping rollover money in a separate IRA makes it easier to prove where it came from.

Inherited IRAs are different. In Clark v. Rameker (2014), the Supreme Court held that funds in an inherited IRA are not "retirement funds" for the federal exemption, because the heir can take the money at any time and cannot contribute more. Some states protect inherited IRAs by their own statutes. An IRA owner who worries about a child's creditors or divorce can name a trust drafted for retirement accounts as beneficiary; our estate planning guide covers the payout rules those trusts must follow.

Outside bankruptcy, IRA protection comes from state law, which ranges from full protection to limits based on what the court considers reasonably necessary for support.

Homestead exemptions

State homestead laws protect some or all of the equity in a primary residence from most judgment creditors. They vary more than any other exemption:

• Florida's constitution (Article X, section 4) protects a homestead without a dollar cap, limited by land area: half an acre inside a municipality and 160 acres outside one.
• Texas protects a homestead without a dollar cap, limited to 10 acres in a city and 100 acres (single adult) or 200 acres (family) in rural areas, under Property Code section 41.002.
• California's exemption under Code of Civil Procedure section 704.730 is the greater of $300,000 or the county's median single-family home price for the prior year, capped at $600,000, with later inflation adjustments.
• The federal bankruptcy exemption, for debtors in states that allow it, is only $31,575 for cases filed from April 1, 2025.

Federal bankruptcy law limits moves made to exploit generous states. A debtor must generally have lived in a state for 730 days before filing to use its exemptions. And equity in a homestead acquired within 1,215 days before filing is capped at $214,000 (for cases filed April 1, 2025 through March 31, 2028), except for equity rolled over from an earlier home in the same state. Homestead exemptions also do not stop a mortgage lender, a tax lien, or a mechanic's lien on the home itself.

Illustration: a hypothetical household files for bankruptcy with $4 million: a $1.2 million 401(k), a $900,000 IRA rolled over from a former employer, a $400,000 contributory IRA, a $300,000 inherited IRA, $700,000 of home equity, and a $500,000 brokerage account. This ignores smaller exemptions such as vehicles and household goods.

The retirement accounts are protected in every row: the 401(k) under ERISA, the rollover IRA without limit, and the contributory IRA because it is under the $1,711,975 cap. The inherited IRA is treated as exposed here; state law could change that. The brokerage account is the asset that planning would focus on.

Voidable transfers and the look-back

Every state has a law letting creditors undo transfers made to avoid them. Most have adopted the Uniform Voidable Transactions Act (UVTA), the 2014 update of the Uniform Fraudulent Transfer Act. A transfer is voidable if it was made with actual intent to hinder, delay, or defraud a creditor, or if the debtor did not get reasonably equivalent value and was insolvent or left undercapitalized. Courts infer intent from "badges of fraud" such as transfers to family, keeping control of the asset, transfers made after being sued or threatened, and transfers of substantially all assets.

The time limits are longer than many people assume. California's version, Civil Code section 3439.09, is typical: four years after the transfer, or for intentional transfers one year after the creditor could reasonably have discovered it if that is later, with a hard stop at seven years. In bankruptcy, Section 548 lets the trustee avoid transfers made within two years before filing, and the trustee can also use state law. For transfers to a self-settled trust made with intent to hinder, delay, or defraud creditors, Section 548(e) reaches back ten years.

The practical rule follows from this. Asset protection has to be done when there are no claims, threatened claims, or foreseeable ones, and with enough left outside the plan to pay ordinary debts. A transfer that leaves you insolvent can be undone even without bad intent.

Domestic asset protection trusts

Traditionally, a trust you create for your own benefit (a self-settled trust) gives no protection from your own creditors. Alaska changed that in 1997, and the August 2025 ACTEC comparison of the statutes counts 21 states that now allow domestic asset protection trusts (DAPTs), the most recent being Arkansas, effective August 1, 2023. Among the states that do not allow them are California, New York, Texas, Florida, and Pennsylvania.

The statutes differ in the details that decide cases:

• Waiting period. A creditor whose claim existed at the time of the transfer usually has a limited time to challenge it: two years in Nevada and South Dakota and four in Alaska and Delaware, for example, often with a shorter period after the creditor discovers the transfer.
• Exception creditors. Many states let certain creditors reach the trust anyway, most often for child support and alimony and in some states for property division in a divorce or for tort claims that existed before the transfer. Nevada's statute has no exception creditors.
• Local contacts. Most require a trustee in the state and some administration there, and the settlor cannot control distributions.

The weak spot is residence. A resident of a non-DAPT state who uses another state's DAPT may find that their home state's courts apply their own law. In Waldron v. Huber (Bankr. W.D. Wash. 2013), a Washington developer moved most of his assets into an Alaska trust while his business was failing; the court applied Washington law, which voids self-settled trusts as against creditors, and also avoided the transfers under Section 548(e). In Toni 1 Trust v. Wacker (2018), the Alaska Supreme Court held that Alaska's statute could not stop Montana state courts or federal bankruptcy courts from hearing fraudulent transfer claims against an Alaska trust. Both cases involved transfers made while creditor trouble was already building, which is the fact pattern that loses.

Third-party trusts are simpler. A trust someone else creates for you, with a spendthrift clause and distributions at an independent trustee's discretion, is generally protected from your creditors in every state. That is one reason many parents leave inheritances in trust rather than outright, and why the trust planning guide's dynasty trusts are often drafted with spendthrift clauses.

LLCs and charging orders

An LLC gives two kinds of protection. The first shields you from the LLC's own debts: if a tenant sues over an injury at a rental property held in an LLC, the claim is generally limited to the LLC's assets, as long as you keep the LLC separate, adequately funded, insured, and not used as your personal account. Courts can disregard an LLC that is treated as the owner's alter ego.

The second protects the LLC's assets from your personal creditors. In most states a judgment creditor of a member can get only a charging order, a lien on distributions the LLC chooses to make, and cannot take over the LLC or its property. This works best in multi-member LLCs. With a single-member LLC, several courts have allowed more: Florida's statute, for example, lets a court order foreclosure of a sole member's whole interest if a charging order will not satisfy the judgment within a reasonable time, and gives the buyer full membership (Fla. Stat. 605.0503). The same statute says foreclosure is not available against a member of a multi-member Florida LLC.

A common setup for real estate investors is one LLC per property or small group of properties, so a claim at one building does not reach the others. Each LLC needs its own bank account, insurance, and records, and lenders often require personal guarantees, which put your personal assets back on the line for that debt. Our commercial real estate guide covers how ownership entities fit into property deals.

Insurance first

Insurance pays both the claim and the lawyers, and it does not depend on winning a voidable transfer argument. A personal umbrella policy sits above your auto and homeowners liability coverage and is usually sold in $1 million layers. Insurers require minimum limits on the underlying policies.

Illustration: a court enters a $2.5 million judgment after a car accident. With $500,000 of auto liability and a $1 million umbrella, $1 million is left for the driver to pay from non-exempt assets. With a $2 million umbrella, nothing is left.

Umbrellas usually exclude business activities, professional services, and sometimes board service, so check what is carved out. Professionals need malpractice coverage, business owners need commercial general liability and often cyber coverage (see our cyber insurance guide), and directors of nonprofits or companies need directors and officers coverage.

Other exemptions and titling

• Life insurance cash values and annuities are protected in many states, sometimes without limit. Whether an annuity is protected depends on the state's statute, which is worth checking before buying one partly for protection; our annuities guide covers the products.
• Tenancy by the entirety, available to married couples in some states, protects property from creditors of only one spouse. It does not help against joint debts or claims against both spouses.
• Revocable living trusts give no protection from your own creditors, because you can take the assets back. They are for probate and incapacity.
• Wages, 529 plans, and health savings accounts have their own federal and state limits, which vary by state.

Who needs more than the basics

A salaried household with retirement accounts, a home in a state with a solid homestead exemption, and a well-sized umbrella policy already has most of the protection it can use. The more elaborate tools make sense for people with a real and recurring liability risk that insurance does not fully cover, such as physicians in high-claim specialties, business owners who sign personal guarantees, landlords, and people with large non-exempt investment accounts. Even then, the plan is only as good as its timing and the paperwork that keeps it separate.

Steps

1. List every asset with its title, beneficiary, and whether your state exempts it.
2. Review auto, homeowners, and umbrella limits against your net worth, and check the umbrella's exclusions.
3. Keep retirement money in plans and IRAs, and keep rollover IRAs separate from contributory IRAs.
4. Hold rental properties and operating businesses in separate, properly maintained entities with their own insurance.
5. If you are considering a DAPT, ask an attorney licensed in your state how your home state's courts treat them, and fund it only with assets you can spare while you are solvent and free of claims.
6. Review the plan when you move states, marry, divorce, start a business, or sign a personal guarantee.

This guide is for informational purposes only and is not legal, tax, or financial advice. Creditor and exemption law is mostly state law, varies widely, and changes; dollar limits are as of September 2026. Whether a transfer or structure will hold up depends on your facts and your state. Consult an attorney licensed in your state before transferring assets or creating a trust or entity for protection.