Ashford International Law P.C.

Summary

1. Asset protection is the arrangement of title, insurance, entities and trusts before any claim arises. It is lawful only while the client is solvent, before a claim is foreseeable, and with full tax reporting.
2. Every transfer remains subject to voidable transfer law and the Bankruptcy Code. Transfers to a self-settled trust made with intent to hinder creditors can be reached for ten years (11 U.S.C. § 548(e)).
3. Liability insurance and statutory exemptions for retirement accounts, life insurance and the residence come first.
4. Tenancy by the entirety protects married couples against the creditors of one spouse in the District of Columbia, Maryland and Virginia. California does not recognize it.
5. Limited liability companies confine business liabilities and, through the charging order, limit the owner’s personal creditors. The protection varies by state and is weakest for single-member companies.
6. Third-party spendthrift trusts protect inheritances. Self-settled trusts are permitted in 21 states, including Virginia, but remain uncertain for residents of states that do not permit them.
7. Foreign trusts carry heavy reporting obligations, no income tax advantage and a risk of civil contempt.
8. Germany and France apply their own tax and creditor law to US trusts and entities, and marital and incapacity documents must satisfy each country’s formal requirements.

Part I. Scope and principles

Physicians and other licensed professionals, owners of operating businesses, landlords, directors and officers, and individuals of publicly known net worth carry an elevated risk of litigation. Older clients face a different exposure: cognitive decline or disability increases the risk of financial exploitation and undue influence. Heirs are exposed to their own creditors and, on divorce, to claims by a spouse.

Planning proceeds in sequence: insurance, statutory exemptions, title and entity structure, and trusts. Each step is more costly and more formal than the one before it. The planning is legitimate only if it is completed while the client is solvent and before a claim has arisen or become reasonably foreseeable, leaves the client able to meet existing obligations, and is reported fully to the tax authorities. It does not reduce income tax. Concealment of assets in a bankruptcy case is a federal crime (18 U.S.C. § 152), and the firm does not implement transfers intended to defeat an existing or anticipated claim.

Part II. Limits and timing

A creditor may set aside a transfer made with actual intent to hinder, delay or defraud creditors, and in many cases a transfer for less than reasonably equivalent value by an insolvent transferor. Intent is inferred from the so-called badges of fraud, among them a transfer to an insider, retained control or benefit, a transfer of substantially all assets, and a transfer made shortly before or after a substantial debt was incurred or a suit was threatened. The four jurisdictions in which the firm’s attorneys are licensed apply different statutes.

In bankruptcy, the trustee may avoid transfers made within two years before the petition (11 U.S.C. § 548(a)), may use the longer state law periods (§ 544(b)), and may avoid transfers to a self-settled trust made with intent to hinder creditors within ten years (§ 548(e)). A debtor who claims state exemptions must use those of the state of domicile during the 730 days before the petition (§ 522(b)(3)(A)), and a homestead interest acquired within 1,215 days before the petition is capped at $214,000 (§ 522(p), as adjusted April 1, 2025).

State exemptions do not bind the United States as a tax creditor. A federal tax lien attaches to a spouse’s interest in entireties property (United States v. Craft, 535 U.S. 274 (2002)), and the Internal Revenue Service may levy on retirement accounts.

Part III. Insurance and statutory protection

Insurance. An umbrella policy should be sized in relation to net worth and actual exposure. Most medical malpractice policies are written on a claims-made basis and cover only claims asserted while the policy is in force. A physician who retires, sells a practice or changes employer therefore requires an extended reporting period endorsement (tail coverage) or prior-acts coverage from the new carrier (nose coverage), and the governing agreement should state which party bears the cost.

Retirement accounts. Plans subject to the anti-alienation rule of the Employee Retirement Income Security Act are excluded from the bankruptcy estate (Patterson v. Shumate, 504 U.S. 753 (1992)). Traditional and Roth IRAs are exempt in bankruptcy up to $1,711,975; rollover amounts and SEP and SIMPLE IRAs are not counted against that limit (11 U.S.C. § 522(n)). An inherited IRA does not qualify for the federal exemption (Clark v. Rameker, 573 U.S. 122 (2014)). Outside bankruptcy, state law governs, as shown in the table below. Protection generally ends once funds are distributed.

The residence. Beyond the four jurisdictions shown below, Florida and Texas exempt the homestead without a limit on value, subject to limits on acreage (Fla. Const. art. X, § 4; Tex. Prop. Code § 41.002). A move made for this purpose remains subject to the federal 730-day and 1,215-day rules.

Tenancy by the entirety. Property held by spouses as tenants by the entirety cannot be reached by the creditors of only one spouse. The District of Columbia extends the tenancy to registered domestic partners (D.C. Code § 42-516), and Virginia permits it for personal property by statute (Va. Code § 55.1-136(A)). All three jurisdictions that recognize it preserve the protection where the property is transferred to a trust for both spouses, subject to conditions (Va. Code § 55.1-136(C); Md. Code, Est. & Trusts § 14.5-511; D.C. Code § 42-516). The protection does not extend to joint debts or federal tax liens, and it ends on divorce. In California, community property is generally liable for debts incurred by either spouse before or during the marriage (Cal. Fam. Code § 910).

Figures as of September 2026. Federal bankruptcy caps apply in addition. Virginia’s homestead figures are indexed from April 1, 2027.

Part IV. Business owners and physicians

An entity confines the liabilities of the business to the assets of the business. That protection fails where the owner has given a personal guarantee, personally committed the wrongful act, or disregarded formalities, capitalization or the separation of funds. A professional corporation does not protect a physician, attorney or accountant against liability for his or her own professional negligence; it protects against the negligence of colleagues and the ordinary debts of the practice.

A personal creditor of a member of a limited liability company is generally confined to a charging order, which entitles the creditor to distributions but confers no right to manage the company or compel distributions. Where the law permits foreclosure of the charged interest, as in the District of Columbia, Maryland and California, the protection is weaker. Courts have reached single-member companies with particular ease (Olmstead v. FTC, 44 So. 3d 76 (Fla. 2010)); Wyoming (Wyo. Stat. § 17-29-503(g)) and Nevada (Nev. Rev. Stat. § 86.401) exclude foreclosure expressly, including against a sole member. Corporate shares carry no charging order protection.

A common structure holds real estate, equipment and intellectual property in companies separate from the operating business and leases or licenses them on arm’s-length terms. Investment properties are held in separate companies. Each company requires its own accounts, records and capital. The structure should be coordinated with the owner’s business succession planning. Where a non-US person holds an interest, US estate tax situs, withholding and reporting must also be addressed; a US limited liability company wholly owned by a foreign person must file Form 5472, with a penalty of $25,000 for failure (26 U.S.C. § 6038A(d)).

Part V. Trusts

Revocable trusts provide no protection against the settlor’s own creditors (for example, Cal. Prob. Code § 18200). Their function here is administrative: a successor trustee, or a co-trustee appointed during the settlor’s lifetime, can monitor accounts and take over on incapacity without a court proceeding.

Third-party spendthrift and dynasty trusts, created by one person for another with a spendthrift clause and discretionary distributions, generally protect the trust property from the beneficiary’s creditors and divorcing spouse. All four jurisdictions recognize spendthrift provisions, subject to statutory exceptions, most commonly for child support. A dynasty trust extends the structure across generations and is allocated generation-skipping transfer tax exemption, $15,000,000 per transferor in 2026. Distributions paid out to the beneficiary lose the protection.

Self-settled domestic asset protection trusts allow the settlor to remain a discretionary beneficiary. Under the traditional rule, which California codifies, the settlor’s creditors may reach whatever the trustee could distribute to the settlor (Cal. Prob. Code § 15304). Twenty-one states now permit protection after a limitation period, provided that the trust is irrevocable, has a trustee in the enacting state and contains a spendthrift clause.

Summary only; each statute contains further conditions. State count per the ACTEC comparison of August 2025.

The principal uncertainty concerns settlors who live in a state that does not permit such trusts. In In re Huber, 493 B.R. 798 (Bankr. W.D. Wash. 2013), a Washington resident’s Alaska trust was set aside under Washington law, and in Toni 1 Trust v. Wacker, 413 P.3d 1199 (Alaska 2018), the Alaska Supreme Court held that Alaska courts lack exclusive jurisdiction over fraudulent transfer claims against such trusts. For a resident of the District of Columbia, Maryland or California, the trust is most defensible when it holds assets located in the trust’s state and is combined with the other measures on this page.

A self-settled trust is generally a grantor trust for income tax purposes (26 U.S.C. § 677). Where the settlor’s creditors can reach the property, the transfer is an incomplete gift (Rev. Rul. 76-103) and the property remains in the settlor’s estate. The trust may be drafted either to use the settlor’s basic exclusion amount or to keep the gift incomplete, and the choice should be deliberate.

Part VI. The cross-border dimension

Foreign asset protection trusts. The Cook Islands International Trusts Act 1984 denies recognition to foreign judgments, requires a new action locally, imposes short limitation periods and requires proof of intent to defraud beyond reasonable doubt. Nevis requires a creditor to post a bond of EC$270,000, approximately US$100,000. These rules protect only assets held outside the United States, and a US court may order the settlor to repatriate them. Self-created inability to comply is no defense: in FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999), the court upheld a contempt finding against the settlors of a Cook Islands trust, and in In re Lawrence, 279 F.3d 1294 (11th Cir. 2002), a debtor whose trust had been moved to Mauritius remained incarcerated for civil contempt for more than six years.

A foreign trust with a US settlor and a potential US beneficiary is a grantor trust (26 U.S.C. § 679) and produces no income tax saving. The settlor must file Form 3520 and ensure the annual filing of Form 3520-A; the penalties are the greater of $10,000 or 35 percent of the gross reportable amount, and the greater of $10,000 or 5 percent of the trust assets for Form 3520-A (26 U.S.C. § 6677). FinCEN Form 114 and Form 8938 may also be required. A transfer of appreciated property to a foreign trust is taxable under section 684 unless the trust is a grantor trust, and gain may arise when grantor trust status ends, including at death.

Germany. Germany has not signed the Hague Convention on the Law Applicable to Trusts and on their Recognition and generally treats a trust as an asset pool under foreign law. Its funding is a taxable transfer (§ 7(1) no. 8 and § 3(2) no. 1 ErbStG), and distributions during the term of the trust are taxable acquisitions (§ 7(1) no. 9 ErbStG); where the settlor retains control, the trust may be disregarded. A German creditor may avoid acts undertaken with intent to disadvantage creditors within ten years (§ 3(1) AnfG) and gratuitous transfers within four years (§ 4 AnfG), with corresponding periods in insolvency (§§ 133, 134 InsO). Movable property in the possession of either spouse is presumed, in favor of that spouse’s creditors, to belong to the debtor (§ 1362 BGB).

France. France defines the trust for tax purposes (article 792-0 bis CGI), requires the trustee to report it (article 1649 AB CGI), and may levy 1.5 percent annually on trust assets that are not properly declared (article 990 J CGI). A creditor may render an act made in fraud of its rights unenforceable against it through the action paulienne (article 1341-2 Code civil). Debts incurred by either spouse during a community marriage may generally be enforced against community property (article 1413 Code civil), but a loan or guarantee given by one spouse alone binds only that spouse’s own property and income (article 1415 Code civil). France signed the Hague Trusts Convention but has not ratified it; neither has the United States.

Enforcement of judgments. Assets in Europe are not beyond the reach of a US judgment. A German court recognizes a US judgment where reciprocity with the rendering state is guaranteed (§ 328 ZPO) but does not enforce punitive damages (BGH, June 4, 1992, IX ZR 149/91). A French court grants exequatur where the US court had a genuine connection to the dispute, the judgment conforms to French international public policy, and there was no evasion of the law (Cass. 1re civ., February 20, 2007, Cornelissen). Conversely, California, the District of Columbia and Virginia have enacted the Uniform Foreign-Country Money Judgments Recognition Act, and Maryland applies its 1962 predecessor.

Part VII. Marital and elder planning

Marital agreements. A premarital or postmarital agreement defines separate property and allocates liabilities. The District of Columbia (D.C. Code § 46-501 et seq.) and Virginia (Va. Code § 20-147 et seq.) have enacted the Uniform Premarital Agreement Act. California has enacted it with additional requirements, including a period of at least seven calendar days between presentation of the final agreement and signature (Cal. Fam. Code § 1615(c)(2)); Maryland applies case law. An agreement intended to operate in Germany or France must also meet that country’s form: a German marital agreement requires notarial recording (§ 1410 BGB), and a French marriage contract is executed before a notaire (article 1394 Code civil). See also marital agreements and marital property regimes.

Incapacity and exploitation. The principal instruments are a durable power of attorney that states gifting and trust powers expressly, a revocable trust with a successor or co-trustee, and a trusted contact person at each brokerage (FINRA Rule 4512). A brokerage may place a temporary hold on a disbursement from the account of a specified adult, such as a customer aged 65 or older, where it reasonably believes that financial exploitation is occurring (FINRA Rule 2165), and the Senior Safe Act protects trained employees of financial institutions who report suspected exploitation in good faith (12 U.S.C. § 3423). Germany and France are parties to the Hague Convention on the International Protection of Adults of 2000; the United States is not. A US durable power of attorney, a German Vorsorgevollmacht and a French mandat de protection future should therefore be drafted to operate together.

Part VIII. Practical steps

1. List each asset with its title, location and governing law, together with all existing and contingent liabilities, and confirm solvency before any transfer.
2. Review liability, umbrella and professional coverage against net worth, and arrange tail or nose coverage on any change of practice.
3. Maximize contributions to exempt retirement plans and document rollovers.
4. Review the title of the residence and joint accounts, using tenancy by the entirety where available.
5. Separate operating businesses from real estate and other valuable assets, choosing the state of formation with regard to charging order law.
6. Replace outright gifts and bequests to children with third-party discretionary spendthrift trusts.
7. Where a self-settled trust is considered, select the state, trustee and assets with regard to the settlor’s domicile, and document solvency at each transfer.
8. For any foreign structure, calendar all US information returns and confirm the treatment in each European country concerned.
9. Execute marital agreements and incapacity documents in the form each relevant country requires.
10. Review the plan on any change of residence, marital status, business ownership or exposure, and at least every three years.

Conclusion

Asset protection is effective when it is completed early, begins with insurance and statutory exemptions, and is documented with care. Each further measure is justified only where the exposure warrants its cost. A transfer made after a claim has arisen is generally ineffective. For families connected with Germany or France, every US structure must also be tested against the law of each country involved.

How the firm helps

Ashford International Law PC reviews the exposure and asset structure of individuals, families and business owners and implements protection measures within the limits described on this page: title and exemption analysis in the District of Columbia, Maryland, Virginia and California, entireties trusts, holding and operating company structures, spendthrift, dynasty and domestic asset protection trusts, incapacity planning, and coordination with German and French law. Related pages cover wills and trusts, asset planning using joint titles, estate planning with non-US assets, asset and tax planning for non-US residents with US assets and tax compliance. Defined terms are collected in the Topics A-Z.

This page is intended for general educational purposes and does not constitute legal or tax advice, nor does it create an attorney-client relationship. The matters described depend on the specific facts, the countries and states concerned, and the law in effect at the relevant time. Statuses and figures are stated as of September 2026 and must be confirmed before any decision.