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Top Legal Safeguards for Protecting Your Assets

Posted by James Burns | Jun 22, 2024 | 0 Comments

In today's litigious society, safeguarding your assets is more crucial than ever. According to a 2018 study by the Federal Reserve, 44% of Americans face unexpected financial costs each year. Protecting your assets from such unforeseen events can provide peace of mind and financial security. This blog post outlines essential legal strategies to help you protect your assets effectively.

Table of Contents

  1. Establishing a Trust
  2. Forming an LLC or Corporation
  3. Utilizing Homestead Exemptions
  4. Implementing Proper Insurance
  5. Keeping Assets Separate

1. Establishing a Trust

Setting up a trust is one of the most effective ways to protect your assets. Trusts can provide specific benefits depending on their type and structure.

Actionable Tip: Consider establishing an irrevocable trust, which can provide protection from creditors by removing the assets from your ownership.

Mistake to Avoid: Avoid assuming that a revocable living trust offers protection from creditors. Since the settlor maintains control over the assets, they are still accessible to creditors.

Example: Jane Doe, a California resident, established an irrevocable trust to protect her home and investments from potential lawsuits. By doing so, she relinquished control over these assets, effectively removing them from her personal estate. When she faced a lawsuit, the assets in the irrevocable trust were protected and not subject to seizure. This was because the trust legally separated her personal ownership from the assets, placing them beyond the reach of her personal creditors. The irrevocable nature of the trust ensured that once the assets were transferred, they could not be reclaimed by Jane or her creditors, providing a robust layer of protection.

Relevant Law: Under California Probate Code § 15300, assets transferred to an irrevocable trust are generally not subject to claims of the settlor's creditors. This statute ensures that once assets are moved into an irrevocable trust, they are considered independent from the settlor's personal estate. This legal separation significantly protects those assets from being targeted in lawsuits or creditor claims against the settlor, offering a secure way to preserve wealth.

2. Forming an LLC or Corporation

Forming a Limited Liability Company (LLC) or a corporation can protect your personal assets from business liabilities. These entities create a legal separation between your personal and business assets.

Actionable Tip: Form an LLC or corporation for any business ventures to shield personal assets from business debts and legal claims.

Mistake to Avoid: Do not neglect the formalities. Failure to maintain proper records and follow corporate formalities can lead to a court "piercing the corporate veil," thus holding you personally liable.

Example: John Smith, an entrepreneur in Aliso Viejo, formed an LLC for his consulting business. When his company was sued, his personal assets, including his home and savings, were protected from the business lawsuit.

Relevant Law: California Corporations Code § 17701.04 provides that members of an LLC are not personally liable for the debts, obligations, or liabilities of the LLC, ensuring protection for personal assets.

3. Utilizing Homestead Exemptions

Homestead exemptions protect a portion of your home's equity from creditors. This exemption can be particularly beneficial in states like California, where property values are high.

Actionable Tip: File a homestead declaration to ensure your primary residence is protected under the state's homestead exemption laws.

Mistake to Avoid: Do not assume your property is automatically protected. You must file a homestead declaration to take advantage of the exemption.

Example: Mary Johnson, a homeowner in Orange County, filed a homestead declaration. When faced with a creditor's claim, a significant portion of her home's equity was protected, ensuring she did not lose her home.

Relevant Law: California Code of Civil Procedure § 704.730 outlines the homestead exemption amounts, protecting up to $600,000 of equity for certain residents.

4. Implementing Proper Insurance

Insurance is a critical component of asset protection. Various insurance policies, such as liability, property, and health insurance, can safeguard your assets against unforeseen events.

Actionable Tip: Ensure you have adequate liability coverage to protect against potential lawsuits that could jeopardize your assets.

Mistake to Avoid: Do not underinsure. Skimping on insurance can leave you vulnerable to significant financial losses.

Example: Tom and Lisa Brown, residents of California, maintained comprehensive liability insurance. When Tom was involved in a car accident, their insurance covered the damages, protecting their personal assets from being used to settle the claim.

Relevant Law: California Insurance Code § 11580.1 requires motor vehicle liability policies to include a minimum level of coverage, providing a basic layer of asset protection.

An umbrella policy is a type of personal liability insurance designed to provide an additional layer of protection beyond the limits of your standard insurance policies, such as homeowners, auto, or boat insurance. This policy acts as a safety net, covering liability claims that exceed the coverage amounts of your primary insurance policies.

How an Umbrella Policy Works

An umbrella policy kicks in when the liability limits of your underlying insurance policies are exhausted. It provides additional coverage, typically in increments of $1 million, which can protect you from significant financial loss due to large claims or lawsuits. For example, if you are involved in a car accident and the damages and legal fees exceed your auto insurance liability limits, your umbrella policy would cover the remaining costs up to its coverage limit.

What an Umbrella Policy Covers

Umbrella policies cover a wide range of liability scenarios, including but not limited to:

  • Bodily Injury Liability: Covers medical expenses, legal fees, and other costs if someone is injured due to your actions, such as in a car accident or a slip-and-fall incident on your property.


  • Property Damage Liability: Covers costs associated with damage to someone else's property caused by you, such as a car accident that damages another vehicle or structure.


  • Personal Liability: Covers various personal liability claims, including defamation, libel, slander, and invasion of privacy.


  • Legal Defense Costs: Covers legal fees and court costs associated with defending against covered claims.

Example of an Umbrella Policy in Action

Let's consider a scenario where an umbrella policy provides critical protection:

Example: Sarah, a resident of California, was driving her car when she accidentally ran a red light and caused a major accident involving multiple vehicles. The total damages amounted to $800,000, which included medical bills, vehicle repairs, and legal fees. Sarah's auto insurance policy had a liability limit of $300,000. Without an umbrella policy, Sarah would have been personally responsible for the remaining $500,000. However, because she had an umbrella policy with a $1 million coverage limit, the umbrella policy covered the additional $500,000, protecting Sarah's personal assets from being used to pay the excess amount.

In conclusion, an umbrella policy is a valuable addition to your overall insurance portfolio, providing extra protection and peace of mind in the event of large liability claims.

5. Keeping Assets Separate

Maintaining the separation of personal and business assets is crucial in protecting your personal wealth from business liabilities.

Actionable Tip: Use separate bank accounts and credit cards for personal and business expenses to ensure a clear distinction between the two.

Mistake to Avoid: Avoid commingling funds. Mixing personal and business assets can lead to personal liability for business debts.

Example: Sarah Lee, a small business owner in Orange County, ensured all business transactions were conducted through her business account. This separation protected her personal assets when her business faced financial difficulties.

Relevant Law: The California Corporations Code emphasizes the importance of maintaining corporate formalities to protect against personal liability for business obligations.


Protecting your assets requires a proactive approach and understanding of the legal safeguards available. By establishing trusts, forming LLCs or corporations, utilizing homestead exemptions, implementing proper insurance, and keeping assets separate, you can effectively shield your assets from potential risks. For expert legal assistance, contact the Law Office of James Burns at (949) 305-8642 or visit Serving Aliso Viejo, Orange County, and California with over 24 years of experience, they can help you secure your financial future.

About the Author

James Burns

Estate Planning, Asset Protection, Business and Real Estate Transactions, nutraceutical Law and franchising:


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