Legal Question in Wills and Trusts in California

Putting assets into an LLC or any other business form does nothing, nada, zero, zip to protect them from creditors if you get sued personally. Liability protection through business forms is a one-way thing. By incorporating, or being a limited partner, or a member of an LLC, you are protected (if everything is done right) from personal liability for the liabilities of the business. There is NOTHING to prevent anyone who has a judgment or other court order from getting assets you put into the business, because you own the shares. The judgment creditor or angry wife very easily gets an order that you turn ownership of the business to them, and then they just close the business and liquidate the assets.

As for setting up a trust, yes, in theory you can set up an irrevocable trust with yourself as beneficiary, and net profits paid to you. Done right no creditor could invade the trust. But done right means ironclad, impenetrable certainty that you can never ever get the assets back out of the trust. So you better be SURE you will NEVER need to sell the house or borrow against it EVER no matter what happens in your life.

You also have to bear in mind that any income you leave yourself entitled to can be levied to satisfy a judgment. So you could find yourself with, say, a $100,000 judgment against you, a house in the trust worth $250,000, and rental income that would support a $100,000 loan and still leave rental income left. But you can't sell the house, and you can't take out that loan to pay the judgment, so the judgment creditor just takes ALL the rental income for the rest of your life, leaving you with nothing but bare legal beneficiary status in a trust that pays you nothing.

Lastly you have to bear in mind that you can't put anything additional into the irrevocable trust, particularly not community income or assets, without revising the trust and possibly giving a wife an interest in it. So you better be sure the house is completely self-sustaining and you never want to improve it. If it suddenly needs a new roof, or suffers uninsured damage, you're screwed.

And how much money are you going to save with a complex trust versus a prenup? ZERO, it will cost a great deal MORE. Likewise, you get a lot of basic personal liability coverage in your homeowners policy, and you can buy many years worth of a WHOLE lot of personal umbrella coverage (that will cover anything over your policy limits on both home and auto coverage) for the cost of a trust plan plus annual trust administration. And if you are worried about being sued due to your business, incorporate and insure that - it's even tax deductible.

Seriously, you think insurance company would be in business if they didn't offer as good or better protection for less cost and trouble then these cockamamie asset protection schemes?

Well put Timothy.