LLCs vs. asset protection trusts: know the difference.

By Tresp, Day & Associates · November 1, 2023

Both LLCs and asset protection trusts belong in the protection toolkit, but assuming an LLC alone is a fortress is a common and costly mistake. Here is why the trust generally offers stronger protection.

What an LLC does, and doesn’t

An LLC separates business liability from your personal assets, which is valuable. But you still own the LLC, so a personal creditor can pursue your membership interest, and in many states a single-member LLC offers only weak “charging order” protection, leaving the assets inside exposed. Sloppy formalities can also let a creditor pierce the veil entirely. The state of formation matters enormously (see Wyoming).

What a trust does differently

When you transfer assets into a properly structured irrevocable asset protection trust, you no longer own them, a trustee holds them for the beneficiaries. Because they’re not yours, a future personal creditor generally can’t reach them at all. That change in ownership is what makes trust protection stronger and more reliable than an LLC’s.

Used together

The strongest structures often combine the two, LLCs to hold and isolate operating assets, owned in turn by an asset protection trust that puts the whole structure beyond a creditor’s reach. The right design depends on your assets and risk, which is what we build with each client.