Asset Protection for Everyone Asset Protection for Everyone

Whenever you hear the word “asset protection” you think about Domestic Asset Protection Trusts in other states (Delaware, South Dakota, Nevada, Alaska, etc.), Off Shore Asset Protection Trusts in Cook Islands or Belize, etc. and Asset Protection LLC/ Limited Partnership in other states, don’t you? These asset protection tools are important components of estate planning for people with substantial assets. However, asset protection is an important component of estate planning for all clients at our firm. You do not have to own few million dollars in order to consider asset protection planning for your estate plan.

Washington Statute:

Retirement Plan Assets

Under the WA statute, any retirement plan assets (including IRAs, Roth IRAs, Keogh Plan, etc.) of a participant and his/her surviving spouse are protected from creditors. However, such protection of a participant is subject to the claims of child support and maintenance payments expressly provided for in Qualified Domestic Relations Order. Also, IRAs or Roth IRAs are not protected for non-participant/non spouse beneficiaries. Please see my article “Asset Protection for IRAs” to provide asset protection for inherited IRAs.


If the annuity benefits are payable to the annuitant or the beneficiaries, such payments are protected from creditors up to $2,500 per month. Any amount exceeding the amount can be subject to creditors’ attachments.

Life Insurance Proceeds

The beneficiary of a life insurance policy can receive life insurance proceeds without being subject to the claims of the creditors that exist at the time of distributing the proceeds. However, such an exemption does not apply to the claims of the creditors that occur after the beneficiary receives the proceeds. For example, Nancy (daughter) is the beneficiary of a life insurance policy on Tom’s life and Tom (father) dies, and there is a judgment creditor against Nancy at the time of distributing the life insurance proceeds to her. Nancy takes the benefits without being subject to the creditor’s claim. However, few years later, Nancy gets involved in a car accident and the plaintiff of the lawsuit gets a judgment against Nancy. In that situation, the later occurring creditor can attach the life insurance proceeds that Nancy received previously. The proceeds are not protected from creditors that occur after the distribution of the proceeds.

Then how can Nancy protect her life insurance proceeds from a later appearing creditor’s claim? The answer is: Tom should (assuming that he is still alive) establish an Irrevocable Life Insurance Trust and transfer his policy to the trust with an appropriate distribution standard. (Please see my ‘Does your estate plan really protect your loved ones?’ for the explanation of each distribution standard in the context of asset protection.) Then the trust law will protect the proceeds from Nancy’s later occurring creditor’s claim and the proceeds will get asset protection. (Please see the Life Insurance Planning article at my website.)


Primary residence up to $125,000 is protected.

Federal Bankruptcy Act:

Retirement Plan Assets

The act provides asset protection for retirement accounts that are tax exempt under Internal Revenue Code 401, 403, 408, 408A, 414, 457, 501(a). IRAs and Roth IRAs get asset protection up to $1 million (with an index) in Washington. (Please see my article Asset Protection for IRAs.) However, to the extent that IRAs are funded through qualified plan roll over, such IRAs get unlimited asset protection.


Primary residence that a debtor and dependents can call “homestead” is exempted from creditors’ claims. However, if the debtor acquires a homestead within 40 months prior to filling a bankruptcy petition, the homestead exemption will be limited to $125,000. However, this limitation does not apply if the assets are transferred from the previous principal residence which was acquired more than 40 months before the filing of the petition if the prior residence was located in the same state as the current residence that the debtor calls homestead.


Does your current estate plan reflect these asset protection features? Considering these statutory protection in your asset portfolio will protect you when a crisis occurs in your or your spouse’s life. Do you drive a car on a regular basis? Have you checked your personal liability insurance recently? Have you considered the possibility that you might get involved in a major personal injury lawsuit during your lifetime? If you would like to discuss asset protection issues, please contact our office.

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category: Asset Protection, Estate Planning

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