Many people are worried about liability either through accidents or fraudulent lawsuits and are looking for a legal strategy to protect their assets. The ideal strategy balances simplicity, control, and effectiveness. The best solution is highly relative to the situation of each individual. It is important to engage a good attorney who understands the unique goals and fact-pattern of each of their clients. Wyoming is one of the strongest states for asset protection including:
- Domestic Asset Protection Trusts (DAPTs)
- Strong charging order protection for LLCs and trusts
- No state income, capital gains, or estate tax
- Strong privacy laws and low regulatory burden
- Clear statutes with trustee-friendly provisions
While there’s no one-size-fits-all solution, asset protection generally falls into three tiers. Each tier builds on the previous one, offering increasing levels of protection, complexity, and planning benefits.
What is “Protection”?
Before we dive in, it is important to clarify terminology. Often words such as “anonymity” get used when speaking about asset protection. Our firm prefers the term “privacy” over “anonymity.” Anonymity implies invisibility, which is not realistic. Government agencies and courts will always be able to identify you. Valid claims will result in discovery during litigation. We define privacy as the ability to keep your name off public records, limit easy access to your holdings, and raise procedural hurdles. These elements of privacy can deter baseless lawsuits, cut down on internet trolling, and make it less attractive for attorneys to take on a case against you on contingency. Simply put, privacy doesn’t make you invincible, but it significantly raises your level of protection.
Likewise, it’s important to understand that no asset protection strategy offers an ironclad guarantee. The goal is not to become untouchable, but to position yourself far more favorably in the event of a lawsuit. For example, a Wyoming domestic asset protection trust can, under most circumstances, prevent a judgment creditor from directly reaching the assets. However, long-term defiance of a valid judgment is rarely a sustainable outcome. What you can expect is that you will be in a significantly stronger position to negotiate a favorable settlement than if those same assets had been held in your own name. Asset protection doesn’t eliminate risk, but it shifts the balance of power.
Tier 1: Basic Protection for Everyone
The first tier of asset protection consists of foundational tools that almost everyone should implement. These are affordable, simple to set up, and provide essential safeguards to your overall financial health.
Umbrella insurance is one of the easiest and most cost-effective ways to shield yourself from unexpected personal liability. This policy supplements your homeowners and auto insurance and can help protect your personal savings in the event of a major lawsuit.
A revocable living trust, while not a true asset protection tool, is a vital component of estate planning. It allows your assets to avoid probate, ensuring a smoother and more private transition of wealth to your heirs. It also makes it easier for someone to manage your affairs if you become incapacitated.
Together, these tools create a base level of preparedness that are helpful to nearly everyone.
Tier 2: Business Entity Protection
For business owners, rental property investors, and others with income-producing assets, forming a limited liability company (LLC) offers the next level of protection. This tier provides a legal firewall between your personal life and business activities.
A properly formed and maintained LLC limits your liability exposure, meaning your personal assets are typically not at risk if something goes wrong inside the business. In states with strong laws like Wyoming, LLCs also offer charging order protection, which limits what a creditor of a business owner can access. They may only receive distributions if and when they are made, and cannot force the sale of company assets.
LLCs also enhance privacy, especially when paired with a registered agent and virtual office. This keeps your name off the public record and makes it harder for potential litigants to find and target you.
It’s important to understand terms like Member (the owner), Manager (who controls the company), piercing the corporate veil (which courts may do if the LLC is improperly maintained), and tax election (an LLC can be taxed in several ways depending on your needs).
However, forming an LLC isn’t a one-and-done solution. You need to maintain separate accounting, keep up with annual filings, and document resolutions and meetings to preserve its protections. Enhancements like a two-tier structure (using a holding company) or having multiple members can further strengthen your position.
Tier 3: Advanced Protection with a Wyoming Trust
The third and most sophisticated level of protection involves setting up a Wyoming domestic asset protection trust (more technically called a Wyoming Qualified Spendthrift Trust or “QST”). This is an irrevocable trust governed by Wyoming law. Wyoming’s statutes allow a person to be both the grantor and a discretionary beneficiary of the trust. This provides a unique combination of protection and retained benefit. The settlor may retain the power to veto distributions, lifetime general and limited power of appointment, the ability to add or remove trustees, and the ability to act as investment advisor through a directed trust. These benefits add up to very powerful and flexible asset protection.
Are there Exceptions?
Wyoming asset protection trusts offer strong protection from future creditors by placing assets beyond the reach of most claims. However, there are some reasonable exceptions to this rule. First, fraudulent transfers (i.e. transfers made to defraud a known creditor) under the Uniform Fraudulent Transfer Act, are not protected. Consequently, any transfer of assets to such a trust must be accompanied by a qualified transfer affidavit, which includes a statement that the transfer does not render the settlor insolvent, that the transfer is not intended to defraud, and that the settlor maintains at least $1 million in insurance coverage. (W.S. § 4-10-510-523). Another exception is child support in arrears of at least 30 days. Lastly, financial institution have a claim to assets in a Wyoming asset protection trust if qualified trust property is listed on an application for credit.
Who Needs an Asset Protection Trust?
The Wyoming asset protection trust is best suited for high-net-worth individuals with high exposure to liability (such as physicians, developers, or executives), those with significant “spare” assets not needed for day-to-day consumption, and those approaching or exceeding the federal estate tax exemption. Assets placed in a Wyoming domestic asset protection trust may also be excluded from your taxable estate, depending on the structure.
Selecting a Wyoming Trustee
Many clients invest significant time and care in forming a Wyoming asset protection trust, but overlook equally important questions regarding its ongoing fiduciary administration.
Who Can Serve as a Trustee of a Wyoming Trust?
Wyoming statute requires that a qualified trustee reside in or be authorized to do business in the state in order to establish situs and benefit from Wyoming’s favorable trust laws. Under W.S. § 4-10-103, a “qualified trustee” must be a resident individual or a regulated entity authorized by the Wyoming Division of Banking to act as a trustee. The trustee must perform substantive trust administration within Wyoming, such as maintaining trust records, filing tax returns, or managing distributions (W.S. § 4-10-107-8). A Wyoming public trust company is often an ideal solution for those who want an efficient and professional trustee.
What Does a Trustee Cost?
Trustees typically charge a one-time set up fee as well as an annual fee based on several factors, including the nature and value of the trust assets, the complexity of those assets, the volume of transactions or administrative activity, and the scope of the trustee’s duties—whether the trustee serves in a fully discretionary capacity or operates as a directed trustee.
Why Wyoming Nexus is Important
Without sufficient connection to Wyoming, the trust risks being subject to the jurisdiction of another state. For example, the settlor’s state of residence may assert taxing authority or apply less protective asset protection laws. This exposure could undermine the effectiveness of the trust, particularly in the context of creditor claims or state income taxation.
What about a Wyoming Private Trust Company?
A Wyoming Private Family Trust Company, commonly referred to as a “PFTC” or “PTC” (W.S. § 13-5-601 et seq.) allows families to retain significant control over the administration of their trusts by serving on the board of the company that acts as trustee. This structure provides powerful benefits, including flexibility, continuity, and the opportunity to involve the rising generation in governance and stewardship.
However, a PFTC is not a mere formality. To preserve Wyoming situs and access the state’s favorable trust laws, the company should conduct substantive trust administration within the state, such as maintaining books and records, making distribution decisions, or holding board meetings. This will help ensure that the PFTC has a genuine operational presence in Wyoming, which entails governance responsibilities, professional support, and ongoing administrative costs.
What Assets Go into a Wyoming Asset Protection Trust?
The trust may be funded with a wide variety of assets, including investments, business interests, real estate, and intangibles. Many people wonder whether they can place everything they own into an irrevocable trust. The answer is that this is almost certainly not a good idea. You should not impoverish yourself to fund an asset protection trust because you will then need constant distributions from the trust. This sets up a very unfavorable fact pattern should you be subject to a lawsuit. We consider it a best practice to develop a contemporaneous financial plan that shows that the settlors were not dependent upon the assets transferred into the trust.
In summary, it is generally advisable to keep your primary residence, vehicles, and personal checking and savings accounts in your revocable living trust, where they remain easily accessible and under your direct control. Asset protection trusts generally work best when funded with excess assets, not essential ones.
Can You Place a Business in a DAPT?
Yes, but it depends. Whether or not you should transfer a business interest into a Wyoming asset protection trust depends on several factors:
- The value of the business – More valuable businesses make better candidates for protection.
- Where the risk is coming from – If the business generates the liability (e.g., customer lawsuits), the trust might not shield the value of the asset as expected.
- Your income needs – If you rely on the business for distributions, placing it in a trust may limit access or require careful planning to avoid tax or liquidity issues.
Final Thoughts
Effective asset protection isn’t about hiding behind an impenetrable wall, it’s about planning ahead, using legal structures wisely, and preserving flexibility while minimizing risk. The right strategy depends on your lifestyle, net worth, risk exposure, and long-term goals. Whether you’re just getting started with umbrella insurance or considering a Wyoming asset protection trust, each layer of protection builds on the next.
As always, we recommend working with a knowledgeable attorney to design a plan that’s tailored to your situation. If you’d like help evaluating your options or putting a structure in place, we’re here to help.
Disclaimer: The information provided in this post is for general informational purposes only and does not constitute legal advice.