Asset protection planning generally consists of numerous small maneuvers made before financial problems arise rather than a masterstroke implemented at the last minute when disaster is imminent. Such planning maneuvers generally aim to (1) isolate and contain risks arising from particular risky assets or activities by establishing legal structures through which to own such assets or conduct such activities that insulate the owner's other assets from fallout, (2) allocate part of an individual's net worth to investments that enjoy special protection under various laws, and (3) erect barriers that make it more difficult for creditors to reach the individual's assets.

Protected Assets. For individuals with smaller estates, the first step might be to ensure that part of the individual's net worth is invested in assets that enjoy some degree of protection from creditors' claims under various statutory rules. Most states protect at least part of an individual’s primary residence equity, so it always makes sense to own a home.

Similarly, Federal law and many states give some protection to qualified retirement plan assets (and, to a lesser degree, IRAs), so it makes sense to position some assets in these vehicles to the extent possible. Washington law also provides an exemption for life insurance policies, so investment in cash-value life insurance may make sense.

Conduct Business Activities through separate Corporations or Limited Liability Companies. If the individual engages in business activities that may give rise to liability or losses, such activities should be conducted in a corporation or limited liability company that will insulate the owner from personal liability if losses arise that are not covered by insurance. If practical, each high risk business should be conducted through a separate legal entity so that claims arising from one activity will not jeopardize other activities. It is important, however, for each such entity to be appropriately capitalized and carry reasonable amount of liability insurance, since a court may otherwise allow the entity shield to be "pierced" to avoid fraud on creditors.

Hold Real Estate and other Investments in Limited Liability Companies. Similarly, real estate should be held through an LLC to insulate owners from personal liability arising from the underlying property. Such arrangements also protect the owner’s interest from claims arising out of the owner’s other activities. Under state law, judgment creditors cannot seize or take control of a debtor’s interest in a LLC or partnership to enforce an obligation; instead, they are limited to obtaining a “charging order” against such interest. Such an order is akin to a garnishment order and entitles the creditor to receive any amounts distributed to the debtor/owner. However, the creditor cannot take over the entity, compel distributions, force liquidation or sale of the debtor’s interest, or otherwise interfere with management of the investment.

Estate Planning Trusts. Assets previously gifted to irrevocable trusts established for the benefit of family members usually are beyond the reach of the donor’s creditors as long as such arrangements are reasonable in the context of the individual’s estate planning and implemented before any financial problems arise. Life insurance trusts, college education funds and other trusts established for children, trusts for support of elderly parents, personal residence trusts, and charitable remainder trusts can be designed and implemented to accomplish various objectives and also hedge against the economic risks and vicissitudes run by the creator during his or her lifetime.

Through proper estate planning, an individual also can provide a surviving spouse or descendants with a flexible asset protection arrangement that the beneficiary cannot otherwise enjoy. Funds left in a carefully designed trust for a beneficiary (rather than outright) can be subject to the beneficiary’s management and control, yet be entirely insulated from claims by the beneficiary’s creditors as long as the beneficiary lives (and if the trust is properly designed, it will also escape estate taxes and generation-skipping transfer taxes on the beneficiary’s death).

Alaska and Off-Shore Trusts. The ultimate asset protection vehicle is an offshore trust in one of the many stable foreign jurisdictions that have enacted laws to provide haven for debtors. The goal is to pre-position cash, securities or other assets in a trust placed beyond the reach of creditors yet secure and accessible to the transferor and his or her intended beneficiaries. Establishment of the trust in a jurisdiction whose laws are designed to facilitate asset protection trusts is the key, and there are many stable English-speaking offshore jurisdictions from which to choose. In addition, Alaska has enacted legislation designed to make it an attractive domestic alternative for those seeking a safe haven for an asset protection trust, although it is too early to be certain that Alaska trusts are entirely effective. The cost of establishing and maintaining an offshore trust deters many. However, many engaged in high-risk fields (such as real estate development and medicine) employ this technique to provide an additional “hedge” against the risks of life in the 21st century.

Advance Planning Required. The success of most asset protection strategies depends on the implementation of such arrangements well before financial problems arise. If the arrangements are established when the individual already has financial problems, the individual will be deemed to have acted for the primary purpose of defrauding creditors, making the arrangements ineffective under Federal bankruptcy laws or state creditor protection statutes. Therefore, in this area more than any other, proactive prior planning is essential.