MSTR Cat

Trust Law/Level VI · Protection/6.1 Spendthrift to self-settled/Lesson 1

The creditor problem

Who can make claims against a person’s property in the US, what protection already exists without any trust, and why asset protection has firm legal and ethical limits.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Claim free existing exemptions: Florida’s homestead has no dollar cap, only 1/2 acre inside a city or 160 acres outside (Fla. Const. art. X §4). Catch: taxes, purchase-money and repair debts still reach it; state exemptions do not bind the IRS.
  2. Texas protects up to 10 urban acres, or 100 rural acres for a single adult and 200 for a family (Tex. Prop. Code §41.002), at no cost. Catch: bankruptcy uses the state where you lived for the 730 days before filing (11 U.S.C. §522(b)(3)).
  3. Keep savings inside ERISA plans and IRAs: Patterson v. Shumate (1992) keeps ERISA-plan interests out of bankruptcy, and §522(n) shields IRAs up to $1,711,975 for cases filed from 1 April 2025, rollovers uncapped. Catch: divorce orders (QDROs) and IRS levies still reach them.
  4. Carry liability and umbrella insurance before any trust: the insurer defends and pays covered claims, so most accident judgments never touch your property. Catch: read the exclusions and limits, because uncovered or excess judgments fall back on your non-exempt assets.
  5. In bankruptcy, compare the federal list (homestead $31,575 for cases from 1 April 2025, §522(d)(1)) with your state’s where the state allows the choice. Catch: concealing any asset in bankruptcy is a federal crime (18 U.S.C. §152).

MaterialsYour state’s exemption statutes, such as its homestead law (Texas Property Code chapter 41 is one example), free on state legislature websitesThe text of 11 U.S.C. §522, the federal bankruptcy exemptions, free on law.cornell.eduLesson 4.3.2, on spendthrift trusts, and lesson 6.3.1, on fraudulent and voidable transfers

Wonder

  1. Which kinds of property does US law already protect from creditors without any trust?
  2. Why does the state a person lives in matter when exemptions are claimed?
  3. When will a court undo a transfer made to keep property away from creditors?

Explore

  1. A creditor is anyone with a legal claim to be paid. Secured lenders, such as mortgage and car lenders, hold a lien on specific property and can usually take it if the loan is not repaid. Unsecured creditors, such as card issuers, generally must win a court judgment first; a judgment creditor can then use state collection tools such as levying bank accounts or garnishing wages. Someone injured in an accident becomes a judgment creditor if their tort claim succeeds. In a divorce, a court divides marital or community property under state law and may order support.
  2. Tax authorities are a special case. Once a federal tax is assessed, demanded and left unpaid, a lien arises on all of the taxpayer’s property and rights to property (IRC §6321). Only the items listed in IRC §6334 are exempt from IRS levy, and state exemption laws generally do not limit federal tax collection. States have their own tax collection powers. Lesson 6.1.5 covers ‘exception creditors’, such as tax authorities and child support claimants, who can often reach property that ordinary creditors cannot.
  3. Much property is protected without any trust, but the rules differ by state. Florida and Texas, for example, have homestead exemptions with no dollar cap, limited instead by land area, while many states cap the homestead at a fixed figure. Some states protect the cash value of life insurance, fully or partly; others do not. In bankruptcy, 11 U.S.C. §522 lets a debtor choose the federal exemptions or those of their state, unless the state has opted out, and generally uses the exemptions of the state where the debtor lived for the 730 days before filing.
  4. Retirement savings have their own protection. ERISA requires pension plans to provide that benefits may not be assigned or alienated (29 U.S.C. §1056(d)), and in Patterson v. Shumate (1992) the Supreme Court held that this keeps a debtor’s interest in an ERISA-qualified plan out of the bankruptcy estate (11 U.S.C. §541(c)(2)). The protection is not absolute: a qualified domestic relations order can divide a plan in divorce or for support, and the rule does not stop an IRS levy. IRAs are protected in bankruptcy under §522, most of them up to a cap adjusted every 3 years.
  5. Asset protection is a legal field with firm limits. Under the Uniform Voidable Transactions Act (2014, formerly the Uniform Fraudulent Transfer Act) and similar laws in most US states, a court can undo a transfer made with actual intent to hinder, delay or defraud a creditor, or one made for less than reasonably equivalent value while the debtor was insolvent. These rules protect future creditors as well as existing ones, so transfers made when trouble is already foreseeable are especially exposed (lesson 6.3.3). Concealing property in a bankruptcy is a federal crime (18 U.S.C. §152).
  6. Trusts add protection only in limited ways. A trust created by someone else, such as a parent, can protect a beneficiary’s interest through a spendthrift clause or trustee discretion where state law allows (UTC §§502-504; lesson 4.3.2). A trust a person creates for their own benefit generally does not protect them from their own creditors (UTC §505), except under the statutes of a minority of states (lesson 6.1.3). Even then, 11 U.S.C. §548(e) lets a bankruptcy trustee reach transfers to a self-settled trust made within 10 years with actual intent to hinder, delay or defraud creditors. This lesson describes the law; it promises no protection.

Key facts

  • Secured lenders hold liens on specific property; unsecured creditors generally need a court judgment before they can collect.
  • A federal tax lien attaches to all of a taxpayer’s property and rights to property (IRC §6321); only items listed in IRC §6334 are exempt from IRS levy.
  • State homestead, life insurance and other exemptions vary widely; Florida and Texas homesteads have no dollar cap but are limited by land area.
  • Patterson v. Shumate (1992): ERISA’s anti-alienation rule keeps a debtor’s interest in an ERISA-qualified plan out of the bankruptcy estate; qualified domestic relations orders are an exception to the rule.
  • Under the Uniform Voidable Transactions Act and similar state laws, courts can undo transfers made with actual intent to hinder, delay or defraud creditors.
  • 11 U.S.C. §548(e) lets a bankruptcy trustee reach transfers to a self-settled trust made within 10 years with actual intent to hinder, delay or defraud creditors.

Exercise nine, six, three, one

9CollectList up to 9 kinds of claims a household might face over a lifetime (some lists are shorter), such as a mortgage, a car loan, a credit card debt, a lawsuit after an accident, a divorce, a support order or a tax bill.
6ClusterSort them into 6 categories: secured lenders, unsecured creditors, tort claimants, a spouse or former spouse, tax authorities, and claims you are unsure about.
3DistillReduce the 6 categories to 3 groups: claims that usually attach to specific property, claims that usually need a court judgment first, and claims that federal or state law treats specially.
1CrystallizeWrite 1 sentence explaining, in your own words, why some property is protected from creditors even when no trust exists.

Fact check

Dates, figures and claims checked against the published sources listed below.

Open in the interactive academy →

PT ES ZH JA KO RU DE FR MS