1. Entry Level Asset Protection in Texas: Insurance and Exemption Planning
As I mentioned in my last article, asset protection is not a method for defeating creditors, but
planning that manages the risk of creditors. By protecting assets before a creditor’s claim arises,
you can head off a lawsuit by promoting a settlement with a creditor by lowering the risks
associated with a trial. But beyond stopping creditors, asset protection planning can stop
additional losses. If you can stop a lawsuit by promoting a settlement, you save yourself the
time and hassle of dealing with that lawsuit, leaving you the time to focus on what you want to
do, whether that’s your family, your work, or something else.
Asset protection planning is best accomplished in the same way as building a house: from the
ground up. Planning starts with foundational planning followed by more complex and
advanced planning built upon that strong foundation. These structures work best only after the
previous levels of planning have been utilized, but they must be implemented correctly,
otherwise no protection will be gained. As I described in the last article, asset protection
planning can be broken down into three levels of increasing complexity.
1. The first level of asset protection is made up of two types of planning: insurance and
exemption planning.
2. The second level focuses on collateralization, which places certain preferred creditors
ahead of other creditors.
3. The third level involves transferring assets to trusts and legal entities, such as a limited
liability company or a trust, so that the client isn’t the legal owner of the asset.
The first level of planning is very effective because it is respected by the courts, and doesn’t
require establishing complex legal structures. One part of this planning is maintaining
appropriate liability and professional insurance. Because a doctor’s riskiest behavior is (usually)
his or her practice, the first step of planning is maintaining sufficient malpractice coverage to
protect against claims generated by your practice. After that, liability insurance, life insurance,
home insurance, and an umbrella policy can protect you from creditors who don’t have a
professional claim against the client.
The other type of planning is using the exemptions provided by Texas law to exempt assets
from creditor’s claims. Texas, as a debtor-friendly state, provides debtors with generous
exemptions to protect assets that are directly owned. By exempting assets, creditors can’t reach
assets even though the assets are owned directly. Several classes of assets are statutorily exempt
from creditor’s claims.
• Current wages for personal services (i.e., your salary, but not distributions as an owner
of a business)
• Personal property with an aggregate value of not more than $60,000 for a family,
including furniture, clothes, two firearms, and tools and equipment used in a trade or
profession

2. • The homestead, regardless of value, up to 10 urban acres or 200 rural acres
• Savings and retirement accounts, such as IRAs, HSAs, 529 college savings accounts,
and 401(k) plans, even if they are inherited accounts
So, it’s possible to exempt a large amount of assets by using statutory exemptions and insurance
without investing in more complex planning. This protection provides a base of assets that will
be protected from creditors, and will be respected by courts. Texas, a debtor-friendly state,
provides many options for establishing a base of protected assets, but once those exemptions
have been used, clients with additional assets to protect will need to create the legal structures
to further protect themselves. By protecting assets, you manage risk and provide flexibility in
protecting what you’ve earned from the claims of creditors.
John Strohmeyer is an attorney in the trusts, probate and estate planning section of Porter
Hedges LLP. He is Board Certified in Tax Law by the Texas Board of Legal Specialization. In
addition to his practice in traditional estate and disability planning, he focuses on cross-border
tax transactions for individuals. His recent presentations include Charitable Lead Trusts and
Charitable Remainder Trusts: Tax Benefits and Administration Issues and Pre-Immigration Tax
Planning for U.S. Immigrants. He and his wife Emily are very grateful that their Pomeranian
Wesley begrudgingly shares his home with them and their Boxer Lemmy.