How to Protect Assets from Lawsuits in California: The Best Strategy

California is one of the most challenging states for asset protection due to high litigation rates, creditor-friendly laws, and the lack of self-settled trust protections. Many investors and business owners mistakenly rely on out-of-state asset protection trusts, only to find that California courts will not recognize them.

If you own real estate, operate a business, or have significant personal assets in California, you need a legal strategy that actually works. This article explains why traditional asset protection strategies fail in California and why The Bridge Trust® is the most effective solution.

Why Asset Protection Is Critical in California

California’s laws make it easier for creditors to seize assets and harder for individuals to shield their wealth. Here’s why:

🚨 No Self-Settled Trust Protections

• Under California Probate Code § 15304(a), a trust cannot protect assets from creditors if the person who created the trust (the settlor) is also a beneficiary.

• In In re Cutter, 398 B.R. 6 (B.A.P. 9th Cir. 2008), the court ruled that a self-settled trust provided no protection, reinforcing that California law does not allow self-settled spendthrift trusts.

🚨 Aggressive Fraudulent Transfer Laws

• Under California’s Uniform Voidable Transactions Act (Civil Code § 3439.01 et seq.), any transfer made with intent to hinder or delay creditors can be reversed.

🚨 Courts Can Pierce Domestic and Out-of-State Trusts

• California regularly invalidates domestic asset protection trusts, especially if they conflict with the state’s pro-creditor policies.

• Kilker v. Stillman (2012) proved that California does not recognize Nevada Asset Protection Trusts (NAPTs), rendering them useless for California residents.

💡 What This Means for You: Without proper planning, your assets are fully exposed to lawsuits and creditor claims in California.

The Problem with Out-of-State Asset Protection Trusts

Many investors and business owners turn to Nevada, Wyoming, or Delaware Asset Protection Trusts, hoping these structures will shield assets from lawsuits. However, California courts do not honor these trusts.

📌 Case Law That Highlights the Risks

1️⃣ Kilker v. Stillman (2012)

📌 What happened? A California court invalidated a Nevada Asset Protection Trust, ruling that California public policy overrides Nevada law.

📌 Lesson: Out-of-state asset protection trusts do NOT work in California.

2️⃣ In re Cutter (2008)

📌 What happened? The court ruled that creditors could seize assets in a self-settled trust because California does not recognize self-settled trust protections.

📌 Lesson: If you control a trust and are also a beneficiary, creditors can reach the assets.

3️⃣ In re Huber (2013)

📌 What happened? A bankruptcy court invalidated an Alaska Asset Protection Trust, showing that even strong out-of-state protections fail in pro-creditor states like California.

📌 Lesson: California will always apply its own laws, not the laws of the state where the trust is formed.

4️⃣ Dahl v. Dahl (2015)

📌 What happened? A trust was pierced because the grantor retained too much control, exposing assets to creditors.

📌 Lesson: If you maintain too much control over a trust, it may be invalidated.

💡 Key Takeaway: California courts will ignore out-of-state trusts and apply their own laws, which favor creditors.

The Bridge Trust®: The Best Asset Protection Strategy for Californians

The Bridge Trust® is a hybrid asset protection strategy that avoids California’s legal pitfalls by combining domestic compliance with offshore strength.

How the Bridge Trust® Works

✔ Starts as a Domestic Trust: Complies with California laws, avoiding issues with fraudulent transfers.

✔ Transitions Offshore When Needed: In the event of a lawsuit, the trust moves to a jurisdiction like the Cook Islands, where California courts have no authority.

✔ You Retain Control: You manage your assets as usual until legal action arises, ensuring flexibility and compliance.

Key Benefits of the Bridge Trust®

✅ California-Friendly Asset Protection

✔ Unlike out-of-state trusts, the Bridge Trust® complies with California law while still offering strong protection.

✅ Offshore Protections When Needed

✔ Once offshore, the trust benefits from:

• Short statutes of limitations for creditor claims.

• High burden of proof on creditors trying to seize assets.

• Non-recognition of U.S. court orders, meaning California judgments do not apply.

✅ Avoids Fraudulent Transfer Risks

✔ The hybrid structure reduces fraudulent transfer concerns, ensuring greater legal security.

✅ Retains Full Access and Control

✔ You continue to manage and use your assets in the U.S. until legal threats arise.

How to Protect Your Assets in California

1️⃣ Understand That Domestic Trusts Don’t Work

📌 California Probate Code § 15304 prevents self-settled trust protections.

📌 In re Cutter (2008) showed that creditors can reach trust assets in California.

2️⃣ Avoid Out-of-State Trusts

📌 Kilker v. Stillman (2012) proves that California will NOT recognize Nevada, Wyoming, or other out-of-state asset protection trusts.

3️⃣ Use Offshore Jurisdictions for Maximum Protection

📌 Offshore jurisdictions like the Cook Islands offer unmatched protections, including:

✔ No recognition of U.S. court rulings

✔ Extremely high legal barriers for creditors

4️⃣ Utilize the Hybrid Bridge Trust®

📌 The Bridge Trust® is the most effective solution for Californians because it complies with state laws while offering offshore strength when needed.

📌 Recap: Why the Bridge Trust® Is the Best Solution

✔ California Probate Code § 15304 – Prevents self-settled trust protections.

✔ Civil Code § 3439.01 et seq. (UVTA) – Aggressive fraudulent transfer laws.

✔ In re Cutter (2008) – Shows why self-settled trusts don’t work.

✔ Kilker v. Stillman (2012) – Out-of-state trusts fail in California.

✔ The Bridge Trust® – Provides legal, flexible, and proven asset protection.

Final Thoughts: Protect Your Assets the Right Way

California’s pro-creditor laws make it one of the hardest states for asset protection. Out-of-state trusts fail, and domestic trusts offer little protection.

The Bridge Trust® is the best strategy for California residents because it starts as a domestic trust but transitions offshore when needed—providing the strongest asset protection available.

📌 Don’t wait until it’s too late—protect your wealth now with a legally proven strategy.