Over 20 years of practice, I've watched people lose assets they spent decades building. Not to bad investments. To things they could have planned around. A lawsuit after a tenant fell on rental property. Medicaid spending down a home they'd owned for 30 years. An estate tax bill that forced a family to sell property at a discount.
Asset protection isn't about hiding money. It's about using legal structures to put appropriate barriers between your wealth and the specific risks you face. New York law has real tools for this. Here's how they work.
Know Your Threats First
The right protection strategy depends on what you're protecting against. The three main threats are different:
- Lawsuits and creditors: You're a landlord, business owner, or professional who faces personal liability risk
- Medicaid spend-down: Nursing home costs of $15,000–$20,000/month could exhaust your savings and force you to sell your home
- Estate taxes: Your estate may owe New York estate tax, reducing what your heirs receive
Most people face a combination of all three over time. A 45-year-old landlord worries about liability. At 65, Medicaid becomes the bigger concern. At 70, estate planning dominates. A good plan addresses all three in the right order of priority.
Strategy 1: The Limited Liability Company (LLC)
How It Works
An LLC creates a legal entity separate from you personally. Assets owned by the LLC are generally protected from your personal creditors. And your personal assets are generally protected from the LLC's creditors and liabilities.
For New York real estate investors and landlords, an LLC is one of the most important tools available. If a tenant sues over an injury on your rental property and wins a $500,000 judgment, that judgment reaches the LLC — not your personal bank accounts, retirement funds, or primary residence.
Forming an LLC in New York
New York LLCs are formed by filing Articles of Organization with the New York Department of State. The filing fee is $200. But there's a New York-specific requirement: you must publish a notice of formation in two newspapers in the county where the LLC is located. In New York City, that publication requirement costs $1,200–$2,000 and must be completed within 120 days of formation.
The LLC also needs an Operating Agreement — even for a single-member LLC. This document governs how the LLC operates, what happens if you become incapacitated, and who inherits your membership interest. Without an Operating Agreement, disputes are governed by New York's default LLC rules, which may not match your intentions.
One LLC Per Property
Don't put multiple rental properties in one LLC. If one property generates a lawsuit, all properties in the LLC are exposed. Use separate LLCs for each property. The administrative cost is modest — separate bank accounts, separate bookkeeping — but the protection is complete. A judgment against Property A LLC can't reach Property B LLC.
Limits of LLC Protection in New York
An LLC doesn't protect against everything. Courts can "pierce the corporate veil" if:
- You mingle personal and LLC funds
- The LLC is undercapitalized — you put no real assets in it
- You treat the LLC as your personal piggybank without formalities
- The LLC was formed specifically to defraud creditors
Maintain separate bank accounts. Sign contracts in the LLC's name, not your own. Keep clear records. These formalities are the foundation of LLC protection. Skip them and the protection disappears.
Strategy 2: Irrevocable Medicaid Asset Protection Trust (MAPT)
How It Works
You transfer your home to an irrevocable trust. You retain the right to live there. The trust owns the property. After a 5-year look-back period, Medicaid cannot count the home as your asset for spend-down purposes.
This is the most important tool for middle-class New Yorkers approaching retirement. Nursing home costs in New York average $15,000–$20,000 per month. A home worth $600,000 can be entirely consumed in 3–4 years without proper planning.
New York Medicaid for nursing home care has a 5-year look-back period. Transfers made within 5 years of your Medicaid application are subject to penalty. So you must create the MAPT at least 5 years before you need nursing home care.
The practical implication: start at 60–65, not 75. If you create a MAPT at 63 and need a nursing home at 71, you're fully protected. If you create it at 78 and need care at 81, the 3-year gap triggers a penalty.
What Can the MAPT Include?
Most MAPTs hold the family home. Some also hold vacation property, investment property, or cash and investments. The choice depends on what you want to protect and your income needs. A home generates no taxable income inside the trust. Investments do — and trust income taxes can be complicated.
Capital Gains and the MAPT
One concern: assets transferred to an irrevocable trust lose their stepped-up basis benefit at death. This means your children could owe capital gains tax when they eventually sell the home.
However, New York courts have recognized that certain MAPT structures can be designed to receive a stepped-up basis if structured as "grantor trusts" under the tax code. This is a technical issue your attorney must address in the drafting. Don't use a generic MAPT template.
Strategy 3: Retirement Account Protections
How It Works
New York law provides strong protections for retirement accounts from creditor claims. IRAs, 401(k)s, and other qualified plans are generally exempt from judgment creditors up to the amount needed for support in retirement.
New York CPLR 5205 exempts the following from execution by creditors:
- IRAs, SEP-IRAs, SIMPLE IRAs — fully exempt for amounts necessary for the debtor's support
- 401(k)s, 403(b)s, pension plans — generally exempt under ERISA and New York law
This means if a creditor sues you and wins a judgment, they generally can't take your IRA or 401(k). This is automatic protection — you don't have to do anything special. It exists just because the account is a retirement account.
Important exception: Medicaid doesn't care about these exemptions. An IRA is counted as a Medicaid asset for the applicant (though not always for a spouse). Don't assume your retirement accounts are safe from Medicaid spend-down without specific planning advice.
Strategy 4: Homestead Exemption
How It Works
New York's homestead exemption protects up to $170,825 (in New York City and surrounding counties) of your primary home's equity from most judgment creditors.
This isn't automatic. You must declare your homestead exemption — typically at the time of a bankruptcy filing or a creditor's levy. But it provides meaningful protection for the equity in your primary residence.
The exemption doesn't protect against mortgage foreclosure, tax liens, or mechanics' liens. It only applies to general judgment creditors — credit card companies, personal injury plaintiffs, and similar.
For most New Yorkers, the homestead exemption is a backstop, not a primary strategy. An LLC or trust provides stronger protection.
Strategy 5: Tenancy by the Entirety
How It Works
In New York, married couples who own real property as "tenants by the entirety" have special protection. A creditor of one spouse cannot force a sale of the property to satisfy a judgment against that spouse alone.
This protection is powerful and automatic for married couples who take title correctly. When a married couple buys a home together, they should specify "tenants by the entirety" on the deed. If they don't specify, they may hold it as "tenants in common," which doesn't carry this protection.
Tenancy by the entirety doesn't protect against joint debts — if both spouses owe the creditor, the protection disappears. But it's effective against debts of only one spouse.
Strategy 6: Domestic Asset Protection Trust (DAPT)
How It Works
New York doesn't have its own Domestic Asset Protection Trust statute. But New Yorkers can create DAPTs in states that do — Nevada, Delaware, South Dakota — and potentially protect assets from New York creditors.
DAPTs are self-settled spendthrift trusts. You contribute assets to an irrevocable trust but retain the ability to be a beneficiary. In states with DAPT statutes, your creditors can't reach the trust assets after a seasoning period (often 2–4 years).
These are complex and relatively expensive to set up and maintain — typically $10,000–$25,000+ in setup costs, plus annual administration. They're appropriate for business owners, physicians, and others with significant ongoing liability exposure and substantial assets to protect. They're not right for most families.
Strategy 7: Spendthrift Trusts for Beneficiaries
How It Works
A spendthrift provision in a trust prevents a beneficiary from assigning their interest to creditors and prevents creditors from attaching it. The trustee distributes assets at their discretion, not on demand from the beneficiary or their creditors.
If you're leaving an inheritance to a child who has debt problems, is in a troubled marriage, or has addiction issues, a spendthrift trust can protect that inheritance from being seized or spent destructively. The trustee controls distributions. The beneficiary can't pledge their interest as collateral or be forced to pay creditors from it.
New York EPTL 7-1.5 governs spendthrift provisions. They must be expressly stated in the trust document. Not all trusts automatically have this protection — it must be built in by the attorney drafting the trust.
Medicaid Planning: The Spousal Protections
For married couples facing nursing home costs, New York Medicaid has specific "community spouse" protections. The healthy spouse (community spouse) can keep:
- Up to $154,140 in liquid assets (2025 figure) — the Community Spouse Resource Allowance (CSRA)
- Their primary residence (unlimited value in most cases)
- One vehicle
- Personal belongings and household goods
- A minimum monthly maintenance needs allowance of at least $2,555/month from the nursing home spouse's income
These protections exist by statute. But there are additional strategies that can increase what the community spouse keeps — including a "spousal refusal" strategy and Medicaid-compliant annuities. These are sophisticated techniques that require an elder law attorney experienced in New York Medicaid law.
Our elder law practice specializes in Medicaid crisis planning and advance planning strategies for New York families.
Fraudulent Conveyance: The Biggest Trap
Every asset protection strategy fails if it's done too late. New York's Debtor and Creditor Law prohibits "fraudulent conveyances" — transfers made with intent to hinder, delay, or defraud a creditor.
If you transfer your home to your children the day after you're sued, that transfer is almost certainly fraudulent and can be reversed. If you're already in financial trouble and you transfer assets to relatives, courts will unwind those transfers.
Asset protection planning must happen before the crisis. Before the lawsuit is filed. Before the diagnosis. Before you need the nursing home. Planning done in anticipation of legitimate legal claims is fraudulent. Planning done as general protection, years before any specific threat materializes, is entirely legitimate.
The Timing Rule: Asset protection planning works when it's done proactively, not reactively. If you've already been sued, already received a terminal diagnosis, or are already behind on debts, many of these strategies are unavailable. Start now, while you're healthy and solvent.
Asset Protection and Estate Planning Together
The best asset protection is integrated with your estate plan. A revocable living trust avoids probate but provides no asset protection. An irrevocable MAPT protects your home from Medicaid but creates capital gains complications. An LLC protects rental income but doesn't help with nursing home costs.
Each tool solves a different problem. A comprehensive plan combines the right tools in the right structure. It coordinates the LLC for your rental properties, the MAPT for your home, the retirement accounts you already have, the right beneficiary designations, and the estate plan documents that tie it all together.
Read more about how trusts fit into this picture in our guide on revocable vs irrevocable trusts in New York. And for the estate planning foundation, see our overview of estate planning in New York.
What a Comprehensive Asset Protection Plan Looks Like
Here's what a complete asset protection plan might look like for a typical New York client — say, a 62-year-old married couple with a $700,000 Brooklyn home, two rental properties in Queens, and $400,000 in retirement accounts:
- Medicaid Asset Protection Trust — the Brooklyn home transfers to a MAPT. They retain the right to live there. 5-year clock starts running.
- Separate LLCs for each rental property — liability from each property is contained within its own entity. Personal assets are insulated.
- Revocable living trust — holds non-home, non-LLC assets for probate avoidance. Named successor trustee takes over at incapacity.
- Updated beneficiary designations — retirement accounts name the right beneficiaries (typically not a trust for IRA purposes).
- Durable power of attorney (2021 form) — includes gifting and trust transaction authority for Medicaid planning flexibility.
- Health care proxy and living will — medical decisions covered.
- Pour-over will — catch-all directing any stray assets to the revocable trust.
Total investment: $12,000–$20,000 in legal fees, plus LLC formation costs of $2,000–$4,000 per property (including publication). That's $16,000–$28,000 to protect a $1.1 million+ estate from lawsuits, Medicaid, and probate.
Compare that to the unprotected alternative: $15,000–$20,000/month for nursing home costs with no protection, personal liability from a tenant lawsuit, probate costs of $60,000+ at death. The planning pays for itself many times over.
Key Takeaway: Asset protection in New York uses LLCs for business and rental liability, irrevocable trusts for Medicaid protection, and careful estate planning for tax efficiency. Each tool works best when implemented proactively — years before a lawsuit, years before a nursing home need, years before the estate tax becomes urgent. Don't wait for the crisis. Plan when you're healthy, solvent, and have time to do it right.
Ready to build your protection plan? Visit our estate planning practice page or call us to schedule a consultation. We serve clients throughout New York City and surrounding counties.
For additional New York asset protection resources, morganlegalny.com covers the current legal landscape in detail.
