An entity such as trust, limited liability company, or limited partnership cannot be formed just for asset protection. It must have a valid business or estate planning purpose. The “C” in LLC stands for company. The purpose of the company cannot be just to protect your assets from creditors. It must actually be a viable business. As a general rule, putting toxic assets such as an individual rental property into its own LLC is a good idea. That way if the LLC is sued, the most you can lose is the value of what is in the LLC. In some states, creditors may be limited to a “charging order” against an LLC, which allows you to hold incomeĀ in the LLC while forcing the creditor to pay the taxes on that income without ever receiving it!