Asset Protection in California: DAPT vs. LLC – What’s the Difference?

When it comes to protecting your assets from lawsuits or creditors in California, two of the most talked-about strategies are Domestic Asset Protection Trusts (DAPTs) and Limited Liability Companies (LLCs). While both offer powerful protections, they serve different purposes—and choosing the right one depends on your goals, assets, and risk profile.

Let’s break down the key differences between DAPTs and LLCs to help you decide which may be right for your California estate or business plan.

🛡️ What Is a Domestic Asset Protection Trust (DAPT)?

A Domestic Asset Protection Trust is an irrevocable trust designed to shield your assets from creditors—even while allowing you, the grantor, to be a beneficiary.

Key Features:

• Irrevocable trust

• Offers strong protection from future creditors

• You can be a beneficiary (limited rights)

• Must be formed in a state that allows DAPTs (e.g., Nevada, Delaware, Alaska)

⚠️ California does not recognize DAPTs, but California residents can create a DAPT in another state. However, California courts may not honor the protections as strongly as courts in the DAPT state.

🧱 What Is a Limited Liability Company (LLC)?

An LLC is a legal business structure that separates your personal assets from your business or investment liabilities.

Key Features:

• Offers liability protection for business or investment activities

• Flexible management and tax treatment

• Keeps personal assets safe if the business is sued

• Often used for rental property, professional services, or family asset management

📊 DAPT vs. LLC – Side-by-Side Comparison

Feature	DAPT	LLC
Recognized in California?	❌ No (must use out-of-state DAPT)	✅ Yes
Level of Asset Protection	High (for future creditors)	Moderate to high (for business-related risks)
Control Over Assets	Limited—you give up ownership/control	Full control if you’re the manager
Used For	Personal wealth protection	Business operations or real estate
Creditor Access	Difficult in DAPT-friendly states	May still be reached through “charging orders”
Estate Planning Benefits	High – can be part of legacy planning	Moderate – can be combined with trusts
Setup Complexity	High – requires trust attorney, out-of-state trustee	Moderate – requires proper formation and maintenance
Privacy	High – trusts are private	Moderate – CA LLC filings are public
Best For	Professionals, high-net-worth individuals	Landlords, business owners, investors

🧠 Which One Should You Use?

✅ Use a DAPT if:

• You want to shield personal wealth from future unknown creditors

• You’re concerned about professional liability or lawsuits

• You have assets you don’t need to actively manage day-to-day

• You’re open to working with out-of-state trustees and attorneys

✅ Use an LLC if:

• You own rental properties or operate a business in California

• You want protection from business-related lawsuits

• You want control and flexibility over operations

• You’re looking for an easy, scalable solution

🚀 Pro Tip: Combine the Two

For stronger protection, many California residents combine LLCs and trusts. For example:

• Create an LLC to hold your rental property

• Make the LLC interest owned by a trust (irrevocable or revocable, depending on your goals)

This layers liability protection with estate planning and can make it harder for creditors to access your wealth—even if a judgment is obtained.

Final Thoughts

Both DAPTs and LLCs can play an important role in your California asset protection strategy—but they aren’t interchangeable. DAPTs are powerful for personal asset shielding, while LLCs are best for business and real estate liability.

Your best protection plan may involve multiple tools, customized to your lifestyle, income sources, and family needs.

Need Help Protecting Your Assets in California?

We help individuals, families, and business owners create smart, customized asset protection plans using tools like trusts, LLCs, and more. Contact us to explore your options before a lawsuit or creditor threat arises.

Contact the top-rated California trust and probate attorneys Moravec, Varga & Mooney today to schedule a telephonic consultation. Have questions, call (626) 460-1763 or email LV@MoravecsLaw.com.

Southern California Probate Lawyer Serving all counties in California, including Los Angeles, Riverside, San Bernardino, Sacramento, Santa Cruz & Beyond.