Not everyone believes asset protection needs that many fences. Advisor Tim Kochis, CEO of Kochis Fitz in San Francisco, doesn't see much demand for these types of trusts at his wealth management firm even though 80% of his clients are corporate executives. For starters, the notion of irrevocable trusts and giving up control of assets are "huge turnoffs" for many of them.

Kochis believes that lack of portfolio diversification (i.e., too much company stock) is a bigger risk to the assets of corporate honchos than lawsuits. Just in case, though, he urges clients to get at least $5 million in umbrella liability insurance, which he says comes cheap at about $2,000. In addition, he notes that companies often foot the bill to indemnify senior executives, officers and directors. "They're as protected as they can be, given the risks they run," says Kochis.

Jeff Swantkowski, co-founder of Patriot Wealth Management in Houston, will steer clients toward asset protection trusts if they demand it, but he generally prefers using more conventional asset protection methods. "Most of my clients come to me with complicated assets and financial structures," he says. "We try to simplify their situations, which is contrary to what's done to complicate matters in the name of litigation protection."

Swantkowski's clientele includes many corporate executives, and like Kochis his game plan includes a coordinated arsenal of property and casualty insurance, umbrella insurance and professional liability insurance. Annuities also provide a degree of protection through their insurance component. In addition, Swantkowski might use estate planning vehicles such as family limited partnerships. "FLPs aren't the ultimate asset protection tool," he says, "but they are good mediation tools."

Creditors who sue an FLP can't attain an interest in the partnership; instead, they get a charging order that lets them sit on the doorstep and wait for any distributions declared by the FLP's general partner. If the general partner has other protected assets to live on and there's no need for distributions, then the creditor might wait for years to get its reward. Plaintiffs' lawyers typically don't have time to wait that long to get paid, so in theory that circumvents a lawsuit and encourages a settlement.

Trusts Aren't Cheap

Asset protection trusts can cost from $10,000 to $20,000 to establish, plus administrative and asset management fees that can add up to several thousand dollars a year. "If you add up the costs and the trust is worth only $500,000, then maybe putting money into annuities is a better route," says Gideon Rothschild, a partner at the law firm Moses & Singer LLP in New York. "But if it's a sizable trust and you amortize the upfront startup costs over ten to 20 years and add that to the annual costs, it still might be less than an annuity or insurance product."

A big concern for many advisors is that domestic asset protection trusts have yet to be tested in court. "There is no legal precedence, so the big question is will they stand the test of time?" asks Carol Buchman, a certified financial planner in New York and co-host of the radio show, "Financially Speaking."

Setting up a trust to defraud the government or to avoid existing problems with creditors is called fraudulent conveyance, and the courts use that to go after a trust. With cases involving offshore trusts, beneficiaries who refused to hand over assets have gone to jail for contempt.

"Trust companies shouldn't accept clients unless they're clean and legit," says Robert Mintz, an attorney in Oceanside, Calif., who operates the Asset Protection Law Center Web site. "When trusts are properly structured and the client is clean when they set it up, our experience is that trusts hold up very well."

Buchman finds that among her high-net-worth clientele the demand isn't so much for asset protection trusts as it is for managing resources in a more asset protective way. "IRAs and qualified plans provide strong asset protection against liability," she says, noting that O.J. Simpson has shielded much of his assets against claims from a $33.5 million wrongful-death suit because the families of his alleged victims can't touch the assets in his qualified plan.