NEVADA ASSET PROTECTION TRUSTS:
PROTECTING YOUR ASSETS “ON-SHORE”
Would you like to place assets in trust and have them protected from creditors? Now you may do so with a special Nevada Asset Protection Trust.
Most trusts have a common provision referred to as a “Spendthrift” clause. The Spendthrift clause essentially prevents a beneficiary’s creditor from reaching the beneficiary’s interest in a particular trust. However, historically state law prevented the Spendthrift clause from applying to the grantor’s creditors. Consequently, the grantor of the Trust could not be a beneficiary of the Trust and have his or her trust assets protected from creditors.
Thus, the rise and popularity of Offshore Asset Protection Trusts has resulted. Several years ago, Alaska became the first state to allow a self-settled Spendthrift Trust. If certain requirements are met, the grantor could set up a trust, be one of the beneficiaries, and also have the trust assets protected from his creditors.
Joining Alaska, the 1999 Nevada Legislature passed revisions to Nevada’s trust laws, allowing for a Nevada Asset Protection Trust. To receive the asset protection desired, certain requirements must be met. If the requirements are met, assets transferred to the Nevada Asset Protection Trust will be protected from creditors.
The requirements for setting up a self-settled Spendthrift Trust essentially include the following:
(1) The Trust must be in writing and irrevocable;
(2) The Trust is a discretionary trust;
(3) The Trust was not intended to hinder, delay or defraud known creditors.
There is a basic two year statute of limitations on transfers to Nevada Asset Protection Trusts. If the requirements are met, a creditor must file its action within two years of the transfer. And if someone is a creditor at the time a transfer to the Trust is made, they have two years after the transfer to bring an action, or six months after the creditor discovered or should have discovered the transfer, whichever is later. Once the two year statute of limitations has run, all assets transferred to the Trust are protected.
A discretionary trust is one in which the Trustee has discretion in distributing income and/or principle to the beneficiaries, and in particular to the grantor. Even though the grantor may be a Trustee, a Trustee other than the grantor must be the one who makes discretionary distribution decisions regarding distributions to the grantor.
If having another Trustee with discretionary distribution decisions makes the grantor uncomfortable, the grantor may hold a veto power over any distribution. The grantor may also have a testamentary special power of appointment, thereby directing to whom the Trust assets are distributed at the grantor’s death.
At least one of the Trustees of the Nevada Asset Protection Trust must be either (1) a natural person who is a resident of Nevada, (2) a Trust company which maintains an office in Nevada, or (3) a bank that maintains an office in Nevada and possesses and exercises trust powers.
There are a couple of issues regarding Nevada Asset Protection Trusts which will ultimately be resolved in the courts. One concern involves the application of federal law. Federal bankruptcy law may override state statute. Another issue relates to judgments rendered in other states and domesticated in Nevada.
You may be interested in establishing a Nevada Asset Protection Trust for different reasons. You may simply wish to protect a certain amount of your assets from creditors. Or you may wish to use this Trust to hold title to your home if the equity in your home exceeds the $550,000 protected by a homestead declaration.
Unlike retirement plans and IRAs, Nevada has a virtually nonexistent protection of cash value in life insurance policies. If the cash value in your life insurance policy is substantial, you may wish to transfer the policy to one of these Trusts to protect the cash value from creditors.
Asset protection for physicians, or other high risk occupations, is popular. Especially in today’s litigious society.
If a Nevada Asset Protection Trust is something that may help you meet certain asset protection goals, please contact our firm to further discuss how the Nevada Asset Protection Trust might be incorporated into your particular situation.
With two convenient locations:
Gerrard Cox Larsen
2450 St. Rose Parkway, Ste. 200
Henderson, Nevada 89074
9139 W. Russell Road
Las Vegas, Nevada 89148
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