Asset Protection Planning
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Nevada enjoys a strong reputation as a state with favorable laws regarding asset protection. This is largely due to the state’s provision of domestic asset protection trusts. While domestic asset protection trusts can provide sufficient asset protection in a number of circumstances, they are not the only option available. Nevada residents may also avail themselves of the asset protection afforded by limited liability companies, homestead exemption, and offshore trusts. The most effective Nevada asset protection strategies consider multiple vehicles. For this reason, we discuss the most popular legal vehicles for asset protection available within Nevada and for its residents below.
One important note before we dive into this is that Nevada is one of the eight community property states. That is, when someone sues the husband and wins, the judgment creditor can seize the assets of both the husband and wife. It is the same when someone obtains a judgment against the wife. So, with the extra risks, it is important to know the Nevada asset protection strategies. Plus if you are a non-Nevada resident, you may be able to take advantage of Nevada asset protection statutes. State legislature adopted the laws in order to generate revenue in the form of filing fees payable to the State.
As of this writing, there are 17 states in the US which allow for domestic asset protection trusts. Nevada asset protection trust statutes provide some of the strongest domestic asset protection available. Professionals commonly call such trusts Nevada spendthrift trusts. The Nevada Spendthrift Trust Act allows for the provision of self-settled spendthrift trusts.
The cost of a Nevada trust formation typically runs $2995 to $3995. In addition, the trustee fees start at about $2500 per year. Alternatively, some trustees charge based on a percent of assets the trust holds. Keep in mind these are the costs as of this writing. Use the telephone numbers or contact form on this page to obtain updated fees.
Under Nevada trust law, any individual may create a legally valid trust where they act as both the settlor and the beneficiary of the trust. The settlor may also serve as the trustee. This allows the settlor to maintain control of the assets held in the trust. However, in order to protect assets from the claims of creditors, a co-trustee must be appointed. The co-trustee must have discretion over the distribution of assets held in the trust. A co-trustee is also often called a distribution trustee or may also be a trust protector.
Nevada asset protection trusts work by prohibiting the ability of the beneficiary to assign their interest in the trust. Spendthrift trusts are irrevocable. Even in cases where the settlor is also a beneficiary and a trustee, they are not in control of distributions. The distributions are controlled by the co-trustee. The co-trustee is required to disregard any assignments or actions which are contrary to the Nevada Spendthrift Act. They are also barred from making distributions if they can reasonably assume that the distribution would be seized by a creditor. The beneficiary, who in this case may also be the settlor and trustee, does not control distributions. As a result, the beneficiary’s creditors are unable to enforce claims against the assets held within the trust.
There are numerous upsides to settling a Nevada asset protection trust. These benefits include the ability to maintain control over assets except for distributions. Not having control over the distribution of the assets is a good thing because it keeps creditors from attacking them. The benefits also include the ability to protect any amount of assets. Furthermore, the Nevada Spendthrift Trust Act does not require that individuals be residents of Nevada in order to settle a trust there.
In order for a non-resident to settle a trust in Nevada, at least one of the trustees must be a Nevada resident. That trustee must have powers which include maintaining records and preparing income tax returns. Alternatively, a trust company legally operating in Nevada or a bank which legally operates in Nevada may be used. Nevada law requires that all or part of the administration of the trust be performed in Nevada. Those Nevada residents who wish to settle a Nevada asset protection trust are not required to meet the above criteria.
Nevada asset protection trusts may be used to protect any type of assets. These assets may include real estate, personal property, cash, stocks, bonds, jewelry, family heirlooms, and any other type of assets. These assets may be located anywhere in the world. Trusts assets may be used solely for the benefit of the beneficiary under Nevada trust law.
While there are many benefits to settling a Nevada asset protection trust, there is one major caveat. The main downside to establishing a Nevada asset protection trust is that these trusts are subject to claims of fraudulent transfer. Creditors have two years from the time that the trust is settled to bring a claim of fraudulent transfer. They have six months if the creditor could have known of the transfer.
So many people meet this requirement by publishing the transfer in a Nevada newspaper. Fraudulent transfer occurs when a person transfers assets to knowingly delay or defraud a creditor. Examples of fraudulent transfer could include transferring assets immediately prior to filing for divorce or bankruptcy. In order to avoid claims of fraudulent transfer, assets should be transferred into the trust well in advance of any activity which could render the settlor insolvent.
Why do we not have a list of Nevada trust companies here? Very simple. The list changes from time to time. So, a Nevada trust company may exist today but not tomorrow. For a list of Nevada trust companies, please complete the consultation form on this page or call the number above. Plus, we can answer questions that apply to your particular needs.
Moreover, we can tell you which trust companies to use and not to use. We have our finger on the pulse of the industry so have an inside scoop on the safe zones and the landmines. Some trust companies will really gouge you with fees year after year. Some are more client friendly in their fee structures. What they tell you up front and what they surprise you with in the middle are often two different stories. So, don’t just rely on a list of Nevada trust companies. Call for detailed advice from one of our attorneys instead so you can get the real story.
The fees for a Nevada trust vary from about $9,500 to $15,000 depending on who set up the trust. Plan on another $2000 to $3000 for the trustee fees. The fees vary depending on the experience of the attorney drafting the trust. The attorney who drafts most of our Nevada trusts is the same one who wrote the Nevada trust statutes. So, there are few more skilled in preparing the trusts.
A variety of business entities may be used in the state of Nevada for asset protection. These entities include corporations, limited partnerships, and limited liability companies. Business entities in Nevada may be used to protect assets in two ways.
First, business entities may be used to shield personal assets from liabilities incurred by a business. This protection occurs because the business is considered to be a separate legal entity from its owner. Shareholders and partners are liable only up to the amount that they have invested in the business. Their personal assets are not subject to the claims of the business’ creditors.
Nevada business entities also shield business assets from personal liabilities. In Nevada, the creditors of a partner or shareholder are prohibited from forcing the liquidation of a company. This is because doing so would be considered unfair to the other shareholders or partners. Nevada law does, however, permit a court enforcing a judgment to issue a charging order. This charging order may be used to distribute the debtor’s share of income from the business to the judgment creditor.
This is a unique benefit. In other states, as of this writing, a lawsuit against a shareholder means the shareholder can easily lose his or her shares in a corporation. In Nevada, however, a judgment debtor gets to hold onto his or her corporate stock. This is the case even if the corporation only has one stockholder. In other states, this is only available for LLCs.
Nevada also statutorily protects one’s membership in an LLC, even if the LLC only has one member. As of this publication, this benefit is only available in Nevada, Wyoming and Delaware. In other states, one must have a two or more member LLC or else the judgment creditor can seize one’s interest in the LLC.
The primary issue with using domestic business entities to protect assets is that it may be possible for creditors to do what is known as “piercing the corporate veil.” If majority shareholders or partners use business assets as if they were personal assets, those assets will not be protected from legal claims. Examples of this include the co-mingling of personal and corporate assets, paying personal obligations from corporate funds, or holding out corporate assets to be personal assets. Piercing the corporate veil in Nevada is much more difficult than it is in other states.
Nevada trusts are tax neutral. They generally do not increase or decrease taxes. The settlor of the trust is typically responsible for paying taxes on the income that the trust generates. Yes, Nevada has no state income tax as of this writing. However, if the settlor lives in a state that charges state income tax, the settlor will pay state income tax on profits the trust generates. We always recommend checking with a licensed tax advisor to discuss your individual situation before utilizing information herein. Your situation may vary.
Nevada offers a fairly generous homestead exemption. Nevada law protects the equity in a person’s home up to $550,000 from general creditor claims. These claims include unpaid medical bills, bankruptcy, charge card debts, business/personal loans, and accidents. However, this does not prohibit creditors from seizing a residence or forcing the sale of the home. Creditors have the ability to force the sale of a residence if the equity of the residence exceeds $550,000. Creditor may file suit and record a judgment lien against any real property owned by a debtor.
Recording a Declaration of Homestead protects only a person’s primary residence up to the statutory maximum. The Nevada homestead exemption does not provide protection from exemption creditors. Exemption creditors with regards to the homestead exemption include those with valid mortgages or deeds of trust. They also include federal and state governments with tax claims, as well as those with valid alimony or child support claims.
Offshore trusts provide the most comprehensive protection available for Nevada residents looking to protect their assets. Similar to Nevada asset protection trusts, offshore trusts in many jurisdictions have the ability to be self-settled. These trusts also contain a spendthrift clause.
However, offshore trusts have some significant advantages over Nevada asset protection trusts. The biggest advantage is that, in many offshore jurisdictions, foreign judgments are not recognized by the local courts. In order to make fraudulent transfer claims against assets held in offshore trusts, creditors must travel to the jurisdiction where the trust is held. Having a case re-adjudicated in an offshore jurisdiction is costly and time-consuming. As a result, creditors often do not consider it worthwhile to make claims against assets held in offshore trusts.
Many offshore jurisdictions also have a higher burden of proof for creditors looking to pursue fraudulent transfer claims. In certain jurisdictions, such as the Cook Islands, the burden of proof is beyond all reasonable doubt. This is the same burden of proof used in capital murder trials. In Nevada, the Supreme Court ruled that when a creditor can establish indicators of fraud, the burden of proof shifts to the debtor. This means that it will be much easier for a creditor to successfully enforce a fraudulent transfer claim in Nevada than in an offshore jurisdiction.
Offshore trusts can be used in combination with an offshore LLC to provide even greater protection for assets. It may be possible for the settlor of an offshore trust to have access to their assets even in the event of legal duress. This is done by holding the assets in an offshore LLC held inside of an offshore trust. The LLC is managed by the trustee of the offshore trust who is legally required to take directives from the settlor except in times of legal duress.
This means that the trustee may be instructed to pay the settlor’s bills or make disbursements of cash to trusted friends or relatives. However, the offshore trustee is legally barred from recognizing foreign judgments, including the claims of US creditors. This strategy provides a level of asset protection which is simply not available using domestic legal vehicles.
Do you want more information about a Nevada trust? You can speak with a real person to answer your questions. We have attorneys on our state who can help you. Is a Nevada trust right for you? Are there better options? Please fill out the consultation form on this page or call the number above.