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Nevada Asset Protection Trusts – An Overview

A Nevada Asset Protection Trust (“NAPT”) is a way to structure assets that will minimize the risk of loss due to lawsuits, divorce, or excessive taxation. The asset protection trust is also known as a “spendthrift” trust. This type of trust directs the Trustee to afford maintenance and support of a named beneficiary, while prohibiting the beneficiary from transferring any assets in the trust.

This effectively protects the property and assets in the trust from creditors or ex-spouses because the beneficiary can neither transfer trust property—nor compel the Trustee to do so.  Under the Nevada Spendthrift Trust Act, when a beneficiary attempts to transfer property held in a spendthrift trust, the Trustee must, under the law, disregard and defeat such attempts.

Every state allows the establisher of a trust (the “Grantor”) to do so for a beneficiary or beneficiaries—and to guard the trust properties and other assets from the creditors of the beneficiary.  Nevada goes a step further.

Since 1999, Nevada gives Grantors the right to establish a trust for their own benefit, effectively protecting property and assets held in the trust from the Grantor’s own creditors. This asset protection trust is known as a “self-settled trust.”

To qualify for a Nevada Asset Protection Trust, the trust must not be made with the specific intention of defrauding a known creditor. At least one trustee must be a resident of Nevada (or a trust company or bank with an office in Nevada). No portion of the income or principal of the trust can be required to be distributed to the Grantor, and the trust cannot be revoked or altered, once made—it must be irrevocable.

More and more families are choosing to establish Asset Protection Trusts in Nevada, thanks to the laws in the state that are favorable to asset protection. An independent Distribution Trustee is required under state statutes before distributions can be made to the Grantor.

Benefits of Asset Protection Trusts

There are many benefits of Asset Protections Trusts, including:

  • While most states tax trust income, Nevada does not
  • If you have a Nevada resident trustee or co-trustee, you can set up a Nevada Asset Protection Trust
  • The statute of limitations regarding asset transfer is only 24 months as opposed to 3-4 years in most states from the time the asset is transferred into the trust
  • The Nevada laws that currently govern Nevada Asset Protection Trusts are continuously being improved by the Nevada legislature.
  • There are no “exception” creditors in the state of Nevada, including divorcing spouses
  • In the state of Nevada, directed trusts are allowed, which gives the Grantor the right to name an independent financial advisor to manage trust funds.

Regarding the statutes of limitations for transfers, one of the primary advantages of Nevada Asset Protection Trusts is the much shorter window of opportunity that creditors have to go after the assets placed in the trust. Nevada allows only twenty-four months—or six months from the time the creditor discovers the asset transfer or should have reasonably discovered the asset transfer—from the time the assets and properties are placed into the trust for a creditor to challenge the asset transfer.

Some people may avoid NAPTs because they believe they will lose control of their assets. These trusts can be funded with equity interests in one or more corporations, limited liability companies, or limited partnerships, allowing the Grantor to retain a measure of control over the day-to-day operations of the entities.

Additionally, while the absence of state income tax, estate taxes, and inheritance taxes are not a new development in the state of Nevada, they do make Nevada trusts particularly appealing.  Nevada is one of the few states that does not levy any of these types of taxes, which further protects trust assets and properties from diminishment through taxation.

It is imperative that Nevada Asset Protection Trusts are prepared by highly experienced, qualified legal counsel. The entire strategy—like any asset protection strategy—is based on established laws. In particular, the self-settled spendthrift trusts that protect assets from personal creditors must be done with the assistance of an attorney who has a full understanding of these types of trusts. The trust cannot be seen as a fraudulent transfer or wrongful to the creditor in any way, so care must be taken to avoid any appearance of such. If you are prone to being sued, such as a doctor, lawyer, or business owner or are looking to protect your hard-earned assets, you should talk to a highly experienced asset protection attorney today.

Looking for an Asset Protection Attorney?

If you have questions about whether a Nevada Asset Protection Trust is right for you, call our law firm immediately. The attorneys at John Park Law can help you evaluate your needs and help you make the choices that will best protect your assets. We know Nevada laws, and we use this knowledge to help our clients achieve their long-term goals. Call us today for a consultation and review, or fill out our confidential contact form.

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