The Nevada Asset Protection Trust
The best asset protection plan would allow you to transfer your assets to an entity which you could directly benefit from, control and manage, but that your creditors couldn’t reach.
A few years ago the Nevada legislature, following models created in Alaska and Delaware, approved legislation in NRS Ch. 166 entitled “Spendthrift Trusts.”
A spendthrift clause in a trust prohibits the trustee from distributing trust assets to anyone other than the trust’s beneficiary. This clause would seem to preclude a trustee from distributing trust property to the beneficiary’s creditors. In most states, this clause would apply to all beneficiaries except the settlor. However, under Nevada law, the spendthrift provision will apply even to the settlor as a beneficiary, if the trust meets certain conditions.
So, under Nevada law it is possible to create a self-settled, irrevocable trust, which allows distributions to the settlor, but denies claims of creditors. This is a great asset protection trust.
The trust must meet certain statutory requirements to qualify as a “self-settled spendthrift trust,” otherwise known as a Nevada Asset Protection Trust.
If the settlor is a beneficiary, then the trust must be irrevocable; the trust may not require a distribution to the settlor; and the settlor may not reserve the power to make distributions to himself or herself without the consent of another person.
If these conditions are met, then the settlor is not prohibited from holding other powers under the trust including, but not limited to, acting as co-trustee, the power to remove or replace trustees, the power to direct investments.
The statute also requires that other states follow Nevada law regarding the construction, operation and enforcement of these trusts unless the other state is prohibited by a valid law of that state. This has yet to be tested, and whether Nevada can legislate for California or other states in this regard is unknown.
The statute states that an existing creditor may not bring an action against the transfer of assets to the trust once 2 years has elapsed from the time of transfer, and that a person who becomes a creditor after the transfer of assets similarly has just 2 years from the date of transfer of assets to bring a claim.
Note that the 2 year clock starts running when the assets are transferred – not from the date the claim arises. This means that once the assets are transferred and 2 years go by, the assets are unavailable to settle any creditor claims. In combination with an LLC, the Nevada Asset Protection Trust provides excellent protection from creditors.
Scott Gunderson is a Certified Estate Planning, Trust and Probate Law Specialist, and provides asset protection, estate planning and business succession planning services in NV and CA. For more information please contact Scott at (775) 354-3593 or visit www.scottgunderson.com, for a free booklet written by Scott entitled “The Five Levels of Asset Protection in Nevada”.