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Estate Planning For The Long Run

Estate Planning For The Long Run

What You Need to Know about Nevada Asset Protection Trusts

by | Sep 7, 2024 | Estate Planning, Wills and Trusts

If you are interested in asset protection as part of your estate planning, you need to understand what Nevada asset protection trusts are and how they work. Nevada has specific laws that focus on protecting your assets and you should be aware of the options you have available.

Before you begin your estate plan, you need to first hire an estate planning attorney to help you understand Nevada trust laws and asset protection. At Morris Estate Planning Attorneys, our collective years of experience in estate planning have equipped us with the knowledge we need to help our clients navigate this process, which can seem complicated. Keep reading to find out the basics about Nevada asset protection trusts.

What is a Nevada Asset Protection Trust?

A Nevada asset protection trust, also sometimes called a NAPT or a Nevada Spendthrift Trust, is an irrevocable trust that can be created by individuals to protect their assets from potential future creditors. It is designed to protect the individual’s assets from unsecured creditors, such as divorces, liabilities in a business transaction, liability from a car accident, among others. It is not designed to defeat existing creditors or secured debt, such as mortgages.

How it Works

When you put your assets into an NAPT, the ownership of the assets will switch from you to the trust. You can still choose to be one of the trustees of the trust who has the authority to manage and invest the assets. However, a second trustee is required that authorizes distributions to you during your lifetime. As you are no longer the direct owner of your assets and there is another trustee that authorizes distributions made to you, it makes it difficult for a creditor to reach those assets.

The requirements for establishing an asset protection trust include that the trust be in writing, it must be irrevocable, it cannot be made for the intention to obstruct, delay, or defraud any known creditor, it cannot be made to render you insolvent from existing debts, and at all times there has to be at least one trustee who is a Nevada resident or is a bank or trust company that has a Nevada office.

A Nevada asset protection trust can be a self-settled trust, which means that the creator of the trust is a permissible beneficiary. As the creator, you can also prevent certain distributions, execute trust investments, and replace the trustee as you see fit in most instances. A NAPT can also be established to where it is not self-settled, meaning the creator is not a direct beneficiary initially. This can better protect the assets, especially when the creator is not a Nevada resident. The creator can also structure the trust to where they can benefit indirectly through other beneficiaries or be included as a beneficiary in the future, if desired.

Something to keep in mind is that Nevada asset protection trust statutes come with a spendthrift clause. The spendthrift clause set conditions on a beneficiary’s rights to the assets and is designed to prevent a creditor from attaching an interest in the trust assets.

There are many reasons why NAPTs are favorable compared to other asset protection trusts established in other states that allow them. One, Nevada asset protection trusts fully protect your assets after two years, which is among the shortest time frames in the U.S. Two, there are no exception creditors, whereas many other states have allowed for exception creditors to pierce the trust. For example, Nevada asset protection trusts protect the assets from divorcing spouses, alimony, and child support, when created and administered properly. Three, it does not affect your income taxes and there are no state income taxes for these trusts in Nevada. Also, the burden of proof is a clear and convincing burden of proof, which is difficult for creditors to prove.

If you think that a Nevada asset protection trust is a good fit for your estate plan, you should hire a Nevada asset protection trust attorney. An attorney will have extensive experience in this area and can help you better understand this type of trust and whether or not it is suitable for your situation.

Benefits of an Asset Protection Trust in Nevada

If you are considering an asset protection trust as part of your estate plan, there are many reasons why this may be a good idea. Here are some of the main benefits of an APT:

  • A NAPT can protect your assets from unsecured creditors, with no exception creditors
  • You can set up a NAPT even if you are not a Nevada resident
  • Nevada does not tax the income of the NAPT
  • You can still maintain access to your assets by being one of the trustees and/or being a permissible beneficiary
  • An asset protection trust can also be structured as a dynasty trust, which provides long-term protection and benefits for up to 365 years.

Downsides of an Asset Protection Trust

Even though a Nevada asset protection trust comes with many benefits, it is not going to be a one-size-fits-all solution for everyone’s estate plan. You need to carefully examine your options to decide if this type of trust is the right fit for your situation.

To better understand whether or not this is the right fit for you, you should also consider some of the downsides of using a Nevada asset protection trust, such as:

  • The Nevada asset protection trust cost can be significant.
  • You may need to utilize a Nevada trust company as one of the trustees, which comes with annual fees
  • You cannot be the sole person in charge of distributing the assets while you are alive
  • In conjunction with the NAPT, it may be beneficial to create one or more Nevada LLCs, which will add additional costs and administrative requirements
  • Mismanaging this trust could result in a creditor reaching the trust assets

Something to consider before deciding on a Nevada asset protection trust is whether or not you have sufficient assets to justify the cost and administrative requirements.

Contact a Dependable Estate Planning Attorney at Morris Estate Planning Attorneys

A significant part of estate planning is protecting your assets for the future generation and your loved ones. To better prepare for the future and ensure your last wishes are upheld, you need to understand how asset protection trusts work in Nevada.

At Morris Estate Planning Attorneys, our estate planning lawyers are dedicated to providing our clients with the guidance and knowledge they need as they navigate Nevada trust laws. Contact us today at 702-471-0990 to schedule a meeting with one of our attorneys.