It is relatively easy to understand how important asset protection planning for Nevada residents can be. Most people want to make sure their assets are protected, including real estate, investments, business interests, and even personal property. Just consider the costs of malpractice, business (E&O), and other forms of liability insurance, which are rapidly increasing. It is certainly important to be preemptive in protecting your assets from potential creditors, whether that is through an insurance policy, homestead, or other asset protection plan. What may be even more important is understanding the most common mistakes in asset protection that Nevada residents should avoid.
One common mistake that many people make is assuming that there is something wrong with creating a plan to protect your assets. Many people feel like they are "hiding assets" or irresponsibly "sheltering" their estate from the reach of creditors. That simply is not true. We are all free to structure our assets in the most advantageous way available, as long as we do so properly and in accordance with the law. The only time that the issue of fraud is raised is when the purpose of an asset protection plan is solely to hinder, delay, or defraud creditors from collecting valid debts. The key is to create your asset protection plan before the creditors' claims arise.
Plan in advance! Another mistake that some individuals make is not taking action to protect their assets until after a problem has arisen. If you've already been sued (or if you know you're about to be sued), it's likely too late to effectively create a plan. The best and most effective asset protection planning is accomplished long before any creditor claims arise. The best time to start an asset protection plan is when you are solvent and not currently facing any threats from existing creditors. The purpose of asset protection planning is to protect from potential future creditors. The sooner you start planning, the more options will be available to you.
One aspect of asset protection planning that is difficult for most people is making a proper determination of who is likely to be a potential creditor. Those who are able to make this determination are better able to make an effective asset protection plan. It is easier to plan when you know exactly what you are planning for. In other words, if you can implement a strategy to protect against certain claims you can more easily limit your exposure to that liability. Some common ways to avoid liability, especially for business owners, include:
You cannot rely on an asset protection plan someone else used. Friends may be well-intentioned, but one size definitely does not fit all when it comes to asset protection planning. Not every protection strategy will work in every case. Any estate planning attorney will tell you – an asset protection plan needs to be developed on a case by case basis. Some people can effectively create an asset protection plan by taking advantage of legal protections under homestead, ERISA, business, and other federal and local laws; still others may need a more complex asset protection trust to deal with potential creditors. Individual needs must be carefully considered when choosing your planning options, so don't use a boilerplate plan and hope that you will be protected. Most likely, you will not.
Many clients have the same misconception, that any type of trust can provide asset protection. That is not the case. First, revocable living trusts do not provide protection for individuals who created the trust simply for that purpose. It is important to remember that, in most states, when the person who has funded the trust is a potential beneficiary, then the assets may not be protected from creditors. However, a properly drafted revocable living trust may be able to add asset protection for surviving spouses and/or other beneficiaries. An irrevocable trust can only protect property that is transferred to the trust as long as there is no evidence of a fraudulent conveyance, and a statutory period of time has passed before a creditor claim arises. Foreign offshore trust accounts have come under scrutiny in United States Courts, recently. Very special care must be given when implementing an asset protection plan that includes an offshore account.
A part of asset protection planning necessarily includes consideration of possible inheritances from relatives, a factor that is often overlooked. Those inheritances must be structured, as well, in order to provide maximum flexibility, as well as, protection against creditors and divorce. An estate plan is a way for you to prepare yourself and your family for what happens after you pass away. An appropriate estate plan can also give you an opportunity to plan for unexpected incapacity. Regardless of how few assets you may have, planning for your family's future is a necessity for everyone.
If you have questions regarding mistakes in asset protection, or any other asset protection planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.
Trusts are a vital wealth planning tool, not only for asset protection, but also for safeguarding the family’s wealth, regulating access to property and assets by younger family members, and providing long-term oversight and investment management for families. The trustee is responsible, either directly or indirectly, for investing those assets and making sound decisions in making distributions to beneficiaries.
Regardless of the size of your estate, it is important to consider protecting your assets and creating a plan to ensure that your family wealth will be passed on as you wish. The goal of asset protection is to shelter the wealth you have created from unnecessary risks. A family wealth trust can be the most effective and flexible option for protecting family wealth. When your estate planning attorney properly customizes a trust for your family, the benefits will far exceed simply leaving assets to family members in your will. Remember, a Family Wealth Trust is not just for the wealthy.
What Is a Trust?
A trust is just an agreement between a trustor, trustee and beneficiary regarding how and when assets will be transferred. The “trustor” is the person who owns the assets in and creates the trust. The “trustee” is the person to whom the legal title of the assets passes. The “beneficiary” is the person who eventually receives the assets after specific conditions have been met. Trustees can be friends, relatives or professionals, such as attorneys or accountants. In some cases, an entity such as a bank or a trust company can serve as trustee.
How do Family Wealth Trusts actually provide protection?
Usually, a family wealth trust becomes irrevocable when the trustor dies. This simply means its terms cannot be changed once it has been created. Furthermore, the assets are no longer part of the trustor’s estate once the trust becomes irrevocable. So, when the trustor passes away, these assets are not considered part of the personal estate and will not be subject to the beneficiary's creditors. This is only one advantage of this type of trust.
A Generation-Skipping Trust
Another option to consider is the Generation-Skipping Trust, which will allow you to retain your tax exemption on gifts to your grandchildren and avoid the tax on any amounts exceeding that exemption. In 2014, the Generation-Skipping tax exemption is $5.34 million, which is the same as the federal estate tax exclusion. This is also a beneficial estate planning tool, if you want to leave assets to your grandchildren. For instance, you can put $100,000 in a generation-skipping trust and allow it to accumulate earnings for any number of years. Still, your lifetime exemption would only be reduced by the original $100,000. If you have any questions about these or any other asset protection tools, please contact our office.
Estate planning involves confronting some sensitive matters. For many people considering marriage, one such issue is the decision to ask your spouse-to-be to enter into a premarital agreement. Those who are entering into a first marriage without a lot of assets and no children may not need a premarital agreement. However, if you're getting remarried after you have enjoyed financial success throughout your life, the decision becomes more complex. This is amplified if you have children from a previous marriage or marriages.
If you are married and live in a community property state like Nevada or California, all earnings and efforts that produce something of value after the marriage are community property. Many people believe that so long as they don't commingle funds and assets remain titled in their sole name that they are protected. This is not the case. While the assets with which you enter a marriage are your sole and separate property, all post-marriage earnings, regardless of where they are deposited or invested, are community property. Our office has handled the administration of several estates where a surviving spouse, or the children of a deceased spouse, brought claims to establish assets titled in the name of the other spouse or his or her estate as community property. In many of these cases assets were diverted to a surviving spouse and/or a deceased spouse's children in contradiction to the intent of the other spouse's estate plan. In addition, many states laws, including Nevada's and California's, allow a spouse to make a number of different claims against the will or trust of a deceased spouse, potentially further frustrating the deceased spouse's estate plan.
To address these problems it is possible to enter into a premarital agreement. Every state has its own requirements for a premarital agreement to be enforceable. In Nevada, it is important that both parties provide a reasonable disclosure of their property and debt. In addition, it is important that both parties are represented by independent legal counsel. The agreement should also be executed as well before the wedding and, and the terms of the agreement should not be unconscionable (i.e., too one-sided). These are just a few of the factors the courts look at to determine the validity of a premarital agreement.
Aside from claims upon the death of a spouse, there is the matter of possible divorce. There is a post on the Psychology Today blog that looks at the high rate of divorce among people who get remarried after having been married previously. This piece states that 67% of second marriages do not last. Third marriages are even more precarious with a 73% divorce rate. When you understand the fact that a significant majority of second and third marriages fail, you may conclude that premarital agreements may not be in poor taste after all. Perhaps they are simply a pragmatic response to a stark reality.