There are many different trusts that can be used to satisfy varying objectives. If you are concerned about the possibility of future creditors seeking to attach your assets, there is a particular type of trust that you should consider. The legal name of this trust structure is called a self-settled spendthrift trust. Among estate planning practitioners in Nevada, it is alternately referred to as a Nevada Asset Protection Trust.
This type of trust can protect a number of different assets, including real estate, bank and brokerage accounts, personal belongings, business holdings, and other types of assets from future creditors. It may also be used as a prenuptial planning device to protect assets from spousal claims in the event of a future divorce. However, it should be noted that you cannot create a self-settled asset protection trust and convey assets into it to protect assets from creditors that already have a judgment against you.
Up until relatively recently, self-settled asset protection trusts were not legal in the vast majority of states. However, more and more states have laws on the books that allow for the creation of these trusts. Our office is in Reno, Nevada, and our state of Nevada is one of the states that does allow self-settled asset protection trusts. For your information, the other states that currently allow these trusts in one form or another are Alaska, Delaware, Hawaii, Mississippi, Missouri, New Hampshire, Ohio, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.
We should point out the fact that you do not necessarily have to reside in the state where the self-settled spendthrift trust is going to be established. However, your will need to designate a trustee of the trust that resides in the state in which you are creating the trust. In addition, it is a good idea to relocate your assets to that state. This is relatively easy to do with some types of assets, like bank accounts and marketable securities. On the other hand, it is impossible to transfer real property to another state. For real property, it is recommended that you transfer the interest into a limited-liability company organized in the state in which you are creating the trust, and then transfer the membership interest in the limited-liability company to the trust. Then the trust will then own an interest in intangible personal property located in the state of the trust's creation.
When you decide to establish a self-settled or domestic asset protection trust, you are considered to be the grantor or settlor of the trust. You convey assets that you would like to protect from future creditors into the trust. It is important to understand the fact that this is an irrevocable trust, so the act of transferring property into the trust is permanent. You cannot change your mind later and take back personal possession of these assets.
The trust administrator is called the trustee, and generally speaking, the grantor of a self-settled asset protection trust would be prohibited from acting as the trustee. You would utilize an individual that you know or a professional fiduciary like an attorney, certified public accountant or the trust section of a bank or a trust company to handle the trust administration chores. The person or entity that is acting as the trustee must physically reside in the state where the trust is being created.
Once you convey assets into the domestic asset protection trust, you are not left completely out in the cold with regard to the utilization of assets in the trust. The trustee can distribute assets from the trust to you in accordance with the terms of the trust agreement. It would also be possible for the trust declaration to give the trustee the discretionary power to distribute assets to members of your family.
We should point out the fact that the trust will protect assets from future creditors, but sometimes there is a waiting period depending on the laws of the state in question. In Nevada, waiting period is two years, which is among the shortest of all the jurisdictions that recognize these trusts. So, by way of example, if you convey assets into a Nevada Asset Protection Trust today, and there is a judgment against you eighteen months from now, the assets may be fair game.
This is a relatively brief explanation of one of the many tools in the estate planning toolkit. Each case is different, and this is why personalized attention is very important. When you work with our firm, we will gain understanding of your needs, make recommendations, and help you put the ideal estate plan in place.
If you would like to schedule a consultation right now, we can be reached by phone at 775-823-9455. We are also holding a series of Webinars over the coming weeks, and you can learn a great deal about many different estate planning topics if you attend one of these information sessions.
They are free to attend, but we do ask that you register in advance to reserve your seat, because space is limited. You can check out the schedule and obtain registration information if you click the following link: Reno Estate Planning Webinars.
When it comes to estate planning there are several types of tools you can use, depending on your circumstances. One such estate planning tool to protect your estates beneficiaries from future potential family law matters, or other creditor situations, it to leave their inheritance in a Trust Share.
Purpose of Trust Shares
A Trust Share can be created for each beneficiary of your estate after an individual’s death, or the second death of a joint couple. The Trust Share is a legal entity that has its own tax identification number. A Trust Share prevents the trust beneficiary from commingling assets with a spouse directly because the assets are held in Trust Share. A Trust Share prevents an inheritance from being transmuted into a spouse’s community property, which could be lost in a subsequent family law matter. A Trust Share provides for marital harmony after the death of a loved one because it eliminates the conversation between a beneficiary and their spouse on whether they are going to deposit an inheritance into a joint account because the Trust Share doesn’t allow that as an option.
The Trust Share also provides flexibility with trust asset management. Typically, if a beneficiary is responsible with financial assets the creator of the Trust Share will allow them to be their own Trustee and manage the trust funds for their own benefit. Generally, the distribution standard for a Trust Share is for health, education, maintenance, and support. If a beneficiary is not responsible with financial asset a safeguard can be put in place with an Independent Trustee that can be a responsible family member or Professional Trustee. This creates checks and balances, so assets are not wasted with frivolous spending.
Trust Shares also allow you to set a minimum age of when a beneficiary such as a child or grandchild can serve as their own Trustee. We have found with experience that the age of 25 or 30 is much better than 21 given work experience and life experience.
Trust shares can even have a re-write power when it comes to looking at how assets will be passed to grandchildren. You could leave a Trust Share to your child and provide them with a re-write power known as a Limited Power of Appointment to decide how the assets from their Trust Share will be divided at their death among their heirs.
Consult with an Estate Planning Professional
While Estate planning can be complicated, it is essential in protecting yourself and your loved one’s financial future. Give us a call at 775-823-9455 to make a free consultation with an estate planning attorney and see how we can help protect your legacy and your family.
Authored by: Aaron Squires
As Reno asset protection attorneys, we emphasize the fact that relatively frequent estate plan revisions may be necessary. There are different events that occur throughout society as a whole that can render your existing estate plan in need of adjustments. At the top of this list would be changes to the tax code that impact the estate tax and/or the gift tax.
One of the things that commonly takes place in the lives of individuals is a change in marital status. As we all know, many first marriages end in divorce, and most people who get divorced eventually remarry. If you decide that you would like to get remarried after having been divorced, you may want to consider entering into a prenuptial agreement.
Of course, everyone who remarries feels as though they have found the right person, or they would not be getting married. However, some 60 percent of second marriages do not endure, and over 70 percent of third marriages end in divorce. As you can see from the statistics, it is more likely than not that your second or third marriage will not last. Is it prudent to go forward without a prenuptial agreement given these figures?
Given these statistics, you should make sure that your children from previous marriages are provided for regardless of what takes place in the future. You can provide for your new spouse while ensuring the future well-being of your children if you plan ahead in an intelligent and informed manner. This is often done through the creation of a trust called a qualified terminable interest property trust (QTIP).
When you establish this type of trust, your spouse would be the first beneficiary, and you name your children as the secondary beneficiaries. You fund the trust with property that you eventually want to pass along to your children, but your spouse could potentially utilize the property while he or she is still living. For example, if you convey your home into the trust, your spouse could still live in it.
If there are income producing assets in the trust, you could empower the trustee to distribute this income to your spouse throughout the rest of his or her life. Your surviving spouse would be well taken care of, but the terms of the trust would be set in stone with regard to the eventual transfer of the assets to your children. After the passing of your spouse, your secondary beneficiaries would assume ownership of assets that remain in the qualified terminable interest property trust.
As we stated in the opening, changes in tax laws could necessitate the need for an estate plan update. On another level, if you experience extraordinary financial success over the years, you may suddenly be faced with estate tax exposure. If you originally created your estate plan when your assets did not exceed the amount of the estate tax exclusion, you would definitely need to discuss death tax efficiency strategies with an estate planning attorney.
For the rest of 2018, the estate tax exclusion stands at $11.2 million, and the maximum rate of the tax is 40 percent. This means that the first $11.2 million can pass to your heirs free of taxation, and anything that exceeds this amount is subject to the death tax and its rather high 40 percent rate.
There are a number of different strategies that can be implemented to ease the burden. One possibility is the creation of a qualified personal residence trust. The way that it works is you convey your home into the trust, and when you do this, it is no longer part of your estate. However, there is a gift tax that is unified with the estate tax, so when the beneficiary assumes ownership of the home after the expiration of the term, the gift tax would be applicable.
On the surface, it may seem as though there is no benefit from a tax perspective, but there is a catch. You can continue to live in the home as usual after you convey it into the qualified personal residence trust. This interim is called the retained income period.
For the purposes of this example, let’s say that you remain in the home for 10 years. No one would purchase a home at full market value if they could not occupy it for a decade. The Internal Revenue Service take this into account when the taxable value of the gift is being calculated. At the end of the day, the taxable value of the gift will be far less than the actual value of the home.
We are holding a number of free Webinars over the coming weeks, and you can learn a lot if you attend one of these information sessions. Click this link to see the schedule and follow the simple directions to reserve your seat. We encourage you to act now, because space is limited.
Most people would agree that it is not easy to reach your financial goals and accumulate a significant store of wealth. For those fortunate enough to achieve this objective, the focus should shift to balancing wealth accumulation with various asset protection techniques.
Various reports have concluded that the number and size of lawsuits brought against wealthy individuals is on the rise. Unfortunately, most people fail to address this need until after a liability already exists. Unfortunately, most asset protection opportunities are no longer available at such time because of fraudulent conveyance laws.
When it comes to asset protection planning there are a number of different strategies that should be considered. The best techniques to utilize to accomplish this objective vary considerably on a case-by-case basis.
Many people use Nevada limited-liability companies for asset protection. Nevada has some of the best laws in the country designed to protect a member’s interest from attachment by his or her creditors. These entities can also provide significant tax advantages as interests in a limited-liability company can be transferred among the family members at a discount for gift tax purposes.
Other people use a Nevada asset protection trust to protect their assets. Nevada is one of a limited number of states that allow a person to create an asset protection trust for oneself. Nevada’s asset protection trust law became effective on October 1, 1999, yet many doctors, business owners, corporate executives and other high net worth individuals still have not taken advantage of this opportunity.
Assets transferred to a Nevada asset protection trust are generally protected from the transferor’s creditors two years after the transfer to the trust. Nevada law is superior to the laws of many other domestic asset protection jurisdictions in this regard since the required waiting period in most of the other jurisdictions is four years. The trust instrument must be irrevocable in order to provide the desired protection. However, the trust may be structured so that it can be modified by the trust creator to change the beneficiaries at the trust creator’s death. In this way a Nevada asset protection trust can be designed to be very flexible despite being irrevocable.
Some people will combine the Nevada asset protection trust with one or more Nevada limited- liability companies in order to provide two layers of protection. Used in combination these strategies can make it very undesirable for a creditor to pursue the assets contained within these structures.
To provide some sound information to people here in northern Nevada we have prepared a number of free special reports. These reports are available to you for download at any time, and one of the reports covers asset protection strategies.
If you are interested in protecting what you have earned from creditors, claimants, and former spouses you may want to access the information that is contained within this report. To access your copy click this link: Free Nevada Asset Protection Report.
If once you have read the report you have questions or would like to schedule a free consultation, we invite you to contact our firm. We can be reached by phone at (775) 823-9455.
To learn more about living trust lawyers, get in touch with the trust attorneys at Anderson, Dorn & Rader. Call (775) 823-9455 or fill out the form below to get started.