The Nevada Wealth
Preservation Trust
by:
Geraldine Barretto-Ko Esq.

THE NEVADA WEALTH PROTECTION TRUST

Introduction

Some benefits of off-shore trusts are now available in the State of Nevada. In years past, one of the only options for successfully preserving and safeguarding assets from creditors’ claims in the United States was to place those assets in an off-shore trust, commonly established in the Bahamas or Cook Islands. While these trusts are extremely expensive to administer, as well as create, they provide protection as creditors find it almost impossible to pursue the assets in them.

In October of 1999, the Nevada State Legislature revised the “Spendthrift Trust Act of Nevada” (Nevada Revised Statute Chapter 166) allowing protection of assets in a Spendthrift Trust, if set up correctly. Most significantly, a Settlor (i.e. trustor, grantor or creator of the trust) may receive protection from possible claims of judgement creditors of the Settlor, even when the Settlor is the trustee and beneficiary of the trust. Thus, the resulting benefit of the Spendthrift Trust (“The Nevada Wealth Preservation Trust”) is a vehicle that protects your investments and assets from frivolous lawsuits and potential judgement creditors without the expense and complications of placing your assets in an off-shore trust.

Who Should Utilize A Nevada Wealth Preservation Trust?

While anyone can utilize the benefits of this trust, persons who are exposed to risk and liability through their profession (i.e. contractors, real estate developers, real estate professionals, engineers, architects, lawyers, doctors, dentists, accountants, professional service providers, etc...) should seriously consider The Nevada Wealth Preservation Trust as a means for protecting their assets from potential claims. As well, anyone who is simply concerned about potential claims against their assets due to unexpected accidents, frivolous lawsuits or unknown conflicts, should consider utilizing The Nevada Wealth Preservation Trust.
The Spendthrift Trust

While most states recognize spendthrift trusts, their construction and enforcement from state to state differs. The spendthrift trust (which is essentially a trust with a spendthrift provision) has been an asset protection device in the United States for years. Generally speaking, a spendthrift trust is a way for persons to securely transfer assets to a beneficiary without fear of judgement creditors’ attacking the assets. Most states do not allow a spendthrift trust to provide asset protection to the Settlor, when the Settlor is also a beneficiary. This type of Trust is commonly referred to as a “Self-Settled Trust”. In a Spend Thrift Trust the beneficiaries’ interest in the principal and income from the assets are protected from the beneficiaries’ creditors, if not yet distributed to the beneficiary. Even when distributed, however, efforts to levy and attach those assets by the creditor is often a cumbersome and tedious process that more often than not, proves unprofitable for the creditor.

The Nevada Wealth Preservation Trust

In Nevada, this type of Trust, can be self-settled and provide creditor protection. In other words, the Settlor can be a beneficiary, provided certain conditions are satisfied, and still achieve creditor protection.

To create a Nevada Wealth Preservation Trust, certain requirements must be met:

A. What are the General Requirements?
1. The Trust must be in writing and irrevocable;
2. The Trust must not require the Trust’s income or principal be distributed to the Settlor; and
3. The Trust must not be intended to hinder, delay or defraud known creditors.

B. Who Can Create The Trust?
In order to maintain enforceability of the Trust, the creator of the trust (“Settlor”) should be domiciled in the State of Nevada and all or part of the real or personal property transferred into the trust must be located in Nevada. In the event the Settlor of the trust is not domiciled in the State of Nevada, at least one of the Trustees, or the sole Trustee, must perform the administration of the Trust in the State of Nevada, including maintaining records and the preparation of the income tax returns for the Trust.

C. Who Can Be The Trustee Of The Trust?
It is recommended that the Settlor not be the Trustee if the Settlor is also a beneficiary. The Settlor should appoint a qualified Nevada Trustee to serve as Trustee to make distributions of income or principal to the Settlor/Beneficiary. A qualified Nevada Trustee must either be: (1) A person whose domicile is in the State of Nevada; (2) A bank that maintains its office in the State of Nevada for the transaction of business and one which possesses and exercises trust powers; or (3) A Trust company which maintains an office in the State of Nevada for the transaction of business.

D. Who Can Be A Beneficiary Of The Trust While Settlor Is Living?
The Settlor may be a beneficiary of the trust. The Settlor can name any other person, to be a beneficiary of the Trust while he or she is living. The Trustee will have discretion to make distributions to any of the beneficiaries. Although the Trustee has discretionary power to make distributions to the beneficiaries the Settlor retains a “veto power” over distributions by the Trustee. For example if the Trustee were going to make a distribution to a beneficiary the Settlor could prevent or stop the Trustee from making the distribution. This “veto power” allows the Settlor to retain control.

E. Who Can Be A Beneficiary Of The Trust Upon The Settlors Death?
The Settlor will specify in the Trust Agreement who the beneficiaries of the Trust will be in the event of his or her death. Although the Trust is irrevocable the Settlor can retain a testamentary special power of appointment to change the beneficiaries upon his or her death. This also gives the Settlor control.

F. How Are Assets Protected?
As to creditor claims, the statute clearly states that under certain circumstances creditors can bring an action with respect to a transfer of property to the Trust. A creditor that exists before or at the time property is transferred into the Trust must commence any action within two (2) years after the property transfer is made, or within six (6) months after the creditor discovers or reasonably should have discovered the transfer of property into the Trust, whichever is later. If a party becomes a creditor after the transfer of property is made, that creditor must commence its action within two (2) years after the transfer of property into the Trust. Thus, any creditor whose claim arises two (2) years after the transfer of property to the Trust is forever excluded from bringing an action to recover assets from the Trust.

G. Are There Conflicts In The Legal Enforcement Of The Trust?
As Nevada leads the way in creating The Nevada Wealth Preservation Trust, the enforceability of the of the Trust outside Nevada’s jurisdiction remains a somewhat open issue. Pursuant to the Nevada statute, Nevada law governs the operation and enforcement, in Nevada, of this Trust whether created inside or outside of Nevada if: (1) all or part of the real property or personal property assets in the trust are located in Nevada; or (2) the declared domicile of the creator of the Trust affecting personal property is in Nevada; or (3) at least one qualified trustee has powers that include maintaining records and preparing income tax returns for the trust and all or part of the administration of the trust is performed in Nevada. The questions of enforceability are still unclear with regard to real property outside Nevada. However, it appears real property in Nevada and personal property that can be moved into Nevada will be protected from the claims of creditors through the Trust.

Conclusion

The Nevada Wealth Preservation Trust is the newest asset protection and estate planning tool available to individuals desiring to protect their assets from creditors’ claims while retaining control. You may be interested in setting up The Nevada Wealth Preservation Trust for various reasons. If so, Marquis and Aurbach has experienced attorneys that understand the sensitive nature of such an important estate planning tool in relationship to your personal needs and goals. Please feel free to give us a call to further discuss how The Nevada Wealth Preservation Trust can work for you.