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A growing number of estate planners are setting up trusts in Nevada. State laws in Nevada are very favorable for trustors, to the point that trusts there now hold $18 billion in assets, up from $8 billion in 2008.
What’s drawing all those plans to Nevada? Regulations in place there make Nevada a friendly to trusts, as Delaware is to corporations. Your clients can reside anywhere in the U.S. and still benefit from most of these trust situations.
Estate planners may wish to familiarize themselves with some of these benefits cases where clients are concerned about the laws in their home states. Planners may be able to make use of these 9 provisions:
See also: Changes to estate planning laws in 2016: what to expect
Nevada has no state or corporate income tax. That means that any income generated by a trust would never be taxed at the state level. Nevada has no state fiduciary income tax, either.
Nevada is one of two states that does not recognize exception creditors. These are typically spouses, former spouses or children who are given additional rights in seeking judgments against trusts. In Nevada, they don’t get those extra rights.
Nevada allows for dynasty trusts that can last for 365 years, pursuant to a law passed in 2005. Other states permit dynasty trusts to last that long or in perpetuity, but Nevada is one of only four such states without state taxes.
Nevada asset protection trusts allow for “self-settled” spendthrift trusts. Almost every state recognizes some form of spendthrift trusts, in which the beneficiaries’ creditors cannot get to the beneficiaries’ interests in the trust, but most of them do not permit the creator of the trust to establish a “self-settled” spendthrift trust. That inhibits the trustor from using such a provision to shelter his or her own assets from future creditors. But Nevada is one of the few states to permit self-settled spendthrift trusts.
Nevada permits directed trusts. In a directed trust, the trustee can be required to follow the investment or distribution directions of an investment adviser, who is appointed by the trustor. The investment decisions of a trust are imputed to a sole trustee, who has the authority over the choices the trust makes. A directed trust allows family members or their long-term advisors to retain control of investment and distribution decisions, rather than giving those decisions to the trustee.
In a related aspect, there is no prohibition on the settlor’s powers over the trust. In Nevada, the sole limitation for the settlor is that he is not permitted to make distributions to him or herself.
Nevada does not allow creditors to claim “improper dominion and control” over a trust to gain control over it. The only such attack on asset protection trusts that Nevada permits is fraudulent conveyance, and even that must be proved by clear and convincing evidence that affects the specific creditor.
Nevada’s statute of limitations is just two years. In most cases, the transfer of the assets to the trust should be protected from creditors’ claims beginning just two years from the date of transfer. Many states have a four-year statute of limitations period until the trust assets are protected.
Nevada has detailed, comprehensive laws respecting trust protectors. Since the trust will continue long after its creator and immediate members are deceased, many trustors may wish to establish a trust protector to look over the trustee’s shoulder. Nevada’s laws make clear that the powers exercised by the trust protector are binding on all other persons. Nevada allows a trust protector to remove and appoint a trustee, direct or veto distributions from the trust, and change the trust to achieve a more favorable tax status. That’s an awful lot of power.
These are some of the highlights of Nevada’s trust protection, but there are many more aspects to it of a more technical nature. The state is very serious about attracting trust business. If your clients are amenable to establishing a trust out of state, Nevada is well worth a conversation.
More features by Tom Nawrocki:
2 factors contributing to the growing problem of elder debt
Using the qualified charitable distribution: 5 IRA scenarios
Reverse mortgages in an estate plan: 7 pros and cons
529 plans vs. life insurance: 7 questions to ask clients
9 reasons why clients might want to set up a trust in Nevada
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