Nevada Creditor Protected Trusts pursuant to NRS Chapter 166
Since October 1, 1999, Nevada offers residents and non-residents a new irrevocable creditor protected trust. In the past, only an irrevocable trust for the benefit of someone else was protected from creditors. Now, a “self-settled” trust protects the settlor’s assets from many creditor claims, even where the settlor (not someone else) is the beneficiary, too.
This type of trust cuts the statute of limitations in half (i.e., the time frame in which a lawsuit must be filed) to two years instead of four years for existing creditors. This time period has the ability to be even further reduced to six months from the time when existing creditors should have discovered the transfer of assets to the creditor protected trust. Since this date is somewhat nebulous, we use the publication of a notice, which creditors should reasonably discover, to start the clock running.
For future unknown creditors, assets titled in this type of trust are protected.
There must be a Nevada independent trustee. For Nevada residents, a separate Nevada trustee is not required. However, it is generally a better idea to have another Nevada company or unrelated individual serve as a “co-trustee” relating to distribution. This makes it absolutely clear that this is a creditor-protected trust.
As a privacy tool, this type of trust has an EIN number, rather than your social security number.
This form of asset protection may be a less costly and less complicated than investing your assets off-shore in foreign jurisdictions. For this reason, we sometimes refer to this trust as a Nevada On-Shore Trust, because you get the protection “on-shore” in the U.S. without having to move your assets to another country.
Nevada Limited Liability Company (“LLC”)
Members of an LLC are protected like shareholders of a corporation. The designated manager typically is responsible for running the business. The members do not need to be named as managers. The same liability rules apply that are used for corporations. So long as the LLC has adequate assets, its liability to creditors or other plaintiffs in a lawsuit against the LLC will be limited to the LLC’s assets. Additionally, pursuant to Nevada Statutes, the members’ personally-owned assets are not accessible to creditors of the LLC.
Only the manager of an LLC is listed on the officer’s list with the Nevada Secretary of State on an annual basis. This means that actual ownership by members may be difficult to trace. The manager does not have to be an owner-member, it can be a trust, corporation or an LLC. Often, LLC owners name a stand-alone management trust to provide privacy as to the people (trustees) who actually manage the LLC and also to name successor “managers” for continuity in the business. We prefer to not name yourself individually as manager, as that information, including your address is easy to find. Also for greater privacy, many clients prefer to use a P.O. Box address for the manager, instead of a home or business address. The use of LLC’s to hold title to certain assets in conjunction with other planning techniques, such as Nevada spendthrift trusts, can be an especially effective technique.
Qualified Retirement Plans
Retirement plans, whether a 401(k), profit sharing, money purchase, or defined benefit plans, are creditor protected under federal law, except for IRS liens and child support. Generally, no matter what bad deed or who the creditor is, these assets are bulletproof.
The only caveat relates to a retirement plan with no employees other than the owner. Technically, such “single participant” plans are not covered by ERISA (the federal law which protects retirement assets). Thus, it may be a good idea to add an employee, other than the owner or spouse, to guarantee full asset protection. Of course, such an employee must be a qualified employee (over 21 years of age, works at least 1,000 hours a year, has been employed for one year or more) and be a participant in the plan.
Irrevocable Trusts for Children
A beneficiary’s interest in a trust is generally an asset of the beneficiary and subject to claims unless (1) the beneficiary’s interest is contingent upon the occurrence of an event which has not occurred; (2) the beneficiary’s benefits are determined by the trustee at the trustee’s discretion; or (3) the trust contains a provision making it a “spendthrift trust” within the meaning of Chapter 166 of the Nevada Revised Statutes or the similar law of the state having jurisdiction over the trust. Under Nevada law, it is usually enough to say that “the trust is a spendthrift trust” or “the trust is not subject to attachment or other involuntary anticipation” for it to qualify as a spendthrift trust.
You can make annual gifts of up to $15,000 per person (the current annual gift tax exclusion) to these irrevocable trusts. Additionally, life insurance policies can be owned by this type of trust.
We do not provide asset protection analysis in factual situations that may be related to fraudulent transfers to escape existing liabilities.
Asset protection analysis may be appropriate for future unknown creditors, as a preventative planning tool.