Nevada Domestic Asset Protection Trust
Nevada is one of 19 states that allows a person to establish a “self-settled spendthrift trust.” Originally enacted in 1999, Nevada’s self-settled trust laws have continuously been improved to make Nevada the leading jurisdiction for Domestic Asset Protection Trusts ("DAPT"). With a Nevada DAPT, you may transfer assets to an irrevocable trust of which you are a beneficiary, retain controls over the investment and management of those assets, and protect the assets from potential creditors.
Nevada’s laws are the most advantageous of the DAPT jurisdictions because Nevada has no statutory exception creditors and a very short statute of limitations period. A statutory exception creditor is one that is carved out to still be able to access the assets transferred to the trust. For example, other domestic asset protection trust jurisdictions include divorcing spouses or pre-existing tort creditors as exception creditors. In Nevada, no such “super creditors” exist. Further, each DAPT jurisdiction provides a statute of limitations period during which a creditor can try to attach or make a claim on a transfer made to the trust. In Nevada, this statute of limitations period is 2 years from the date of transfer.
The Nevada DAPT is a great asset protection tool, particularly for a Nevada resident or a resident of one of the other domestic asset protection trust jurisdictions. For those clients who don’t live in Nevada, a Nevada DAPT is still a viable protection technique, though there may be different design considerations. For example, to utilize Nevada law for the trust, a Nevada resident or a Nevada bank or trust company must be a trustee. For non-residents, it may be important to strengthen the nexus to Nevada by forming a Nevada limited liability company or limited partnership to hold the assets to be contributed to the Nevada DAPT.
While the traditional Nevada DAPT is a self-settled trust (meaning that the settlor is a beneficiary), the Nevada DAPT may be purposely designed to not include the settlor as a beneficiary. If a client lives in a state that is creditor-friendly, the assets placed in the Nevada DAPT may be more protected if the client is not a beneficiary. In this situation, the Nevada DAPT would be designed as a trust for the benefit of the client’s spouse and/or children. The client may retain investment control, the power to veto proposed distributions, and the power to change who benefits from the Nevada DAPT upon death without compromising the asset protection of the structure. If the client is sued while a resident of the non-domestic asset protection trust jurisdiction, the Nevada DAPT designed in this manner should still provide creditor protection, since it is not a self-settled trust.
To find out whether the Nevada DAPT would be a good fit for you, please contact us.