Protecting Your Family & Assets in Nevada with a Nevada Spendthrift Trust

On October 1, 1999, the Nevada legislature passed “The Spendthrift Trust Act of Nevada.” [Nev. Rev. Stat. Ann § 166.010 et. Seq.] The Spendthrift Trust Act allows an individual to establish a self-settled spendthrift trust. A “self-settled spendthrift trust” is a spendthrift trust in which the Settlor is the Trustee and the Beneficiary of income and principle. A “spendthrift trust” is a trust which, by its terms, creates a valid restraint on the voluntary and involuntary transfer of the interest of the beneficiary. Thus, under the Spendthrift Trust Act, an individual can create a valid trust whereby he or she is the Trustee (i.e., in control of the assets), he or she is the beneficiary (i.e., can use the assets) and the assets are protected from creditors.

Applicability

The Nevada Spendthrift Act applies to a trust if:

1. All or part of the land, rents, issues or profits affected are in Nevada;
2. All or part of the personal property, interest of money, dividends upon stock and other produce thereof affected, are in Nevada; or
3. The declared domicile of the creator of a spendthrift trust affecting personal property is in Nevada; or
4. 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 this state.

Qualified Trustee

If the settlor is a beneficiary of the trust at least one trustee of a spendthrift trust must be:

1. A natural person who resides and has his domicile in this state;
2. A trust company that
   1. Is organized under federal law or under the laws of this state or another state; and
   2. Maintains an office in this state for the transaction of business; or
3. A bank that:
   1. Is organized under federal law or under the laws of this state or another state;
   2. Maintains an office in this state for transaction of business; and
   3. Poses and exercises trust powers.

Basic Requirements of a Nevada Spendthrift Trust

If the Settlor is NOT the Beneficiary:

1. The Trust must be in writing.
2. The Settlor must be “competent.”
3. The Trust must be duly executed.

If the Settlor IS the Beneficiary:

1. The trust must be in writing.
2. The Settlor must be “competent.”
3. The Trust must be duly executed.
4. The Trust must be irrevocable.
5. The Trust does not require that any part of the income or principle be distributed to the Settlor.
6. The Trust was not intended to hinder, delay or defraud known creditors.

Assets in a Nevada Spendthrift Trust

ANYTHING (real, personal or mixed property)

Protection from Creditors [NRS §166.20 and § 166.170]

1. A Nevada Spendthrift Trust restrains and prohibits generally the assignment, alienation, acceleration and anticipation of any interest of the beneficiary  under the trust by the voluntary or involuntary act of the beneficiary, or by operation of law or any process or at all.
2. Payments by the trustee to the beneficiary shall be made only to and into the proper hands of the beneficiary and not by way of acceleration or anticipation, nor to any assignee of the beneficiary, nor to or upon any order, written or oral, given by the beneficiary or be made pursuant to or by virtue of any legal process in judgment, execution, attachment, garnishment, bankruptcy or otherwise, or whether it be in connection with any contract, tort or duty.
3. The trustee of a spendthrift trust is required to disregard and defeat every assignment or other act, voluntary or involuntary, that is attempted contrary to the provisions of the Nevada Spendthrift Act.
4. A creditor may not bring an action with respect to a transfer of property to a spendthrift trust:
   1. If he is a creditor when the transfer is made, unless the action is commenced within two years after the transfer is made; or six months after he discovers or reasonably would have discovered the transfer, whichever is later.
   2. If he becomes a creditor after the transfer is made, unless the action is commenced within two years after the transfer is made.

Advantages of the Nevada Spendthrift Trust

1. Settlor can keep control of his or her assets.
2. Settlor can benefit from his or her own assets, i.e., need not divest oneself of assets.
3. Settlor can protect any amount of assets from creditors.
4. Settlor can protect any type of assets from creditors.
5. Easily manageable trust.
6. Can be used by individuals who are not Nevada residents.
7. Assets are kept within the United States and not subject to overseas risks.
8. Less expensive and complicated than foreign/offshore asset protection trusts.
9. Less expensive and more protective than malpractice or other insurance.
10. Avoidance of onerous and complicated federal taxes and reporting requirements imposed on offshore trust and beneficiaries.

Disadvantages of the Nevada Spendthrift Trust

1. The trust is irrevocable.
2. There must be at least two Trustees, i.e., the Settlor must trust another person.
3. The Settlor must rely on someone else to get money, i.e., Settlor cannot distribute to oneself.
4. Potential federal gift and/or estate taxes if improperly planned.
5. choice of law and lack of precedent.
6. Two years must pass from the date of a transfer to be a fully secure transfer to the trust, except fraudulent transfers and in the event of Bankruptcy.
7. In the event of Bankruptcy, a transfer must have occurred 10 years prior to filing.

Benefits to the Nevada Spendthrift Trust

1. Peace of mind from litigation/creditor harassment
2. Avoidance of Bankruptcy.
3. Protection future Generation's assets.
4. Protecting assets with sentimental value.
5. Keeping assets “in the family.”