A Trust created for asset protection will typically be treated as a Spendthrift Trust only if it contains the appropriate language designated for Spendthrift Provisions. This language in the Trust agreement document is called the spendthrift clause or spendthrift provision. Most Irrevocable Trusts will contain a spendthrift provision even though the designated future beneficiary of the Trust assets is not a “spendthrift”, i.e. someone who spends or wastes money in an unwise, foolish or recklessly manner.
The Trust Spendthrift Provision is intended to protect the Trust’s asset inheritor from creditors attaching or making claims on the assets within the Trust prior to the inheritor actually taking ownership of the Trust’s assets.
What's the benefit of a Nevada Spendthrift Trust?
A properly executed Nevada Spendthrift Trust (NST), particularly regarding real property, offers unique benefits. For example, the State of Nevada does not levy either personal or corporate income taxes, only U.S. Federal income taxes. Nevada also does not subject other taxes levied by other States as long as the Trust is qualified to do business in those other States (if applicable). A Nevada Spendthrift Trust does not require reporting, Nevada State fees, Trust registration requirements, a registered agent, or that the assets conveyed into the Trust be physically located in Nevada, as long as one of the trustees of the Trust declares their residence to be in the State of Nevada. An additional benefit includes the ability to change Trust beneficiaries without notifying anyone.
Some Items Are Not Covered in a Nevada Spendthrift Trus
However, under certain conditions, such as in the case of alimony or child support due from a beneficiary, creditors may compel the Trust to satisfy some obligations from the Trust assets. Additionally, law and public policy against fraud may require that certain other payments be made to creditors from Trust assets. Nevada has enacted a series of statutes that, among other things, makes creditors subject to high legal standards that make it difficult for them to prove that the assets placed in the Trust were intentionally and fraudulently conveyed for the express purpose of avoiding the payment of certain legally required payments from Trust assets.
The Nevada Spendthrift Trust is also called a Nevada Asset Protection Trust and is similar to other Domestic Asset Protection Trusts (DAPT) Trusts that have been established by law in other States, such as Alaska, Colorado, Missouri, Maine, Oklahoma, South Dakota, Texas, Utah, Wyoming, to name a few. The degree to which other States recognize DAPT’s and the Nevada Spendthrift Trust varies widely, and there are a number of provisions enacted by law in other States that may conflict with those of Nevada. The main reason for the diversity of laws across States is to prevent the Trust owner or founder from moving assets into a Domestic Asset Protection Trust for the express purpose of defrauding legitimate creditors of the original Trust asset owner.
Nevada Spendthrift Trust Attorney
Numerous factors and limitations come into play when evaluating the potential asset protection of Domestic Asset Protection Trusts or Nevada Spendthrift Trusts for the Trust founder and their intended beneficiaries. For this reason, as with all other asset protection strategies and Trust types an experienced estate planning attorney, particularly in the case of the use of a Nevada Spendthrift Trust, should be consulted in order for the optimal and cost-effective asset protection Trust arrangement to be selected given the individual goals and circumstances of the Trust asset owner.