If any of you are going through the unfortunate process of a divorce, it’s important that you preserve any asset protection planning you have done with our office by having special language included in the Marital Settlement Agreement and Divorce Decree regarding your Nevada On Shore Trust. Here is some sample language that we’ve used in the past:
“It is the intent of the parties to maintain, to the extent practicable, the integrity and the enforceability of the [NAME OF NOST], an irrevocable trust, for their mutual benefit. The parties acknowledge and understand that to effectuate the provisions of this agreement it may be necessary to effectuate trustee to trustee transfers between the above referenced trust rather than to either party individually under the terms of the respective trust, including but not limited to the specific section of the trust entitled “Trustee Actions”. The parties hereby agree to jointly seek an appropriate order from the Court authorizing such distribution to themselves as trustees.”
Nevada’s self-settled spendthrift trust laws have long been considered the most favorable of the thirteen states allowing these types of trusts. (See NRS 166 for the laws pertaining to the “Nevada On-Shore Trust,” as we like to call it, or “NOST”). This is because Nevada has the shortest statute of limitations period and has no statutory exceptions allowing certain creditors such as forcing spouses, preexisting tort creditors, etc. to pierce the trust.
On June 4, 2011, Governor Sandoval signed SB 221 into law, which makes our spendthrift trust laws even stronger. The changes to the statutes, which are discussed in further detail below, will become effective on October 1, 2011.
1. Expansion of the types of trusts that qualify
Under the new language, a charitable remainder trust, a grantor retained annuity trust, and a qualified personal residence trust all qualify as a NOST.
2. Clarification of settlor’s ability to use property owned by the NOST
If a NOST owns real or personal property, the settlor is now explicitly permitted to use that property without decreasing the protection offered by the NOST.
3. Tacking of statute of limitations period for trusts changing situs to Nevada
If a non-Nevada spendthrift trust is domiciled in a state with substantially similar spendthrift laws to Nevada’s, and the trust’s domicile is properly changed to Nevada, the statute of limitations period does not have to be restarted. The transfer date will be deemed to date back to the actual date of transfer to the trust, or the date on which the laws of the non-Nevada jurisdiction became substantially similar to those of Nevada.
This new provision will allow individuals who have established asset protection trusts in other states with less favorable laws to change the situs to Nevada without restarting the statute of limitations.
4. Trustee liability limited
Currently, Nevada law already protects an advisor to the settlor or trustee of a spendthrift trust from claims unless the claimant can prove by clear and convincing evidence that the advisor knowingly and in bad faith violated Nevada law, and that his actions directly caused damage to the claimant. The new legislation now also protects the trustee of a spendthrift trust unless the claimant can make the same showing as to the trustee.
5. “Last in, First Out”
The new laws clarify that, when a settlor makes more than one transfer to the NOST, a more recent transfer will not result in the earlier transfers becoming accessible to creditors if they would otherwise be protected due to the statute of limitations.
Additionally, any distributions made from the NOST will be considered to have come from the most recent transfer, leaving older “seasoned” transfers in the trust and protected.
6. Decanting Spendthrift Trusts
Under the new law, the trustee of a NOST may decant the trust into another spendthrift trust without affecting the statute of limitations period applicable to the assets in the original trust.
7. Limitations of actions against a spendthrift trust
Until now, it was unclear whether Nevada’s four year Statute of Limitations period for fraudulent transfers would negate the favorable two-year rule under Nevada’s spendthrift trust provisions. Now, it is clear that no action may be brought against the NOST’s trustee at law or in equity if, at the date the action is brought, an action by a creditor with respect to a transfer to the NOST would be barred.
Additionally, in order to bring an action as to a transfer to a NOST, the creditor will have to prove by clear and convincing evidence that the transfer (i) was a fraudulent transfer, or (ii) violates a legal obligation owed to the creditor under a legally enforceable contract or valid court order.
8. Unauthorized agreements by Trustee are void
The new legislation clarifies that the settlor only has rights and powers conferred specifically in the instrument, and any agreement between the settlor and trustee attempting to grant or expand those rights is void. This provision strengthens the use of the NV self-settled spendthrift trust as a completed gift trust, which will bolster its use as an estate tax savings tool for some clients.
- Attorney Serena Baig
The following posting is borrowed from the May 2011 issue of Vegas PBS Source Magazine:
“It can seem daunting when beginning the process of making out a last will & testament, revocable trust, and powers of attorney. As one starts down this important, yet often intimidating course, increasingly people are wondering if they can do it themselves or should they use an attorney. Here are the top 5 reasons why you should use an attorney:
1. Experience. An attorney experienced in estate planning can tell you what to expect in terms of timelines, costs, taxes, and family issues that could arise.
2. Objectivity. On your own, it can be almost impossible to remain objective since estate planning decisions are so fraught with emotion.
3. Special skill. Estate planning specialists are specially trained in what they do. They understand important legal nuances and are able to bring together complex federal and state laws to make your plan work.
4. Protection. Doing it yourself, often leads to the payment of higher taxes, expensive probate proceedings, litigation and fighting between heirs, and increased opportunities for creditors attack. Don’t be “penny wise and pound foolish.”
5. Peace of mind. Knowing your financial affairs will be handled correctly leads to a profound sense of “inner peace.”