More and more clients are seeking asset protection as jury awards and the number of frivolous lawsuits continues to increase, in order to preserve their hard-earned assets to pass on to future generations. Such asset protection is available in various forms, including limited liability companies, corporations, homesteads, qualified retirement plans, offshore trusts, and domestic asset protection trusts. As of the date of this article, 18 states have adopted some form of Domestic Asset Protection Trust (“DAPT”) statute¹. Such statutes are not solely for the benefit of the residents of those 18 DAPT states. California has not yet passed a DAPT statute, however, many residents of California can still enjoy many of the protections DAPT states afford as long as certain conditions are met. This article discusses and explores the requirements of implementing a successful asset protection plan in such a situation, in which a California resident (a non-DAPT jurisdiction) sets up a Nevada DAPT. This article will show that a Nevada DAPT, structured as outlined below for a California resident, should provide a real benefit to the settlor by either (1) being upheld in its entirety if challenged, or (2), if a dispute arises, lead to an attractive settlement.²
First, the California resident must be a good candidate for a Nevada DAPT. To be a ‘good candidate’ the California resident should not have any impending litigation or creditor issues, and have other reasons for setting up the trust, which may include tax reasons – using up a lifetime exemption, taking advantage of Nevada’s income tax laws, gifting assets to reduce an estate for estate tax purposes; or other reasons such as pre-marital planning, protecting beneficiaries (other than him or herself) against potential ex-spouses, their creditors, etc. It is important for the drafting attorney to perform due diligence on the client to ensure that they are a qualified applicant and are not engaging in this type of planning to hinder, delay, or defraud known creditors.
In our example, we will assume that the California resident’s DAPT is in compliance with the Nevada DAPT statute and possesses the circumstantial factors described in the complete article.
Click here to download the full article.
¹ See Steven J. Oshins, “8th Annual Domestic Asset Protection Trust State Rankings Chart” (April 2017) (States with some form of DAPT Statute: Alaska, Colorado, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming).
² Thomas E. Greene III, “Structuring Self-Settled Trusts for Non-Resident Settlors,” Trusts & Estates, 29-35 (November 2016).
Earlier this year, the Las Vegas Review-Journal reported that nursing home costs in Nevada are more than $4,000 a year above the national median. In Nevada, a private room in a nursing home carries a median rate of $82,125 per year.* Given the current economic situation in Nevada, expensive nursing home costs can be devastating for families. Families are forced to balance a desire to provide quality care for a loved one with the economic realities of high healthcare costs and a depressed economy.
Loved ones must be cautious as high healthcare costs can deplete savings in a short period of time. Fortunately, there is help. Families can find some relief through Medicaid where the family is unable to bear the costs to provide for a loved one. However, families should be aware that applying for state assistance can be complicated. Medicaid has specific rules and requirements that must be satisfied in order to receive aid.
Family members providing long-term healthcare assistance for other family members in these tough economic times must also remember to take care of themselves. Providing care for an ageing or disabled family member is not only financially draining, but can also be emotionally draining. Family members, especially spouses, must not attempt to do more than is physically possible. This can lead to financial ruin or physical exhaustion. It is often not possible to provide adequate care alone. Even though economic times are tough, it is important to seek help.
Jeffrey Burr Ltd. has a full service Elder Law division that is available to assist you in helping you with all your Medicaid and long-term health care assistance. We are happy to answer any questions you may have.
*Source: Paul Harasim, Nevada Ranks High In Nursing Home Costs, Survey Finds, Las Vegas Review-Journal, May 10, 2011.
Congratulations to Jeffrey Burr on being named to the 2017 Mountain States Super Lawyers. Jeffrey Burr has been helping families in the Las Vegas Valley for nearly 35 years.
Just a few weeks ago, the Nevada Supreme Court issued their ruling in a case involving a domestic asset protection trust (DAPT) or a self-settled spendthrift trust (SSST), which our office calls the Nevada On-Shore Trust. The court decision can be accessed here.
This case involved a dissolution of a marriage and whether a SSST can be invaded to satisfy a judgment for child support. In this case,Klabacka V. Nelson, the Nevada Supreme Court expressly upheld the validity of Nevada’s “self settled spendthrift trust” statute, found in Nevada Revised Statutes, Chapter 166. In the Court decision, the requirements for establishing a SSST were reinforced:
“A spendthrift trust is created ‘if by the terms of the writing (construed in the light of [NRS 166] if necessary) the creator manifests an intention to create such a trust.’ In addition to the spendthrift requirements, to create a valid SSST, NRS 166.015(2)(a) requires the settlor to name as trustee a person who is a Nevada resident. Further, NRS 166.040(1)(b) provides that the SSST must (1) be in writing, (2) be irrevocable, (3) not require that any part of the trust’s income or principal be distributed to the settlor, and (4) not be ‘intended to hinder, delay or defraud known creditors.’”
We also note that the Court’s decision specifically stated that Nevada’s SSST statute is not subject to any type of “exception creditors.” Many states which have joined Nevada in offering DAPTs, have built into their statutes exceptions for certain types of creditors, such as child support, alimony, tort creditors, or contract creditors. While these other states may have their own purposes and public policy in mandating certain exceptions to the protection of an SSST, the Nevada Supreme Court has made it very clear that the intent of the law in Nevada is that Nevada-based DAPTs are to be free from exception creditors. The Klabacka case states:
“We conclude Nevada SSSTs are protected against the court-ordered child support or spousal support obligations of the settlor/beneficiary that are not known at the time the trust is created.”
This court decision adds to the commentary and writings of many practitioners in this area of the law and reinforces the claim that Nevada is the best state for establishing DAPTs/SSSTs, or the Nevada On-Shore Trust. If you would like more information regarding the Nevada On-Shore Trust, please investigate our website or contact our office to schedule a consultation.
Clients that come into our office looking for asset protection in the form of a domestic asset protection trust (“DAPT”) often ask us what additional protections an offshore trust could offer them. Some of those additional protections include a shorter statute of limitations for creditors to attack assets after the assets have been transferred into the trust, a higher standard of proof that creditors must meet to undo a transfer into an offshore trust, and the fact that the creditor must go to the foreign jurisdiction to pursue their claims. After reviewing these benefits, many clients are anxious to set up an offshore trust, but that excitement wanes considerably when the fees for setting up an offshore trust are discussed, as well as the formalities and complexities that must be adhered to in order to obtain those extra protections.
To obtain those protections for our clients, but reduce the upfront costs in setting up an offshore trust and avoid some of the more stringent formalities of an offshore trust, our firm has created the Passport Trust ™. The Passport Trust ™ is an asset protection vehicle that combines the flexibility and simplicity of a domestic asset protection trust (DAPT) with the advantages of an offshore jurisdiction’s additional protections against creditors, if the need arises.
A Passport Trust ™ includes “passport” provisions in the trust agreement that enable a DAPT to be redomiciled in a foreign non-US jurisdiction such as Nevis or the Cook Islands if there is ever a distress event. Typically there will be no new waiting period for creditor claims in the new jurisdiction – the original transfer date of assets into the DAPT will be used as the transfer date for purposes of the foreign jurisdiction’s rules regarding creditor claims.
Passport Trusts ™ lower the entry cost to obtain the additional protection an offshore jurisdiction can provide by allowing you to begin with a NOST and ‘start the clock’ on the waiting period for protection from creditor claims and later convert to an offshore trust, if necessary, for the best of both worlds.
The Passport Trust™ begins as a DAPT with all the protections that Nevada’s self-settled spendthrift law provides, but includes a special passport provision that enables the Trustee to move the trust’s domicile to a foreign jurisdiction. In conjunction with this passport provision, application will be made to a foreign trust company upon the creation of the DAPT to pre-approve the DAPT for re-domiciliation. The foreign trust company shares in the due diligence regarding the creation of the trust. As a result of their early involvement, the foreign trust company agrees to serve as a special trustee, dormant and waiting with ‘open arms’ to receive the trust assets if a distress event occurs.
To find out more about the “Passport Trust” and how it might be a part of your integrated estate plan, please contact our office.
Nevada law provides for two ways of creating a valid and binding Last Will and Testament. The first method is by drafting a will, in writing, that is signed by the testator or by an attending person at the testator’s direction, which is attested to by at least two competent witnesses who subscribe their names to the will in the presence of the testator. The second method is often referred to as a “holographic will,” wherein the signature, date and material provisions of a will are written by the hand of the testator. For a holographic will, there is no requirement that it be witnessed or notarized.
When a document meant to be a Will does not comply with the requirements for either a witnessed or holographic Will, a court may not enforce the directions provided about who beneficiaries are and what they should receive. Instead, a court may substitute Nevada’s default rules governing disposition of a person’s estate, which may be completely different from a testator’s wishes.
To ensure that your estate is distributed according to your wishes, it is important to seek professional legal assistance in drafting a Last Will and Testament or other testamentary documents. Be wary of download-able forms, templates, or non-legal professionals who attempt to provide low-cost alternatives for drafting Wills or Trusts, as these ‘low cost’ alternatives tend to be the much more expensive option in the long run, as families and loved ones have to pay extra attorney's fees and court costs if these documents are not drafted properly.
To review a Will you have already created, or discuss the requirements of what constitutes a valid Last Will and Testament under the laws of Nevada, contact an attorney at JEFFREY BURR today.
Most wills and trusts, in my experience, contain no-contest clauses, which say something like: if a beneficiary contests the terms of my will or trust they get nothing. Most clients like this language. They think it protects them from a beneficiary who comes swinging out of the corner so-to-speak and tries to claim more than what was left to him or her. The problem is that sometimes the no-contest clause protects a will or trust, but sometimes it doesn’t.
Nevada law states that no-contest clauses will be enforced with certain exceptions. It will not be enforced if a beneficiary seeks (1) to enforce the terms of the will or trust, (2) to enforce his or her legal rights under the will or trust, or (3) to have a court construe or determine the legal effect of the will or trust. Also, a no-contest clause will not be enforced in certain circumstances if legal action is brought in good faith and based on probable cause. These exceptions combined with the overarching principle that law abhors forfeitures can at times render a no-contest clause seemingly meaningless. So if you suspect you will have problems with your beneficiaries, please consider consulting with an attorney at Jeffrey Burr, Ltd. about planning around your particular circumstance.
Most individuals who establish a revocable trust during their lifetime also name themselves as the initial trustee of their trust. In such a case, the trustee has complete discretion as to the investment and management of the trust assets. For example, such a trustee can be very aggressive in his or her investment philosophy and invest in high risk, very speculative assets. Also, the trustee can have an unbalanced trust investment portfolio such as investments consisting of only one stock or in one sector. However, once the person who established the trust is no longer the acting trustee, the third party, successor trustee does not have such discretion. Most states, including Nevada, have adopted the Uniform Prudent Investor Act. Under this act, a third-party trustee must invest and manage the trust property as a prudent investor would, considering the terms, purposes, requirements for distribution, and other circumstances of the trust. In satisfying this prudent investor standard, the trustee shall exercise reasonable care, skill and caution.Also, a trustee who has special skills or expertise such as a stockbroker or hedge fund manager has a duty to utilize those special skills and expertise. Within a reasonable time after accepting a trusteeship or receiving trust property, the trustee is required to review the trust property and make and carry out decisions concerning the retention and disposition of assets in order to bring the trust portfolio into compliance with the purposes, terms, requirements for distribution and other circumstances of the trust and the Uniform Prudent Investor Act. Some of the circumstances the trustee shall consider in investing and managing trust property are:
A trustee is required to diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying. Also, a trustee is required to administer a trust in accordance with the terms of the trust even if such terms are in conflict with the Uniform Prudent Investor Act. For example, a person may wish their trust assets to remain as stock in a publicly traded corporation that the individual or a family member founded or worked for. In such a situation, it is important that the trust terms are properly drawn to allow the trustee such discretion.
I received a mailer last week from a law office claiming that with a simple free workshop they could
FIX MY TRUST. They pointed out a few reasons that my trust might not reflect my needs:
As much as I appreciate this other law office’s concern – they haven’t read my trust, so how do they know it’s broken? I realize that I’m just being defensive since I’m in the same line of business. In truth, the above items of concern are the same things that we talk about with clients when they establish or revise their documents. I thought it would be good to respond to each of these items so that our thousands of loyal readers have confidence that the trusts that we draft do not leave our office with intended deficiencies.
If any of these listed items are of concern to you, please contact your attorney at Jeffrey Burr, Ltd. to schedule a meeting to discuss these issues as they relate to your existing and personalized plan.
Congratulations Alicia on your 20 year anniversary with Jeffrey Burr. You are the foundation of our Trust Administration department and are so lucky to have you! Here's to many more years.
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