Asset Protection

Nevada Asset Protection Trust: Pros and Cons

October 7, 2023
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8 min read

Asset protection trusts are some of the most effective and valuable fiduciary instruments you can use as a high-net-worth individual. After all, a properly set up asset protection trust can effectively shield liquid capital, real estate, and plenty of other assets against all kinds of legal threats, ranging from lawsuits to creditor claims and more.

As you’ve looked into asset protection trust solutions, you might have come across Nevada asset protection trusts as distinct entities compared to other APTs throughout the US. Today, let’s break down what a Nevada asset protection trust is and explore the pros and cons of this fiduciary arrangement.

What is a Nevada Asset Protection Trust?

An asset protection trust or APT is a trust that protects the property or liquid assets of a grantor by removing ownership of the assets from the grantor themselves.

For example, when you put assets into an APT, ownership of the assets belongs to the trustee – normally a trusted third party who administrates the trust, handles distributions, and so on. Since you don't own the assets in the trust, a court can't – in theory – require you to hand those assets over to pay for court fees, damages, and so on.

A Nevada is an APT that, of course, is set up in Nevada. Let’s take a look at the distinct elements or attributes that this kind of asset protection trust includes.

  • Asset protection trust 

As noted above, a Nevada APT is a trust specifically set up for asset protection as opposed to other goals, like estate management or inheritance (though it can also be used for these purposes depending on how it is drafted)

  • Irrevocable 

A Nevada APT is “irrevocable,” meaning that it can’t be changed by the grantor outside of very specific circumstances, such as if you and all other beneficiaries agree that a change should be made and petition a local court for the adjustment. A trust being irrevocable adds another layer of protection to the instrument since a judge can’t tell you to modify the terms of the trust to take assets out

  • Spendthrift trust

A Nevada APT is also a kind of spendthrift trust. Spendthrift trusts include clauses that prevent creditors of the grantor from accessing trust funds. Instead, asset distributions are exclusively handled by independent trustees, so the trustee controls the withdrawal of funds, the sale of trust assets, etc.

With a Nevada APT, grantors and other beneficiaries can still transfer assets from the trust or receive distributions, though in a limited capacity.

How Does a Nevada Asset Protection Trust Work?

Since the Spendthrift Trust Act of 1999, Nevada has allowed individuals to establish self-settled spendthrift trusts. Under these trust instruments, grantors can also be beneficiaries, meaning they can receive distributions or other assets from the trust under specific circumstances or terms laid out in the trust documents. Other beneficiaries are commonly spouses, kids, grandkids, and more.

Like other domestic trusts, Nevada asset protection trusts include grantors, trustees, and beneficiaries. You transfer assets into the trust, thereby giving up ownership of the assets, so you can legally tell a court you can’t use those assets to pay court bills, creditor bills, and similar expenses.

Key Differences Between a Nevada Asset Protection Trust and Other Domestic APTs

However, Nevada asset protection trusts also have the following elements:

  • The distributions from the asset protection trust can only take place through an independent trustee, not the grantor. In other words, the grantor cannot be the trustee (which you shouldn’t do for asset protection purposes anyway)
  • The trustee for a Nevada asset protection trust should be a Nevada trust company
  • Nevada doesn’t tax trust income, which distinguishes this estate from others (federal income taxes still apply)
  • Nevada asset protection trusts start protecting your assets after two years, rather than three or four years, which is more common in other states
  • If a property passes to an asset protection trust in Nevada, creditors cannot claim it under any exceptions, even under claims from an ex-spouse. In comparison, many other states recognize ex-spouses as “exception creditors”
  • Since Nevada allows trusts to be directed, a trustee can appoint a fiduciary to handle various elements of trust management
  • Nevada also has flexible regulations regarding modifying or decanting an irrevocable asset protection trust

Furthermore, Nevada asset protection trusts recently evolved thanks to the 2009 piece of legislation. This law recognized trust protectors. However, it's never recommended to implement a trust protector for a durable asset protection trust, as doing so simply removes a layer of protection that would otherwise be present.

Big Benefits of a Nevada Asset Protection Trust

There are several significant advantages to setting up a Nevada asset protection trust.

As noted above, Nevada doesn't tax trust income, so any assets you place into the trust that generate income won't be subject to state income taxes. Federal taxes still apply, but this is still a big monetary benefit.

Furthermore, Nevada doesn’t have any estate or inheritance taxes. Therefore, Nevada asset protection trusts might be ideal choices for those who want to minimize tax liabilities for estate planning or inheritance distribution purposes.

If you’re a non-resident alien or NRA, you’re normally subject to a 40% estate tax on all US assets. By putting your assets in a Nevada trust, you can avoid some or all of these taxes, maximizing how much wealth gets passed on to your descendants.

Major Downside of a Nevada Asset Protection Trust

All that said, Nevada asset protection trusts also have a major downside that you should be aware of. The big flaw in a Nevada asset protection trust is the inherent lack of comprehensive defense.

For example, Nevada asset protection trusts can’t truly defend your assets against motivated creditors and lawsuit plaintiffs. Though these are somewhat durable legal instruments, they are subject to court rulings and US case precedents. 

If there’s sufficient precedent for breaking open your trust and plundering the assets within, don’t count on your Nevada APT to stay protective for very long.

To be fair, any domestic asset protection trust has this same flaw. If you really want to safeguard money, real estate, or other assets, your best bet is to set up your asset protection trust in an offshore or foreign jurisdiction.

Is a Nevada Asset Protection Trust Right for You?

That’s where Dominion can help. A Nevada asset protection trust is not right for you if:

  • You want to make sure your assets are safe against legal claims from all sources, like creditors, your ex-spouse, ex-business partners, or others
  • You want to maximize income earnings and minimize taxes for assets that you invest within the trust

Instead, you’ll be better off with an offshore asset protection trust.

Offshore asset protection trusts are set up in a jurisdiction other than your own. This can include any country with suitable trust set-up laws and legal frameworks. Offshore asset protection trusts have grantors, trustees, and beneficiaries.

But more importantly, they aren’t subject to US court jurisdiction or case precedents. Therefore, if a court comes knocking on your door demanding that you sell your assets to pay for court damages, you can legally say, “I can’t do that with the assets in my offshore asset protection trust.”

Remember, an asset protection trust removes your ownership of the assets entirely. If your assets are in an offshore trust, not only do you not own those trusts, but you don’t have any ability to modify the trust. Even better, the trust doesn’t necessarily have an obligation to obey the demand of the US court or creditor.

The trust is under different laws and legal frameworks since it’s set up in a different country! This is the true beauty and overall defensive value of an offshore APT. So long as the language of the trust is properly drafted, it’s effectively invincible, especially if you work with the experts at Dominion.

Let’s face it – the more money you earn, the more people want to take it. A Nevada asset protection trust won’t really be effective enough to keep your estate safe against creditors and lawsuit plaintiffs, especially as your business grows and your exposure to legal threats increases.

An offshore asset protection trust, on the other hand, can operate as the durable shield you’ve always wanted, plus provide benefits for estate planning and income generation.

Speak to Dominion’s Experts Today

Even with a Nevada APT’s special elements, it’s still not nearly as defensible and legally protective as an offshore asset protection trust, especially one drafted by Dominion. Our experts are the best in the business at this kind of protection, and we’re well-equipped and ready to help you achieve your asset protection goals, whatever those might be.

Need to safeguard your assets against legal threats? We can do it. Want to make sure you and your kids benefit from your wealth over the next few decades? We can do that, too, and much more. In short, there's nothing we can't accomplish for you with an offshore asset protection trust, so get in touch with us today.


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