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Using Trusts to Protect Assets

Spendthrift Trusts

Nevada law allows a "spendthrift trust" to be set up for the benefit of another person and allows for this money to be protected against present or future creditors of the person being given the money (see NRS Chapter 166). However, if creditors already have a claim to the money being transferred, this transfer may be attacked.

For example, if Dad wants to leave money to his adult son, but wants to keep that money safe from his son's present or future creditors, the Nevada legislature is okay with that because Dad doesn't usually have a duty to pay his adult son's creditors.

But, if Dad wants to protect his own money from people or businesses he owes legitimate debts to, the Nevada law allows a "spendthrift trust" to be set up for your own benefit but approaches it with great caution and there are additional limitations. These are:

  1. The trust is not intended to defraud, delay or hinder known creditors. (So, if you cause a terrible car accident and the victims have claims far in excess of your insurance coverage it is probably too late for you to set up a spendthrift trust for your own benefit as you would be intending to defeat the claims of the car wreck victims because they are potential creditors you know about.)
  2. You have to irrevocably give up control of the money or property put into the trust. We believe that this limitation will be looked at very critically by a court if you are later sued and we believe it is hard to predict precisely how much control has to be given up to make sure that a court will allow this trust to protect you in a future lawsuit.

Don't think for a minute that there is a trust you can set up to legally avoid paying what you owe the Internal Revenue Service (IRS), other government entities or fraud victims. The government and the courts can find ways to get you and/or your assets no matter what you do, and if you engage in illegal activities trying to hide assets, etc., you can find yourself in prison as well as broke.

For these reasons our law firm will set up a spendthrift trust for the benefit of someone other than the person giving property and money to the trust. However, we are not comfortable attempting to set up a spendthrift trust for the benefit of the person funding the trust. But, many reputable attorneys do set up trusts designed to protect your own money from future unknown creditors; these attorneys will advise you that while they can't predict for sure how these trust will hold up in court, they will likely be held up in court and may well provide significant protection.

Setting Up A Spendthrift Trust

If you want to set up a Spendthrift Trust to for the benefit of another person we are happy to help you in that process.

Selecting A Trustee

We believe the ideal trustee to hold and pass out the money out is a strong bank or trust company. This is because we expect the bank or trust company to outlive the beneficiary and because the bank or trust company can be sued if it doesn't fulfill its responsibilities. Unfortunately, such services are expensive and are impractical for smaller estates.

Trusted family members can serve as trustees and often will do so for little or no pay. The problem with family members is we don't know how long they will live or how long they will enjoy good physical and mental health. Plus, conflict between family members can occur in the future, especially when money/assets are involved. But if you want such a trust, it is ultimately up to you to decide who to select.

Please contact us to set up a Spendthrift trust.

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History Behind NRS Chapter 166

The History behind NRS Chapter 166 Spendthrift Trusts is that some of the very rich have traditionally used "offshore trusts" in small countries to stash their assets. These countries, seeking trust business, make it very hard for creditors to execute on trust assets in their countries. Unfortunately, such offshore trusts are very expensive. Nevada decided to try and get into this business for the benefit of its legal and financial communities. However, because Nevada is part of the U.S., assets in Nevada are simply not as isolated from the American legal system as assets in a foreign country.

An Evolving Area of Law

The Nevada laws regarding these types of trusts can be found in the Nevada Revised Statutes ("NRS") sections 166.010-166.170, et. seq. These statutes are collectively referred to as: "The Spendthrift Trust Act of Nevada". Interestingly, this is an evolving area of law as evidenced by the fact the Nevada Supreme Court came out with a decision on March 2, 2017 which held that an "irrevocable" spendthrift trust could have its spendthrift provisions be invalidated, and the "irrevocable" trust could be modified under the facts present in the case of In the Matter of Frei Irrevocable Trust Dated 10/29/1996, 133 Nev. Adv. Op 8, Case # 68029.