State laws allow you to protect your family’s wealth. The question is, which states are the best for asset protection trusts?
The answer is the following five states:
- South Dakota
Of these five states, Nevada has enacted the most favorable asset protection laws.
What is an Asset Protection Trust?
An asset protection trust (APT) represents a trust that protects your assets from creditors, lawsuits, or any legal claims made against your estate. Creating an APT can also prevent costly litigation and influence the outcome of a settlement in your favor.
As a self-settled trust, an APT give the grantor the right to be named as a beneficiary. In addition to shielding your assets from creditors and lawsuits, an APT gives you state income tax savings, provided you live in a state that does not collect income taxes.
Which State Has the Most Favorable Asset Protection Trust Laws?
Nevada has frequently made the list of the best states for asset protection trusts. As one of the first states to enact legislation that permits the establishment of self-settle spendthrift trusts, Nevada continues to pass groundbreaking laws that strengthen the legal power of an APT.
Revoking the Rule Against Perpetuities
One of the advantages of creating an APT is to pass on assets to future generations of your family. However, up until 2005, Nevada did not allow an APT to include a perpetuity clause. In 2005, the Nevada legislature revoked the rule against perpetuities. This means you can protect your assets from creditors for generations to come.
An APT that includes a provision for unborn beneficiaries does not need an attorney or a guardian to ensure the rights of the unborn are protected. Nevada law permits living beneficiaries to represent the financial interests of the unborn, as long as the interests are similar and there is no conflict of interest.
Self-Settled Spendthrift Trust
Nevada was one of the first states to pass a law that permits the creation of a self-settled spendthrift trust. Enacted more than ten years ago, NRS 166 allows you to protect assets from creditors and lawsuits while giving you the right to receive the financial benefits generated by the protected trust. You transfer the assets into a trust that names at least one beneficiary who lives in Nevada.
One of the primary reasons Nevada sits atop the list of the best states for asset protection trust is the state’s generous tax laws. The assets you protect in a Nevada APT do not get taxed by the state. This means you do not have to pay a state income, estate, or inheritance tax. No other state offers such generous tax benefits.
As a legal action that allows a trustee to move assets between trusts, decanting is a benefit of an APT that only eight states allow. Nevada’s legal requirements for decanting include preventing the naming of beneficiaries who are not beneficiaries of the original trust. The rights and property interests of the beneficiaries of the original trust must remain the same for the trust that receives assets.
Legal Impact of Nevada’s APT Laws
Nevada trust statutes are starting to catch on at the national level. Many of the most prominent estate planners in the United States recognize Nevada as one of the best states to set up an APT. The individuals that create and administer APTs in Nevada enjoy the most asset protection and flexibility.
To learn more about setting up an asset protection trust in the right state, schedule a free consultation with the Cloud Peak Law Group.