A Nevada Business Holdings Trust is a Nevada Asset Protection Trust that is designed by RDJ LAW to hold the interest in your business, to shield and protect your income flow from the business.

All too often, business owners do not think about protecting the income from their business in the event that they get sued at some point. But what happens when a business owner gets sued outside of the business front and ends up with a judgment against him/her personally? The classic example is a car accident. Imagine that you are driving one day and you get into an accident. The other party is seriously injured, sues and ends up getting a judgment against you in an amount that far exceeds your car insurance policy limits. In such a case, your auto insurance carrier will payout the policy limit (probably $25,000) to the injured party and then the insurance company is out of the picture. Now the plaintiff with a judgment can go after you personally to recover the balance of their judgment (which could very well be a multi-million dollar judgment) from your personal assets. From the time that the court enters the judgment against you, the judgment creditor may then begin to take action to collect its judgment against you by force of law. They can garnish personal bank accounts and your wages, they can seize any personal assets that you own that are not specifically exempt under the law and they can foreclose against any real estate properties that are not covered by the homestead exemption.

RECOVERING AGAINST YOUR BUSINESS INTERESTS

With regard to any businesses that you own an interest in, there is potential risk to both the business ownership interest itself and to the income flow from that business. The different types of business entities and a full discussion of what protection there may be is a lengthy discussion for another time. But briefly, for our purposes here, an LLC membership interest is generally protected from outright seizure of the membership interest by a judgment creditor through what is commonly called “charging order protection”). But an LLC membership interest in some states may have various levels of limited protection or, effectively, none at all (for example, the Hawaii LLC statue specifically allows a judgment creditor to foreclose the “lien” that a charging order against an LLC member’s membership interest creates – which means the LLC member really has no protection in Hawaii). The Nevada LLC law specifically limits a judgment creditor’s remedy against a Nevada LLC member’s membership interest to the charging order (a charging order is an order from the court in favor of the judgment creditor to the company to deliver any profit distribution or payment that is being made by the company to the judgment debtor to the judgment creditor, instead. But, under the Nevada LLC law, the charging order only enables the judgment creditor to sit an wait and hope for a profit distribution from the LLC to the member whose membership interest they have charged (effectively they have a lien against the membership interest). Under the Nevada law, they cannot force a distribution of profit and they explicitly are not allowed to try to wiggle any other remedy out of the charging order or otherwise against the LLC membership interest. That’s the good news. The bad news is that, as long as there is a judgment and a charging order against your NV LLC membership interest, you are tied up and unable to get the money out of the LLC where you need it to pay your bills and to live on. (CLICK HERE FOR VIDEO ON THIS TOPIC)

A Nevada Corporation has the same “charging order” exclusive remedy protection as an LLC or partnership does, if the corporation is not publicly traded, is not a professional corporation and has 100 or fewer shareholders (NRS 78.746). However, this protection of your stock in a corporation only applies to a Nevada corporation. If you own stock in a corporation domesticated another state, you likely don’t have any charging order or other protection at all for your stock ownership interests. This means that the judgment creditor may seize your stock in the company and they will then own the stock in your company – a very bad outcome for you and your business.

SETTING UP A NEVADA BUSINESS HOLDINGS TRUST TO OWN YOUR INTEREST IN THE BUSINESS

If you had set up a Nevada Business Holdings Trust through RDJ LAW prior to that car accident happening, your interest in the business and your income flow from it would be safe and you would have the full benefit of the profits from your business. When a Nevada Business Holdings Trust owns the interest in the company, whether it is an LLC, a partnership or a corporation, the profits from that company may be distributed into the Trust that owns your interest in the company. If the judgment creditor cannot prove by clear and convincing evidence that there was a transfer of money or assets “from you” to the Nevada Business Holdings Trust that was fraudulent as to the judgment creditor specifically, they cannot reach into the trust to recover anything to satisfy their judgment against you personally.

Profits from the business can be held in the Trust for as long as you want. If you have a judgment against you personally, the Trustees may pay your bills for you directly from the Trust being sent directly to where it needs to be paid. So, you truly have full benefit of the income from the Trust and can continue to have all of your financial needs met from the profits of your company, even though there may be a personal judgment against you and the judgment creditor cannot seize either the money in the Trust or the ownership interest in the business.

ADDITIONAL BENEFITS OF THE NEVADA BUSINESS HOLDINGS TRUST

In addition to protecting your ownership interest in the business and protecting your income flow from the business, the Nevada Business Holdings Trust will also provide for avoidance of a probate of the business interest following your death, as the business ownership interest will pass to the beneficiaries that you’ve specified in the Trust following your death, without any court involvement.

The Nevada Business Holdings Trust can also provide some anonymity of your interest in the business as well, which can also be a plus.

The Nevada Business Holdings Trust is generally established as a “grantor trust” for federal taxation purposes which means that it is a “flow-through” tax entity and will not complicate your tax filings and situation.

If you have multiple businesses, the Nevada Business Holdings Trust can hold your ownership interests in all of the businesses or they can each be “compartmentalized” for maximum exposure minimization by establishing a separate Nevada Business Holdings Trust for each business.

Don’t get caught with your pants down and your business interests exposed. Contact RDJ LAW today to schedule a free consultation and evaluation of your protection and planning needs.

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What happens to your pets after you have passed on? That is an important question – and one that people often worry and wonder about. Fortunately, the Nevada legislature has specifically enabled pet owners to provide for their pets after their passing. Specifically, NRS 163.0075 enables the creation of a Pet Trust, in order for pet owners to create the Trust and spell out how you desire the pets to be taken care of and who will be designated to be their caretaker. Since this is statutory law in Nevada, there will be no question of the validity of a properly established Pet Trust. When creating a Pet Trust, there are some issues that you should carefully consider. First of all, you should carefully consider who the Trustee/Caretaker of the Pets will be. Of course, it is best if you designate someone that will love and take care of your Pets the way that you would want them to be taken care of. You may also want to designate one or more alternative Trustees/Caretakers, in the event that the person that you have designated dies or becomes unable or unwilling to take care of the Pets. You should also carefully consider how much money that you should “fund” the Pet Trust with, to ensure that your Pet Trust will have sufficient funds to provide for the Pets’ food, shelter and veterinarian care needs.You should consider what happens to the funds remaining in the Pet Trust, if you Pet(s) pass away before the Trust funds are depleted. You may want to have the remainder distributed to family members, friends or to a charity (perhaps, your favorite animal charity).
If you would like to schedule a free consultation to discuss establishing a Pet Trust, click the following link to contact us: https://www.rdjohnsonlaw.com/contact/

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What is a Nevada Real Estate Trust?

A Nevada Real Estate Trust is a Trust that is designed by R.D. Johnson Law Offices for the purpose of holding title to real estate investment properties.

It accomplishes three essential things for the individual Real Estate Investor:

1) It is designed to protect the real estate property from your own future personal judgment creditors, in the event that you personally get sued in the future (from a claim unrelated to the property, such as a car accident or some other unforeseen event) and end up with a money judgment awarded against you (first and foremost, you should plan to protect your investments
from this kind of risk);

2) Because, under Nevada law, the Trust is legally its own “person” (just as a corporation or LLC is) that is legally separate and apart from you individually, the Trust will shield you
personally from liability that may arise from the property (such as a slip and fall incident or other tenant or guest claim against the property owner/landlord) and any claimant would have to look to the Trust alone for any recovery;

3) Because the Trust serves as what is essentially a “Will replacement” as to the property that the Trust owns, it will avoid probate of the real estate property and the property will pass to the beneficiaries that you designate in the Trust document – without having to go through the long and expensive probate process (as with a revocable living trust, you will specify in the Trust document who you want to receive the property or proceeds upon your death and the successor trustee will be bound to carry out your wishes and make the distributions as you’ve specified in the Trust). The Nevada Real Estate Trust won’t interfere with your other estate planning measures that you may have for your personal assets.
Unlike an LLC or corporation, the Nevada Real Estate Trust is not registered with the secretary of state’s office and it has no government registration requirements. As such, you will not have to pay any initial or annual filing fees to the secretary of state or to a resident agent, as you would with an LLC, Corporation or Limited Partnership. This fact alone can save you thousands of dollars over time.

The Nevada Real Estate Trust is ordinarily established as a “grantor trust”, which means that it is a “flow-through” entity for federal taxation purposes. Much like a single member LLC, any income or loss from the real estate investment will ultimately be reported on your individual tax return. So, there is no negative tax impact to you for having the real estate property in the Trust.*

Although there is no limit on the number of real estate investment properties that you put into the Nevada Real Estate Trust, as with any business entity that you establish to hold your real estate investment properties, it is wisest to separate your real estate properties into separate entities (traditionally, separate LLCs have been used for that purpose), so that multiple properties are not exposed to and subjected to liability and risk of loss, if an injury or other event on one property causes a lawsuit. As with LLCs, you can establish a separate Nevada Real Estate Trust to hold each real estate investment property, to minimize your exposure. There is no legal limit on the number of Trusts that you have.
In sum, the Nevada Real Estate Trust works much like a traditional real estate holdings LLC, but the Nevada Real Estate Trust has benefits and protections to go beyond that of an ordinary LLC. Contact R.D. Johnson Law Offices today for a free consultation and evaluation to determine if a Nevada Real Estate Trust is right for you. (create link to:
https://www.rdjohnsonlaw.com/contact-us/ )

*You should always consult with and use a qualified tax professional to properly advise you on taxation issues and for filing your personal and business tax returns. R.D. Johnson Law Offices, LLC does not engage in tax planning, it does not give tax advice nor does it file any tax returns.

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Klabacka v. Nelson, 133 Nev., Advance Opinion 24 (Nev. May 25, 2017)

Since 1999, Nevada Statutory law (Chapter 166 of the Nevada Revised Statutes – “the Nevada Spendthrift Trust Act”) has enabled a person to establish their own spendthrift trust (also commonly known as a Nevada Asset Protection Trust, Nevada Domestic Asset Protection Trust, Nevada Wealth Protection Trust and a few other nicknames) that is designed to protect the assets of the Trust from future judgment creditors and other claimants.

The Nevada Spendthrift Trust law was designed by the Nevada legislature to carefully balance the necessary provisions for true protection of the assets in the Trust from an outside attack with the legislature’s clear intent of enabling the person creating the trust (traditionally referred to as: “the Settlor”, “the Grantor” or “the Trustor”) to have control of both the trust and the assets in the Trust. While the Nevada Spendthrift Trust statute is binding law in Nevada that governs the establishment and validity of the Nevada Self-Settled Spendthrift Trust (hereinafter referred to as “Nevada Asset Protection Trust”), until recently there was no binding case law precedent in Nevada that dealt with a challenge to a Nevada Asset Protection Trust or the Nevada Spendthrift Trust Act. That void was filled in May of 2017, when the Nevada appellate court issued an opinion in the case of Klabacka v. Nelson.

“until recently there was no binding case law precedent in Nevada that dealt with a challenge to a Nevada Asset Protection Trust or the Nevada Spendthrift Trust Act.”

While the Klabacka case addresses a number of issues, the important issue of the case for those other than the parties to that specific case was whether the Nevada Asset Protection Trust that was established by the husband in the case was protected from the husband’s personal obligation to pay child support and alimony. On those issues, the Court held that the District Court had erred in awarding child support and alimony obligations against the husband’s Nevada Asset Protection Trust, in addition to him personally. While that is the main thrust of the case, there were several other very important issues that the Court addressed and made statements of opinion on. A few of those items are as follows:

“Breaching trust formalities of an otherwise validly created SSST does not invalidate a spendthrift trust; rather, it creates liability upon the trustee(s) for that breach. Indeed, if, after an SSST is validly formed, the trust formalities are breached by a trustee, the proper remedy is a civil suit against the trustee – not an invalidation of the trust itself” (referencing NRS 163.115). (“SSST” is short for Self-Settled Spendthrift Trust).

The court also, interestingly, held that it was error for the district court to allow parol evidence (evidence this from outside of the trust document itself) to determine the Settlors’ intent with regard to the respective trusts (this will serve as a legal basis to establish that parol evidence should be excluded if it is attempted to be introduced to demonstrate that the Settlor intended to “hinder, delay or defraud” a creditor).

Also, of significant note, the Klabacka case was a situation where the settlors were their own trustees and their Trusts each had a third party “distribution trustee” – which gives added credence to that set up which the statute has always specifically provided for (for years some attorneys and others have continued to assert that the Trust must have an independent trustee that is someone other than a settlor – I believe that the Nevada appellate court has now effectively put that question to rest).

All in all, the Klabacka case will serve as very good and solid legal precedent for the Nevada Asset Protection Trust.

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