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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Due to changes made to Chapter 115 of the Nevada Revised Statutes (NRS) by the Nevada Legislature in 2019, the Homestead Exemption amount that a Nevada homeowner can claim has been increased from $550,000 to $605,000 in equity value. This is an increase of $55,000 in the equity value of the primary residence that will be exempt in Nevada from the claims of a judgment creditor, as long as the Homestead Declaration has been properly recorded to claim the entitled exemption.

The increase in the exemption amount is the good news. The bad news for homeowners is that NRS 115.055 has been added to the Homestead statute. NRS 115.055 limits the protection of the Homestead exempt proceeds from the sale of the home. Specifically, NRS 115.055 states that the $605,000 exempt amount from the proceeds of a sale of the home are only protected if the proceeds are reinvested in another property of like kind for which a Homestead will be made and (1) the new property to be purchased is identified not later than 45 days after the sale of the Homestead property; and (2) you take possession of the new Homestead property not later than 180 days from the sale of the original Homestead.

What this (NRS 115.055) effectively means, is that, if you sell Homestead property in Nevada while there is an outstanding judgment creditor, the proceeds from the sale of your homesteaded home will only be protected for a maximum of 180 days from the date of sale – and only if the proceeds are reinvested in new Homestead qualified property on which a Homestead Declaration is recorded.

In sum, the Homestead law update is bittersweet news for Nevadans. This change underscores the importance of putting your Nevada home into a Nevada Asset Protection Trust, in order to protect the proceeds from the sale of your home beyond the limited time and manner restrictions that are now imposed by the new addition to the Nevada Homestead law.

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A Living Trust (a/k/a: Family Living Trust, Family Revocable Living Trust, Revocable Living Trust, Revocable Trust), is primarily designed to accomplish two things:

(1)        To prevent your family and your estate from having to go through the Probate Court process in order to have your assets distributed to your family (or according to your desires) following your death; and

(2)        To address the distribution of property issues following your death (i.e., spelling out “who gets what” when you die). 

How Does the Living Trust Avoid Probate?

The Living Trust prevents your estate from having to go through the probate process primarily because the Living Trust is created during your lifetime and it becomes the owner of all of your property, both real and personal.  Even though the Living Trust will own all of your property, you still control everything until the day you die or become incapacitated.  Because the Living Trust owns everything when you die, you own nothing. 

Your personal estate consists of your property that you own.  If the Living Trust owns all of your assets when you die, you own nothing and therefore have no personal estate that needs to go through the probate process. 

What is Probate?  Put simply, the Probate Process is really just the legal process of accounting for and distributing the property of the deceased person to the deceased person’s heirs.  Without the probate process, the heirs cannot receive proper legal title to any of the assets of the deceased person.  The probate proceeding is a statutory process that is designed to enable all interested parties to come and make their claims against the estate (creditors and potential heirs).  The probate process also enables validation of the Will (where there is a Will).  The legal process then determines what the valid claims against the estate are (debts & liabilities) and, ultimately, how the net proceeds of the estate shall be distributed.  [Where there is a Last Will and Testament, the provisions of the Will spell out who gets what – where there is no Will, the deceased person is said to have died “Intestate” and the Intestate laws of the state where the person dies spells out who gets what according to the law and no one has any say in the matter (your wishes and desires are irrelevant in the case of an Intestate estate)]. 

The Living Trust that is properly “funded” (meaning that it owns all of your property) will avoid the probate process all together.  This is because the Living Trust owns all of the assets and there is no estate (property) that needs to probated. 

How Does the Living Trust Work?

When you create the Living Trust (which is traditionally called “settling” the trust), you do several things in the Trust document:

            (1)        You designate the Trustee (usually you – or in the case of a married couple, usually both the husband and the wife are the Trustees);

            (2)        You designate one or more “successor trustees”.   The Successor Trustee is the person that steps into the role of Trustee upon your death, your incapacitation or your resignation.  

            (3)        You designate the lifetime beneficiary(ies).  If you are single, you are usually the sole beneficiary of your Trust during your lifetime.  If you are married and you create a joint trust with your spouse, both the husband and the wife are usually the designated lifetime beneficiaries. 

            (4)        You specify the Plan of Distribution of the assets or proceeds of the Trust following your death (i.e., you specify “who gets what”).  This is called designating the death “beneficiaries”.  In this respect, the Living Trust serves as what is often referred to as a “Will substitute”. 

During your lifetime, you (or you and your spouse) ordinarily are the Trustee and you have custody and control of all of the assets of the Trust.  You are also the beneficiary of the Trust, so everything in the Trust is for your benefit during your lifetime.  With a Living Trust, you have unfettered control over what you do with the assets and proceeds of the Trust for so long as you are the Trustee. 

Upon your death, the designated Successor Trustee becomes the acting Trustee of the Trust.  The Successor Trustee is bound by the terms of the Trust and the Trust has spelled out how the Trust will be administered and ultimately distributed.  It is ordinarily specified that, upon your death, the Successor Trustee is to liquidate the Trust and distribute the assets, or the net proceeds, of the Trust to the individuals that you have designated (for example: “distribute all to my children in equal shares”).  The Successor Trustee carries out the distributions as specified and then closes out the Trust after the final distribution is made to your beneficiaries.  THIS WHOLE PROCESS OCCURS WITHOUT THE NEED OF ANY COURT INVOLVEMENT – which can save your estate a significant amount of money (and time and hassle for your family), because attorneys fees, court costs, appraisers fees, etc. are all either avoided or minimized. 

It is as simple as that!  

In contrast, a Will is really a ticket to probate court.  This is because the Will is not an entity like the Trust. The Will is merely an instrument that spells out your desires as to who gets what when you die and who will be the executor of your probate estate.  The Will really only comes to life following your death.  The Will must be submitted to the probate court and go through the entire probate process in order for its terms to be carried out.  This can cost your estate a significant amount of money (and time and hassle for your family – sometimes several years) and the bottom line is that your family gets less of your estate and it takes them much longer to get it than they ordinarily would with a Living Trust. 

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