One issue that we all should be concerned with is that of planning to protect our assets and the wealth that we all work so hard to accumulate throughout our working years. When planning for protection, it is fundamental to understand that there are two basic directions from which potential liability and risk can come. From the “front end” (an operating business) and from the “back end” (from your own potential creditors)
3 STEPS FOR ASSET PROTECTION PLANNING
There are three basic steps that should be involved when devising any asset protection plan.
Step 1: Identification of Risks:
In devising any asset protection plan, your specific situation should be evaluated to identify the potential risks from both the front end (from any operating businesses) and the back end (from personal creditors).
Step 2: Identify Available Strategies to Minimize the Risks:
Once your front end and back end areas of exposure have been identified, the potential risks should then be evaluated in light of the available protection strategies, with an eye towards minimization of risk of loss.
Step 3: Cost vs. Benefit Analysis/Choosing the Strategy:
Once your risks and areas of exposure have been identified and the potential protection strategies have been carefully explored, a cost vs. benefit analysis should then be conducted, before finally deciding what asset protection strategies to employ.
While there are many asset protection strategies available, some of the most simple and effective strategies are as follows:
The Nevada Limited Liability Company (LLC)
In terms of “front end” protection, a Nevada LLC offers excellent protection. Nevada offers the most favorable business laws of any state in the union.
- Nevada has fewer “formality” requirements:
- No organizational or annual meetings required/No minutes required
- Operating Agreement not required (though recommended in every case)
- Maximum ability to maintain anonymity
- Maximum flexibility afforded to the LLC
- Nevada has no state tax on corporate profits, no state annual franchise tax, or no state personal income tax
- No information sharing w/IRS
- Nevada’s laws favor business, in general
Some of the Advantages of an LLC as compared to a Corporation:
While the statutory scheme varies from state to state, Nevada’s LLC statute provides some distinct advantages over a corporation in some respects. Also, depending on the specific statutory laws of the state in question, Nevada’s LLC statute often provides for some real advantages as compared to the statutory LLC laws of other states.
Some of the specific advantages of a Nevada LLC as compared to a corporation are as follows:
- Nevada LLCs are not required to hold organizational or annual meetings/No Minutes or resolutions required
- An Operating Agreement is not required (though we recommend one in every case)
- LLC Ownership Certificates are not required
- There is maximum flexibility of internal governance without “Statutory” imposition
- A Nevada LLC provides some “Back End” Protection from the owners/member’s personal creditors:
- Membership Interests of LLC owners are not directly “attachable” by Judgment Creditors (Stock in a Corporation may be attached by Judgment Creditors. The LLC membership interest of an individual is not attachable through legal execution…..the only remedy for a member’s judgment creditors is to obtain a court “Charging Order” allowing the creditor to “charge” (or, in essence, to lien) the member’s right to receive a distribution of profits when, and if, a distribution of profits is made to the members/owners of the LLC)
The following visual diagrams illustrate how the LLC can serve to protect you from the Front End and Back End risks.
Nevada Asset Protection Trust – Personal Asset Protection Tool
In terms of “back end” protection, the Nevada Spendthrift Trust (“Nevada Asset Protection Trust”) offers unparalleled protection. Following are some basic facts about the Nevada Asset Protection Trust:
- The Nevada Spendthrift Trust Act (NRS 166.010 et seq.) allows any individual to create a valid trust whereby he or she is a Trustee (i.e. in control of the assets), he or she is also the Beneficiary (i.e. entitled to receive the benefit of trust assets) of the Trust and the assets are still protected from creditors while held in trust.
- Under the Nevada Spendthrift Trust Act, you need not be a Nevada resident to take advantage of a Nevada Asset Protection Trust. The Nevada Spendthrift Trust Act requires either that, if the declared domicile of trustor/creator of the Trust is not Nevada, the at least one of the Trustees of the Trust must have powers that include maintaining records and preparing any income tax returns for the Trust and that that Trustee be either a Nevada resident, a trust company legally operating in Nevada, or a bank that legally operates in Nevada, and that all or part of the administration of the Trust be performed in Nevada.
- Any type of asset (real property, personal property, cash, stocks, bonds, jewelry, family heirlooms, etc.) in any location can be protected by the Nevada Spendthrift Trust
- The Nevada Spendthrift Trust Act provides for near absolute protection from creditors in the following manner:
- The Trust, by law, prohibits the assignment, alienation, acceleration and anticipation of any interest of the beneficiary under the trust by the voluntary or involuntary act of the beneficiary, or by operation of law or any process.
- Payments and distributions by the Distribution Trustee are made only to the beneficiary (who can also be the person establishing the trust).
- The Trustee of a spendthrift trust is required to disregard and defeat every assignment or other act, voluntary or involuntary, that is attempted contrary to the provisions of the Nevada Spendthrift Act.
Benefits of the Nevada Spendthrift Trust
Some of the benefits of the Nevada Asset Protection Trust are as follows:
- Through being able to be a Trustee of the Trust, you keep control of your assets
- You may receive the full benefit and use your own assets (you do not need not divest yourself of the assets)
- You can protect an unlimited number or amount of assets from creditors
- You can protect any type of asset from creditors
- The Nevada Asset Protection Trust can be created and used by individuals who are not Nevada residents
- Your assets are kept within the United States and are not subject to overseas risks and
- tax and reporting problems
- The Nevada Asset Protection Trust is less expensive and complicated than foreign/offshore asset
- protection trusts which are often prone to IRS audits and investigations
- A Nevada Asset Protection Trust is less expensive and more protective than malpractice or other insurance
- Allows you to have peace of mind of being protected from potential loss of your assets through litigation
- The Nevada Asset Protection Trust may avoid loss of the assets of through a Bankruptcy
- You can protect assets for your family’s future
- You can keep assets “in the family”
- The Nevada Asset Protection Trust can be integrated with your estate plan
Caveats (Disadvantages of the Nevada Spendthrift Trust)
There are a few caveats to the Nevada Asset Protection Trust. Some of those are as follows:
- If the person establishing the Trust will also be a beneficiary of the Trust, a Co-Trustee or Distribution Trustee must also be appointed, such that the “Trustor” does not have sole discretion over distribution of assets to the beneficiaries
- 2 year Window of Exposure (limited to fraud claims under Nevada Law): As with any transfers, the protection of the Trust is subject to Fraudulent Transfer restraints. Under the Nevada Spendthrift Trust law, a challenging judgment creditor cannot access assets in the trust, unless it can successfully prove in court that the transfer of the assets to the trust was a fraudulent transfer. The current Nevada Spendthrift Trust law provides for a 2 year statute of limitations to bring a fraudulent transfer challenge (for an existing creditor at the time of the transfer it is 2 years from the date of the transfer or the time that the creditor knew or reasonably should have known of the transfer). [Note that the Nevada Spendthrift Trust law has narrowed the ability to pierce the Trust after formation to the basis of Fraud only – this is the most protection afforded by any U.S. jurisdiction that has an asset protection trust law (currently only 6 other states have a similar asset protection trust law)]. After that point, the window of opportunity for the creditor to bring an action to recover property from the Asset Protection Trust is closed —- [Note: Through proper planning, the Trust assets may be protected, even during the 2 year “exposure” period]CLICK HERE for more information about the Nevada Spendthrift Trust (Nevada Asset Protection Trust)