Okay Millennials, we are going to finalize this 3-part info session with Asset Protection!! When thinking of asset protection, even if you have no current assets, it is much more beneficial to have in the initial stages of planning rather than trying to group your assets together and place them later. Nevada is one of the most ideal states for asset protection because the laws governing asset protection are much more relaxed, enabling your assets to be protected easier and faster.
So, here is the main reason why asset protection is so important -- lawsuits. According to Association of Trial Lawyers of America, the annual cost to the US economy for civil lawsuits is estimated at $239,000,000,000…yikes. Therefore, if you are an entrepreneur, doctor, dentist, lawyer, accountant, property owner, or in any field where you take any responsibility for others, you are at the greatest risk for lawsuit liability. Our generation is increasingly getting more involved in community-receptive fields, meaning the need for asset protection is also increasing. Here are some ways that you can become vulnerable to a lawsuit:
- Professional malpractice liability
- Personal liability of corporate officers and directors
- Lawsuits by former business partners
- Personal injury suffered on your premises
- Personal injury resulting from a motor vehicle accident
- Liability as a guarantor for the debts of another
- Liability arising from misconduct
As earlier stated, Nevada is awesome for asset protection! Nevada law offers many “free” exemptions under NRS 21.090. However, many assets are still vulnerable such as non-homestead real property, bank accounts, and investments. Fortunately, Nevada offers some options to aid in safeguarding the exposed assets. Below are two of the most widely used asset protection structures in Nevada:
Limited Liability Company (LLC)
A Nevada LLC offers excellent domestic protection. Many times, business owners specifically pick Nevada to start their businesses in because of the favorable legal treatment. Some benefits to starting an LLC in Nevada are:
- Favorability of business by Nevada statutes;
- Organizational requirements are pretty relaxed – no annual meetings or minutes are required by law;
- LLC’s are flexible structures that can be used in many different ways – owning property, manage and operate businesses, and/or hold liquid assets;
- LLC’s can be taxed in four different ways: as a disregarded entity, a partnership, an S-Corp or a C-Corp;
- Nevada, unlike many other states, has no state income tax or corporate tax; and
- Nevada LLC’s can be structured to maximize privacy and anonymity.
Nevada Asset Protection Trust (NAPT)
NAPT’s were created by The Nevada Spendthrift Trust Act, NRS 166.010 et seq. in 1999. This is unique to the trust world because it allows an individual to create a valid Grantor Trust where she is both the Trustee (person who controls the Trust assets) and the beneficiary (person who receives the Trust assets), while the assets within the Trust remain protected from creditors. Also, those assets that were mentioned earlier as exposed assets, they can be protected in this type of Trust. This is one of the most unique and efficient ways you can protect your assets. Although, I could write a novel on this topic as far as the details go because it can get complicated and is not as simplistic as I am presenting it. However, there is no doubt that when it comes to asset protection, NAPT’s are where it’s at:
- You keep control of your assets;
- You may receive the full benefit and use your own assets;
- You don’t need to give away your assets;
- You can protect any type, and an unlimited amount of assets from creditors;
- NAPT's are less expensive to form and maintain (also less complex than foreign or offshore Trusts, which often lead to IRS interference);
- NAPT's can aid in avoiding loss of the assets through a bankruptcy; and
- NAPT's can be integrated with your estate plan (see parts 1 & 2 of blog).
Now, this advantage does not come without some disadvantage. The downside to having a NAPT is that if the Grantor of the trust (you) is also the beneficiary, a third-party Distribution Trustee must serve as well, which means that the Grantor does not have absolute discretion. Distribution Trustees oversee how the assets are distributed, and must approve of any transfers or changes to the Trust. Also, there is a two-year seasoning period before the Trust is protected from creditors. Therefore, a creditor must bring suit against the property transfer within two (2) years of the transfer or within six (6) months after the creditor discovers, whichever is later.
Of course, this is a simplified breakdown, but will put you on a good path to get started. Your estate planning attorney will be able to direct you to the more detailed provisions and should advise you on ways you can grow your assets. Whether you agree with the stigmas associated with Generation Y, or you are a Millennial yourself, we can all agree that planning for one’s estate, as dated as it seems, is essential, especially in our economy today. Millennials, the time is now to start planning for your estate!
Good Luck!
-by Laura Bown (Law Clerk/JD Candidate, 2018, Boyd School of Law, UNLV) with Tiffany Ballenger Floyd, Esq. (Nevada & California Estate Planning Attorney), Phillips Ballenger, PLLC
Photo by Desola Lanre-Ologun on Unsplash