Asset Protection

Pursuant to SB 483 of the 2015 Nevada Legislature, effective July 1, 2015, certain Nevada Secretary of State fees will change as follows:

• Annual list and initial list fees will increase by $25.00 for all entity types (an increase from $125.00 to $150.
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Tiffany Ballenger, Esq., Phillips Ballenger Estate Attorneys:

Good news for Nevada residents, practitioners & those who form Nevada based trusts- Nevada wins "by a landslide" once again for best state to form a trust. 

Here's the article from Trust Advisor.com... 

 

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We are happy to announce that all current and former Military service members and current teachers will be offered a discount on Estate Planning, Asset Protection (including LLC formation and Nevada Asset Protection Trusts) and Short Sale/Loan Modification retentions. 

This is our way to thank you for your dedication and service to our country and community!

-Tiffany Ballenger, Esq.

Dear Liz: Could you advise us on how to protect our 93-year-old mother's assets if she should become ill or die? She does not have a living will or a trust regarding her two properties.

Answer: "If" she should become ill or die? Your mother has been fortunate to have had a long life, presumably without becoming incapacitated, but her luck can't hold out forever.

Your mother needs several legal documents to protect both herself and her assets. Perhaps the most important are powers of attorney for healthcare and for finances. These documents allow people she designates to make medical decisions and handle her finances for her should she become incapacitated. In addition, she may want to fill out a living will, which would outline the life-prolonging care she would and wouldn't want if she can't make her wishes known. (In some states, living wills are combined with powers of attorney for healthcare, and in others they are separate documents.)

These legal papers aren't important just for the elderly, by the way. You should have these too, since a disabling illness or accident can happen to anyone.

Your mother also should consider a will or a living trust that details how she wants to parcel out her estate to her heirs. Of the two documents, wills tend to be simpler and cheaper to draft, but a living trust means the court process known as probate can be avoided. The probate process is public, and in some states (particularly California) it can be protracted and expensive. A living trust also could make it easier for someone to take over managing her finances in case of incapacity or death.

You can find an attorney experienced in estate planning by contacting your state's bar association. Expertise and competence are important, so you may want to look for a lawyer who is a member of the American College of Trust and Estate Counsel, an invitation-only group that includes many of the best in this field.

If she or you are trying to protect her assets from long-term care or other medical costs, you'll need someone experienced in elder care law to advise you.

-Liz Weston, Los Angeles Times

http://articles.latimes.com/2013/mar/29/business/la-fi-montalk-20130331

A recent case further bolsters Limited Liability Protection, in this case, under Federal Bankruptcy Law. 

In In re Warner, 480 B.R. 641 (Bankr, N.D. W. Va. Sept 27, 2012,) the trustee in the bankruptcy of an LLC member asked the Bankruptcy Court for a declaration that the LLC was dissolved pursuant to the LLC's own operating agreement, which called for dissolution upon the bankruptcy of a member.  In this case, the Court denied the Trustee's motion, relying on provisions in the Bankruptcy Act that trump other contracts.  This ruling left the trustee with very limited options for liquidating the member's LLC interest and paying out to the bankruptcy creditors. 

 

 

While most of my asset protection planning involves third-party (i.e. non-bankruptcy) creditors, however this case is important in light of the fact that the court upheld asset protection provided by the member's LLC. 

 

-Tiffany Ballenger, Esq.

 

 

SB 405 went into effect on October 1, 2011. It strengthens the asset protections available to Nevada-based entities. The updated charging order language affects Nevada Limited Liability Companies (LLCs), Corporations and Limited Partnerships (LPs). The law changed as follows: the new language in the statute makes the charging order the exclusive remedy of a judgment creditor- including single member LLC’s and single shareholder corporations. A charging order is a remedy issued by the court giving the creditor a lien over the debtor’s interest in the entity.
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In May of 2011, a federal bankruptcy case, Battley v. Mortensen, Adv. D.Alaska, No. A09-90036-DMD (2011) led many planners and clients to doubt the protection afforded by Domestic Asset Protection Trusts (DAPTs). Judge MacDonald set aside Thomas Mortensen’s transfer of real property to an Alaska asset protection trust as a fraudulent conveyance. This case came in direct opposition from previous holdings on the same issue, as the Grantor of the trust was not only solvent when he transferred the subject property, but he was also beyond the state statute of limitations for transfers.  In Alaska, the statute of limitations is fours but only two years in Nevada. What does this mean for those who have created DAPTs as part of their overall estate planning and asset protection structures?

Following an expensive divorce, Mr. Mortensen drafted an Alaska Asset Protection Trust by himself. The trust was created to hold real property located in Alaska, worth only approximately $60,000 at time of transfer in addition to a cash gift of approximately $100,000 from his mother.   In 2009, more than four years after drafting the document, Mr. Mortensen become ill and subsequently racked up credit card debt.  He then filed for Chapter 7 bankruptcy.    Though he disclosed his personal assets and the fact that he had a DAPT, he did not disclose the property held by the DAPT.

Even though Alaska has a four-year statute of limitations on transfers to a DAPT, the court applied federal Bankruptcy law which enjoys a ten-year statute of limitations from the date in which a bankruptcy is filed.  Thus, the transfer to the DAPT was unwound, and the property transferred to the DAPT was sold to satisfy his creditors.

Practitioners are somewhat split as to this ruling.  Some believe that this case may be a death knell to transfers to a DAPT however, this case should be distinguished on its facts.  Unfortunately in this case, Mr. Mortensen drafted the DAPT and filed bankruptcy without legal counsel.   Had he not filed Chapter 7, Mr. Mortensen would have been protected from the unsecured creditors via the four-year statute of limitations and the ten-year federal rule would not have been applied.  Additionally, Mr. Mortensen was not in a good position to form a DAPT in the first place since he had declining income, low net worth and escalating debt.

Rather, I like to view this case as a whole as validating the fact that Asset Protection trusts should not be created to defraud creditors.  As such, this type of planning can still prove to be an integral part of one’s overall estate plan.

 

-Tiffany N. Ballenger, Esq.

Every day, potential clients come to find out how to protect their assets from potential creditors and lawsuits. Nevada law offers many “free” exemptions under NRS 21.090. However, many assets are still vulnerable such as non-homesteaded real property, bank accounts and investments. Fortunately, Nevada also offers other options for helping to safeguard these exposed assets.

Once 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 which asset protection strategies to employ.

Two of the most widely used Nevada asset protection structures are the Nevada Limited Liability Company (LLC) and the Nevada Asset Protection Trust (NAPT).

Nevada LLC

A limited liability company formed in Nevada offers excellent domestic protection. Most practitioners agree that Nevada offers some of the most favorable corporate laws in the country. Some of the pros of a Nevada LLC are:

• Nevada’s statues generally favor businesses;
• The organizational requirements are quite informal- no annual meetings or minutes are necessary;
• LLC’s are flexible structures that can be used in many different ways- to own property, to manage an operating business and to 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.

Perhaps most importantly, the members’ interests cannot be attached by a creditor. The only remedy against a member is to obtain a “Charging Order” allowing the creditor to lien or “charge” the member’s profit distribution rights when, or if, a distribution is made by the member of the LLC. As such, assets within the LLC are safe but trapped.

Nevada Asset Protection Trust

Nevada Asset Protection Trusts (NAPT) were created by The Nevada Spendthrift Trust Act, NRS 166.010 et seq. in 1999. Nevada is one of just a handful of states that provide a Trust of this sort.

This unique law lets an individual create a valid Grantor Trust where he or she is both the Trustee, the person who controls the Trust assets, and the beneficiary, while the assets within the Trust remain protected from creditors. Unlike many other states with similar laws, the Trust creator does not need to be a Nevada resident to create a NAPT. Additionally, any category of asset such as real property, personal property or liquid assets in any location can be protected with a NAPT.

NAPTs work in the following manner: By law, the Trust 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 by the Distribution Trustee, a third party who has discretion to make distributions, 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.

Some of the benefits of the Nevada Asset Protection Trust are:

• 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 amounts, of assets from creditors;
• The Nevada Asset Protection Trust is less expensive to form and maintain and much less complex than foreign or offshore Trusts which are often troubled by IRS audits and complicated tax reporting requirements;
• The Nevada Asset Protection Trust may avoid loss of the assets through a bankruptcy; and
• The Nevada Asset Protection Trust can be integrated with your estate plan (remember, a “Living” or “Family” Trust does NOT provide the creditor protection benefits discussed above).

With all of its benefits, there are some disadvantages to an NAPT. If the Grantor of the Trust is also a beneficiary, a third party Distribution Trustee must serve as well, which means that the Grantor does not have absolute discretion. Additionally, there is a two-year seasoning period. If a creditor is a current creditor when the transfer of the asset to the NAPT occurs, the 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. After the seasoning period is over, the creditor is barred from bringing suit to recover said property.

Both of these techniques, amongst others, can be extremely useful in protecting assets and providing peace of mind in our volatile economy.

 

-Tiffany N. Ballenger, Esq.

The Nevada’s Homestead Exemption Protection law provides homeowners with an excellent asset protection device.  Nevada defines a “homestead property” as: Land with a dwelling on it; a mobile home whether or not the underlying land is owned by the mobile home owner; and/or a unit (such as a condo).  This protection is only available for one’s primary residence, not investment properties or second homes.

The amount of protection from creditors is the equity associated with the property up to the limit of $550,000.
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Existing law allows a judgment creditor to obtain a writ of execution, attachment or garnishment to levy on the property of a judgment debtor or defendant in certain circumstances (NRS 21 and 31). What this means in laymen’s terms is that if you are sued, and the creditor wins, they have the right to collect on that judgment by taking certain property (real property and money held in bank accounts) and even garnishing wages. Nevada provides some protection, however: certain property is exempt from execution and therefore cannot be the subject of such a writ. (NRS 21.

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