Why Nevada

The 365 year rule against perpetuities provided by Nevada law sets the stage for multi-generational transfer tax savings through the use of Dynasty Trusts. The transfer tax benefits can be synthesized with other benefits offered by Nevada trust law. The fact that there is no Nevada state income tax contributes to a truly compelling mix of benefits in terms of the long-term interests of the settlor and the settlor’s family.

Unlike certain other states that tout themselves as asset protection havens, Nevada affords the most protection of any state in the United States. There are no exception creditors, not even in the case of claims for spousal or child support, and even in the case of a self-settled asset protection trust, where the settlor is a discretionary beneficiary. Under the law, forced heirship claims pursuant to the civil law would be rejected as well. The commitment of the state to the strict reading of the statute has been upheld by a decision of the Nevada Supreme Court. Nevada also has an abbreviated statute of limitations of only two years from transfer into trust before the transferred assets are protected. In addition to top-of-the-line spendthrift trust asset protection, beneficiaries of Nevada-administered discretionary trusts are accorded significant protections. Notwithstanding the existence of creditors, distributions for their benefit can be made directly to providers.

The interests of beneficiaries in the trust and even the very existence of the trust can be kept quiet by the trustee. Many settlors find this sort of provision appealing so as to assure that beneficiaries do not become complacent and unproductive and in order to avoid family conflict if the benefits flowing to several family members differ in amount or timing.

The Nevada decanting statute is among the most innovative of any state. It permits changes in otherwise irrevocable trusts to be made without the need to obtain approval of a court or beneficiaries. Indeed, beneficiaries are not required to be notified and have no right to object prior to the decanting. The Nevada statute is also among the most flexible in the alteration of beneficial interests held in the irrevocable trust and in offering the possibility of the introduction of new beneficiaries.

Nevada imposes NO income taxes or transfer taxes with respect a trust administered in the state. This is not merely a statutory requirement. It is embedded in the Nevada constitution. This enables the avoidance of state income taxes by use of a trust with its situs of administration in Nevada. On an annual basis this could add up to a substantial savings of funds that will be available for continued investment and the benefit of family members or other select beneficiaries. Alternatively, it could mean the avoidance of another state’s income tax on the sale or other disposition of a highly appreciated asset in a one-time transaction. While it is true that another state with prior or continuing ties to the trust may still seek to tax the Nevada-administered trust, the contacts arguably enabling them to do so can often be planned around successfully. Our staff works with clients and advisors in helping achieve a beneficial tax outcome. Indeed, we have years of experience in this regard, whether the other involved jurisdictions are high tax states like California or are foreign countries.

A directed trust permits certain designated persons to direct the trustee with respect to investments and/or distributions. The Nevada directed trust statute is noteworthy in that, unlike many states, the trustee MUST carry out the direction of the directing advisor even if the trustee disagrees with the action. The Nevada law is also noteworthy because it allows, for example, the investment trust advisor who directs the trustee with respect to selling, buying, and retaining assets, to be a non-fiduciary. The same is true with respect to a trust protector. This is in sharp contrast to the Uniform Directed Trust Act that is now being enacted in certain other states and which requires the investment trust advisor, distribution trust advisor, and trust protector to be a fiduciary in those instances in which the trustee is compelled to take their direction.

Just as Nevada permits an advisor to direct the trustee absolutely, it also permits, unlike the law of many states, for the duties of co-trustees to be completely bifurcated. While many states countenance the allocation of certain duties to another trustee, this does not relieve the  trustee surrendering functions of certain oversight and fiduciary duties with regard to the surrendered functions. However, a trust administered in Nevada can be drafted, for example, to permit an independent trustee, such as Preservation Trust Company to be responsible for distributions solely, while the investment and other functions, which do not trigger estate tax if retained by the settlor or related persons, to continue to be retained by them or delegated to other persons.