You might have heard that a Nevada Domestic Asset Protection Trust (DAPT) or Nevada Self-Settled Spendthrift Trust offers among the greatest protections against creditors among the states. Nevada has gained this reputation for a reason. Unlike a regular living trust (See also, my page on Living Trusts), a DAPT offers the added benefit of shielding the trust income and property against creditors, so long as the proper laws and trust formalities are followed. For this reason, I would highly recommend you retain an attorney to draft up your DAPT.
What provisions allow for creditor protection?
After you transfer property into the trust, you have to wait 2 years before the property is protected against the claims of any future creditors (i.e. creditors who did not exist yet at the time of the property transfer). Note that Nevada’s 2-year timeframe is among the shortest in the country.
Even though preexisting creditors can have a longer time to file a claim against the property (if after two years, then as long as up to 6 months after they discover or reasonably should have discovered the transfer), the law still makes prevailing in a claim difficult for these preexisting creditors. They would have to show “by clear and convincing evidence” (a legal standard that is more rigorous than the usual “preponderance of the evidence” standard used in most civil cases) that the transfer was fraudulent or violated a legal obligation owed to the creditor by contract or court order that is legally enforceable. In addition, any creditor is deemed to have discovered the transfer at the time a public record is made of the transfer, such as recording a conveyance with the county recorder or filing a financing statement.
Even if one creditor can prove that a transfer of property was fraudulent or wrongful, it would not constitute proof as to any other creditor, nor would it serve to invalidate any other transfer of property into the trust.
Will I retain control over the trust property?
Unlike regular spendthrift trusts, Nevada allows self-settled spendthrift trusts, which means even though you formed the trust (and are, therefore, the “settlor”), you are still able to be a named beneficiary to receive the trust property and can even serve as a co-trustee. However, the main limitation is you cannot require the trust to distribute any income or property to you. That power is left in another trustee’s discretion, but the Settlor is able to retain the power to veto any distribution that the Trustee makes. Note that Nevada allows you to still use any real estate or personal property that the trust owns, however, so you do not relinquish your right to use and enjoy tangible property.
How long can the trust hold property?
Nevada allows a trust to hold unvested property interest for up to 365 years, which means property can stay in the trust for up to 365 years without being distributed to any beneficiary or being assessed any transfer tax. Thus, Nevada allows a generous timeframe for you or your progeny to hold you property in trust.