Estate Planning

The Revocable Living Trust and Guardianship.

The number one reason that my clients seek a living trust is for probate avoidance.  You can learn more about probate in my previous post on probate.  Basically, probate unduly complicates administration of your estate and adds unecessary expense.

However, there are many other reasons to consider a living trust.  First, if you become incapacitated and unable to handle your personal or financial affairs your loved ones would generally need to seek a guardianship from the court to properly provide for your care.  In Nevada, a court often requires your assets to be placed in a blocked account so that the court may oversee administration.  A trust allows you to name a successor trustee to handle your affairs should you become mentally incapable.  This allows YOU to choose your guardian and not some court.  A trust generally allows administration without the time and expense of going to court.

I will continue to discuss many of the benefits associated with The Revocable Living Trust.  Please check back.

The Nevada Self Settled Spendthrift Trust.

Asset protection strategies have often led individuals to various offshore locales such as the Cayman Islands to create irrevocable trusts beyond the reach of United States judgments.  Such planning is expensive and troublesome for a number of reasons.  Nevada is one of a very few states that has created an alternative to offshore asset protection.

Many states allow a trust to contain “spendthrift provisions” which protect the trust estate against claims of creditors.  However, most states spendthrift provisions do not allow a settlor, or creator, of a trust to protect his own assets.  Nevada is one of the few states that allows for a self settled spendthrift trust.  Such a trust is now commonly known as the Nevada Asset Protection Trust (NAPT).

A NAPT allows a person to transfer assets to an irrevocable trust that prohibits voluntary or involuntary transfers to creditors contrary to the terms of the trust.  The requirements of a NAPT are as follows:

1. There is some connection to the State of Nevada. One of the following must be true:
   

      

   1. Some or all of trust assets or income are located in Nevada; or 
   2. The settlor is a Nevada resident; or 
   3. At least one trustee:
      

         

      1. has powers that include maintaining records and preparing income tax returns for the trust, and all or part of the administration of the trust is performed in this state; and 
      2. is an individual who is a Nevada resident or is a bank or trust company that maintains an office in this state for the transaction of business and possesses and exercises trust powers.

    

2. The trust is irrevocable, although the settlor may have a special power of appointment. 
3. The trust is not intended to hinder, delay or defraud known creditors. 
4. Distributions to the settlor are not mandatory and made only in the discretion of a person other than the settlor. 
5. The trust is subject to Nevada’s statutory rule against perpetuities.

If the trust qualifies as a NAPT, the creator may effectively sheild their assets from cliams of creditors.  However, the protection is not immediate.  As to current creditors, assets are protected 2 years after the transfer to the trust or 6 months after the creditor should have reasonably discovered the transfer.  As to future creditors, their claims must be brought within 2 years after the transfer.

The NAPT may be an appropriate vehicle for many to protect their assets from the claims of creditors.  Contact a Nevada attorney for more details.

A Good Recent Question

I recently received the following question via email:

“I have heard that in Nevada if there is certain language in a pour over assets are transferred to the trustee of a revocable trust without submitting to probate.  Is this information correct?”

Generally, to avoid probate, the assets must be owned by the Revocable Living Trust prior to death.  The purpose of a pour over will is simply a safety net.  Technically, if the decedent owned some property, not in trust, the pour-over will would act to transfer the property to the trust for ultimate distribution.  However, a probate would be required to transfer such property to the trust.  That is why it is vital to make sure your trust is properly funded with all of you assets.

Now, I am not quite sure what type of asset we are talking about.  There are some assets that otherwise may pass free of probate.  For example, an automobile may generally be transferred through the DMV without probate.  However, I think the best practice is to get all of the assets into trust prior to death.

If you have further questions please contact an estate planning attorney.

Life Insurance and Divorce

Husband and wife, happily married, often procure life insurance with their spouse as a beneficiary.  Often when the union unfortunately ends in divorce the now unmarried, or remarried, party neglects to change the beneficiary on their life insurance policy.  What happens when a divorced party forgets to change their beneficiary after the divorce?

Both Utah and Nevada have enacted statutes providing a presumption that the former spouse is no longer the intended beneficiary and the designation is not valid.  “Whew,” you might say.  Well, not really.

This provides one more complication making proper estate planning vital.  Suppose the former spouse intended for the divorced spouse to remain as a beneficiary to care for the former couple’s minor children?  Also, if no contigent beneficiary is named, the policy will often pay out to your estate requiring a probate.

Failing to properly designate beneficiaries can easily invite familial strife and litigation between former spouses and current spouses.   See an estate planning attorney if you have become divorced with a life insurance policy.