Nevada Domestic Asset Protection Trust (DAPT)
What is a Nevada DAPT?
A Nevada Domestic Asset Protection Trust or DAPT is an irrevocable trust. At origination, the trust becomes a separate and legally distinct entity, separate from the grantor (the creator of the trust), the trustee (akin to the manager of the trust), and the beneficiary. Nevada allows the grantor to be a discretionary beneficiary while still offering a significant level of protection for the trust assets. Some states may have a version of a DAPT, but not all DAPT jurisdictions are created equally. Unquestionably, the powerhouse DAPT jurisdiction is Nevada.
What makes Nevada a great place to create your DAPT?
Statute of Limitations Period
Nevada has one of the shortest statute of limitation periods in the country. This period is the time that must expire before DAPT assets are protected from a creditor. In Nevada, a future creditor has two years from the date of transfer to bring a valid claim. However, a preexisting creditor has two years from the date of transfer or a six-months from the date the creditor learned of, or should have learned of, the transfer. This time period is shorter in comparison to a number of DAPT jurisdictions that have a four or six-year statute of limitation period and a one-year tolling period. Additionally, Nevada is one of only a few states that allows a settlor to start the discovery period by making a public record after a transfer is made. This effectively provides for a two-year statute of limitations period for all creditors if a public record is made on the first day of the transfer, except where there is a fraudulent transfer.
No Exception Creditors
Nevada is one of only two states with no statutory exception creditors. An exception creditor is a creditor that is able to gain access to DAPT assets after the statute of limitations period, because the public policy of that state offers additional protections for that particular type of creditor. This means that certain creditors could pierce the DAPT, including a divorcing spouse who is seeking alimony or child support. It also gives preexisting tort creditors a chance to pierce the DAPT. No exception creditors is a huge advantage to the Nevada DAPT.
Trust Design for Maximum Flexibility
Even though utilizing a Nevada Asset Protection Trust requires assets to be transferred into an irrevocable trust, the DAPT can be set up in such a way that the grantor will have flexibility and indirect control of the trust assets. A DAPT may be structured so that the trust does not require the income or principal to be distributed (but it still can be at the discretion of another person).
And, consider some of these key benefits:
No Affidavit of Solvency: In some states, the grantor must submit an affidavit of solvency with each trust funding transaction. Nevada does not have this requirement.
Personal Privacy: In addition to the unique provisions of Nevada’s domestic asset protection law, Nevada’s privacy laws are also generally considered to be among the strongest in the nation.
Investment Control: The grantor of the trust can serve as the investment trustee, allowing the grantor to make all investment decisions.
Veto Power: The grantor can retain a veto power, allowing the grantor to override any distributions that the distribution trustee has authorized. This feature gives the grantor security, knowing that regardless of the authorized distributions, the grantor has the power to reject a distribution.
Power of Appointment: The grantor can be granted a broad special power of appointment, essentially allowing the grantor to make a distribution to a beneficiary other than the grantor or to rewrite the terms of the trust. This feature is helpful when it comes to adapting to changing circumstances, such as family situations and tax laws.
Power to Remove and Replace Trustees: The grantor can retain the power to remove and replace trustees if a change is desired, providing the grantor the comfort of knowing the appointed trustees can be replaced.
Power to Use Trust Assets: A grantor who is also a trust beneficiary is permitted by statute to use property held by the trust without having to pay rent to the trust. This feature allows the real or personal property held by the trust to be used by the beneficiaries while it remains protected in the trust.
Currently about a dozen states have a version of a DAPT. However, Nevada is recognized as being one of the most favorable in favor of the trust creator. In general, a DAPT must be irrevocable; must appoint an individual or corporate trustee residing in the state under; and must contain a "spendthrift" clause, which provides that the beneficiary's interests in trust assets cannot be transferred (voluntarily or involuntarily) before the trustee distributes those assets to the beneficiary. Some other things that make Nevada unique compared to other states include:
The grantor can be granted a broad special power of appointment, essentially allowing the grantor to make a distribution to a beneficiary other than the grantor or to rewrite the terms of the trust. This feature is helpful when it comes to adapting to changing circumstances, such as family situations and tax laws.
The grantor can retain the power to remove and replace trustees if a change is desired, providing the grantor the comfort of knowing the appointed trustees can be replaced (i.e. the distribution trustee).
A grantor who is also a trust beneficiary is permitted by statute to use property held by the trust without having to pay rent to the trust. This feature allows the real or personal property held by the trust to be used by the beneficiaries while it remains protected in the trust.
Nevada has no state fiduciary income tax.
For those interested in a hybrid plan with a Nevada DAPT owning LLC membership units, Nevada is a charging order state. This means that membership units cannot be stripped away from an owner, even when the owner is trust.
For those looking to include some additional provisions, Nevada has a dynasty trust opportunity, allowing a trust to last for 365 years. Few states can rival this very long perpetuities period.
How does this work for non-Nevada residents?
You do not have to live in Nevada, or even have assets in Nevada, in order to form a Nevada asset protection trust. The only connection you need to have to Nevada is that one of your trustees must reside in the state. This could be an attorney or other advisor, or a Nevada trust company.