A Nevada Dynasty Trust Proves to Be More Secure Than a Delaware Dynasty Trust
When you are searching for a state with friendly trust laws to protect your family’s assets, two states at the top of your list are undoubtedly Nevada and Delaware. Although Delaware is a great state overall for establishing a trust or business entity, more people realize that Nevada might be a better choice.
Before we discuss some of the benefits of a Nevada Dynasty Trust, we are going to share a recent case in Delaware in which a divorcing spouse was able to break the assets free from a Delaware Dynasty Trust. Since protection from divorcing spouses is one of the top concerns for those establishing a Dynasty Trust, it is important to know where each state stands on this issue.
A Potential Problem with a Delaware Dynasty Trust
Kiplinger recently published an article that explains why a Nevada Dynasty Trust may have an advantage over a Delaware Dynasty Trust. The article was written by Jeffrey M. Verdon, Esq., a California-based lawyer who specializes in taxation and comprehensive estate planning.
Mr. Verdon discusses two cases where a divorcing spouse was granted access to the assets in a Delaware Dynasty Trust established for the support and maintenance of the beneficiaries. In the more recent legal case, the ex-wife gained access to assets in a Delaware Dynasty Trust – despite the fact that the trust dictated the husband, his spouse, and descendants as the sole beneficiaries.
“[…] in Nevada, a divorced spouse will not be permitted to bust into a validly formed DDT or DAPT that was timely and properly established without the intent to defraud a creditor.
With the Kloiber v. Kloiber decision, Delaware’s case law now clearly allows for claims from these exception creditors. Therefore, as any qualified Nevada trust lawyer will tell you, the safest way to form a dynasty trust is to draft it as a discretionary trust, in a no-exception creditor state like Nevada, in which only the trustees have the sole authority to provide funds to beneficiaries.”
Mr. Verdon makes a strong point – Nevada’s trust laws have the upper-hand for those concerned about exception creditors possibly breaking into their trust.
The Nevada Dynasty Trust
A Dynasty Trust is an irrevocable trust that is exempt from estate tax, gift tax, and generation-skipping transfer tax. Beneficiaries of a Dynasty Trust can use all of the property and assets owned by the trust without the risk of losing those assets to creditors and divorcing spouses.
The Nevada Dynasty Trust is one of the most favored tools for asset protection by domestic and international families alike. It offers more thorough protection for a longer period than virtually any other trust available today.
In 2005, Nevada legislators passed Senate Bill 64, which amended Chapter 111 of the Nevada Revised Statutes, allowing a Nevada Dynasty Trust to protect assets for beneficiaries for 365 years. Previously, a Nevada Dynasty Trust was limited to 90 to 120 years.
Recently, this law was challenged in the Nevada Supreme Court – Bullion Monarch Mining, Inc. v. Barrick Goldstrike Mines, Inc. The court ruled unanimously in favor that the 365-year limit is the law in Nevada. This court ruling assures those considering a Nevada Dynasty Trust that their assets will indeed be protected as the law describes.
The Advantages of Nevada Trust Laws
Nevada’s trust laws are among the most friendly in the world for wealth management and asset protection. Below are more advantages for U.S. and non-U.S. citizens establishing a trust in Nevada.
Nevada Asset Protection Advantages:
- Nevada has one of the shortest “seasoning periods” in the United States – a statute of limitations of two years on asset transfers to self-settled spendthrift trusts.
- There is no prohibition on the settlor’s powers over the trust, except for making distributions to him or herself.
- A Nevada Asset Protection Trust settlor can serve as co-trustee and manage the assets of the trust.
- The single attack allowed on Nevada Asset Protection is a fraudulent conveyance, which requires a very high burden of proof.
- Trustees cannot be forced to make discretionary distributions.