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Why trusts aren’t just for the wealthy

Originally published on Marketwatch.com http://www.marketwatch.com/story/why-trusts-arent-just-for-the-wealthy-2014-09-09

Trusts are one of the essential tools of any estate plan. According to a recent study, over 70% of U.S. households with a net worth greater than $1 million use trusts.

The probate process can be lengthy and expensive and should typically be avoided at all costs through the use of trusts. There are many different types of trusts for various purposes and competent legal advice should be sought before establishing a trust. Your investment adviser should ideally act a part of a well-coordinated team along with your tax adviser and your attorney.

Trusts aren’t just for the wealthy; a basic revocable living trust can be a useful estate-planning tool for almost anyone. Individuals with substantial assets to protect should learn about asset protection trusts that can help shield your assets from creditors.

One factor to consider when establishing a trust is what state to domicile it in. Your trust doesn’t have to be domiciled in your state of residence. According to a survey of 150,000 participants by TrustAdvisor.com, Nevada and Alaska rank as the best states overall for asset protection and Nevada won first place by a wide margin. Another study by Oshins and Associates ranks Nevada at number three, with South Dakota taking first place and Alaska in the number two spot.

As an adviser who lives and works in the Lake Tahoe area, close to the Nevada border, I have had considerable experience working with clients who have their trusts based in the State of Nevada. Nevada’s laws are quite favorable from several aspects. One is that Nevada has no state income tax, so that trust income isn’t taxed at the state level. Distributions for your trust may be taxable in your state of residence. California recently raised state income-tax rates up to 13.3% and the new rates are for income as well as capital gains, so the savings could be substantial.

Nevada also has favorable laws to help protect your assets from lawsuits and creditors. Nevada has one of the shortest time frames for the application of the statute of limitations on fraudulent transfer for asset protection trusts. The waiting time in Nevada is two years from the asset transfer date and just six months from the date of reasonable discovery. The shorter the wait time the better.

Nevada also has benefits for dynasty trusts. The longer the trust can last the better for estate tax planning purposes. In Nevada your trust can last for 365 years. Other states allow for trusts to last in perpetuity, but 365 years will span several generations and can be a big help with generation skipping trusts.

A Nevada Asset Protection Trust is known as a NAPT and can be a good alternative to using offshore jurisdictions depending on your situation. Nevada state law does require that one of the trustees be a Nevada resident so, if you’re considering establishing a Nevada based trust, you’ll have to hire a professional trustee. NAPTs are often combined with Nevada limited liability companies to provide another layer of protection making them very useful tools for business owners, executives, doctors and other high net worth individuals concerned about protecting their nest egg.

Please remember this isn’t to be construed as legal advice. Consult with your own attorney or tax adviser if you’re thinking about establishing a trust or reviewing your existing trust. Your investment adviser should work in coordination with your tax and legal team.

Looking at other states to domicile your trust could provide some significant long term advantages, but do your research carefully to determine what’s best for your individual situation.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.


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