TOPICS OF DISCUSSION

							         TOPICS OF DISCUSSION

• HOMESTEAD EXEMPTION
• UMBRELLA LIABILITY INSURANCE POLICIES
• SPENDTHRIFT TRUSTS
• ANNUITIES
• LIFE INSURANCE
• RETIREMENT PLANS AND IRAS
• QUALIFIED PERSONAL RESIDENCE TRUSTS
• FRAUDULENT CONVEYANCES
• NEVADA ASSET PROTECTION TRUSTS
• FOREIGN ASSET PROTECTION TRUSTS
          HOMESTEAD EXEMPTION


• Allows a debtor to exempt $550,000 of equity on
  a primary residence.
  NRS 21.090(1)(m) and NRS 115.050

• Real Estate held in joint tenancy by anyone other
  than a married couple allows each joint tenant
  to be entitled to a separate homestead exemption.
• Must record Homestead Declaration
            UMBRELLA LIABILITY
            INSURANCE POLICIES

• Umbrella policies are used to supplement the
  liability coverage a client already owns through
  homeowner’s and auto insurance coverage.
• It is there to provide an extra layer of protection
  in addition to other policies a client might own.
• These policies are generally inexpensive.
• Generally no protection from malpractice claims
  from profession.
           SPENDTHRIFT TRUSTS

• A “spendthrift trust” is a trust that will prevent
  a beneficiary's creditors from reaching the
  assets of the trust, unless the trust instrument
  provides otherwise.
• A “self-settled spendthrift trust” is one that
  includes the trust’s creator, the settlor, as a
  beneficiary.
• Prior to 1999 in Nevada a “self-settled
  spendthrift trust” provided no asset protection.
                   ANNUITIES

• Nevada Statutes provide an exemption for money
  held in an annuity until such time as the funds are
  distributed from the annuity.
• A creditor can attach distributions from an
  annuity up to 25% of each distribution.
• Offshore Annuities
               LIFE INSURANCE

• There is a limited exemption under Nevada Law for
  cash value in Life Insurance Policies.
• The exemption is based upon the amount of
  premium being paid each year to maintain the life
  insurance policy.
• Consider a Life Insurance Trust for both asset
  protection and estate tax savings.
        RETIREMENT PLANS & IRAS


• If a Retirement Plan is governed by ERISA there is
  an unlimited Exemption under Federal Law.
• Examples of ERISA plans: Defined Benefit Plans,
  Profit Sharing Plans, and 401(k).
• IRA’s or SEP’s are not covered by ERISA.
• No unlimited protection for IRA’s or SEP’s.
• IRA’s and SEP’s are protected under Nevada Law
  up to $500,000.00
          QUALIFIED PERSONAL
        RESIDENCE TRUSTS (QPRT)

• Ideal for families who have a significant amount
  of wealth tied up in a personal residence and
  would like to transfer their property outside
  their estate.
• Homeowner puts primary residence or vacation
  home into an irrevocable trust, specifying the
  retained term.
• After term expires, ownership of the house
  passes to the beneficiaries or may be held in Trust
  for the benefit of the beneficiaries.
• Asset Protection???
      FRAUDULENT CONVEYANCES


• Generally a fraudulent conveyance occurs when
  you assets are transferred and the transferor
  does not receive adequate consideration in
  return.
• The remedy for a creditor when there is a
  fraudulent conveyance is to have the transfer or
  conveyance reversed.
• To avoid fraudulent conveyance claims complete
  planning before something takes place that will
  create a right for someone to sue.
 NEVADA ASSET PROTECTION TRUSTS

• A Nevada Asset Protection Trust is a self-settled
  spendthrift trust that will protect assets from
  future creditors, if a number of requirements are
  met.
• The Trust must be Irrevocable.
• Distributions to the Settlor can only be made in
  the discretion of a third party Trustee.
• Two year window for creditors to attach from
  time of transfer.
• Primary disadvantage is that U.S. Courts have
  jurisdiction

• Bankruptcy
                     Introduction

•   1999 Nevada legislature amended Chapter 166 to
    provide for the Nevada Self-Settled Spendthrift Trust
    also known as Nevada Asset Protection Trust (Nevada
    Trust).

•   Nevada followed the lead of Delaware and Alaska
    allowing an individual to create a trust and retain
    beneficial interest in the trust, while being protected
    from creditors.

•   Understanding the advantages and disadvantages of
    Nevada Trusts and Offshore Trusts will allow
    practitioners to have enough knowledge to advise their
    clients on which type to use.

•   Asset Protection Trusts provide a means of protecting
    an individual’s assets from claims and judgments that
    may arise against them.
     Nevada Asset Protection Trusts

•   Ideal candidates for a Nevada Trust are individuals who
    are not already subject to existing claims.

•   “Spendthrift Trust” is a trust that protects its assets
    by preventing beneficiaries and creditors of the
    beneficiaries from reaching the trust assets.


•   “Self-settled” means that the settlor of the trust is
    also a beneficiary of the Trust and the person who
    Settled Assets on the Trust (transferred assets to the
    trust).

•   Common law rule in the U.S. is that Settlors of the
    Trust may not establish “self-settled spendthrift
    trusts” with himself or herself as a beneficiary, to gain
    creditor protection. However, Nevada has created
    specific statutes allowing for creditor protection with
    the establishment of a self-settled spendthrift trust
    provided the trust meets certain requirements.
For a self settled spendthrift trust to be valid in Nevada,
there must be a “Nevada Connection” which may be
satisfied if any of the following are met:
 1. All or part of the trust assets or income are in Nevada;
 2. The settlor is domiciled in Nevada; or
 3. At least one trustee, who is a Nevada resident or is a
    bank or trust company, with an office in Nevada and
    possesses trust powers, 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 Nevada.

The Requirements in NRS 166.040(1)(b) must also be met.
These requirements are:

 1. The trust must be in writing
 2. The trust must be irrevocable
 3. The trust may not require that any part of the
    income or principal be distributed to the settlor

The intent of the trust must not be to hinder, delay
or defraud any known creditors.
           Nevada Trust Trustees

•A “self-settled” Trust requires that one trustee
must be a qualified Nevada Trustee.
•even when the settlor is domiciled in Nevada or the
trust assets are in Nevada, you must have a Nevada
trustee.
•A unique and favorable feature of the Nevada
Trust allows the settlor of the trust to serve as
the managing trustee, who controls investment
decisions regarding the trust assets. This does not
allow the settlor to make decisions about
distributions to himself or herself. Decisions about
distributions to the Settlor must be made in the
discretion of someone other than the Settlor.
•Distribution trustee – has the discretion to
determine if distributions should be made to the
settlor.
      Limitations on creditor claims

•Upon transferring assets to a spendthrift trust,
a statute of limitations is triggered.

•Under Nevada Law, a current creditor cannot
reach the assets held in a Nevada Trust after the
assets have either been held by the trust for two
years, or after six months have passed from the
time the creditor discovered or reasonably should
have discovered the transfer of the assets to the
trust, whichever is later.

•To protect against a Creditor having an
additional six months to file their claim after the
two (2) years expires it is a good practice to record
a deed or publish notice.

•Future creditors must commence an action within
2 years after the transfer is made.
                  Distributions

•Although a Nevada Trust requires an
independent Trustee to make decisions about
distributions to beneficiaries, the settlor may still
retain a “veto” power over distributions from the
trust.
•Although the Trust is Irrevocable, Trust
agreements may provide the settlor with a special
limited testamentary power of appointment to
change the beneficiaries upon his or her death.

•Upon the settlor’s death, the dispositive
provisions of the Nevada Trust would become fixed
for the benefit of the beneficiaries.

•Settlor should keep some assets outside of the
trust to meet the settlor’s needs. The settlor
should not use trust assets to pay his or her
bills or living expenses directly.
            Tax Considerations


•The Nevada Trust may be treated as a grantor
trust for income tax purposes


•All trust income and deductions will be reported
on the settlor’s individual tax return.


•If settlor retains a veto power, the transfer will
be treated as incomplete for gift tax purposes


•The Nevada Trust will be included in the settlor’s
gross estate at death and will be subject to estate
tax.
    Disadvantages of Nevada Trust

•The enforceability of the Nevada Trust outside of
Nevada remains somewhat of an open issue;

•Other states who have not enacted a law
allowing creditor protection with self settled
Spendthrift Trusts, may not honor a self-settled
spendthrift trust. For example, under the Full
Faith and Credit clause, Nevada may be forced to
accept and recognize the judgments issued by
courts of her sister states and cannot control
the application of its own law.

                Supremacy Clause
•Federal Government and its laws preempt
Nevada laws to the extent there is a conflict. For
example, a Federal Bankruptcy Court may direct a
trustee of a Nevada Trust to distribute assets
from the trust to creditors
                     Change of Situs
•Domestic Trust should contain a “Change of Situs Provision”.

•Change of Situs provision allows the Trust Situs to be moved from
domestic jurisdiction to an offshore jurisdiction.

•Change of Situs can also be used to move the Trust assets from
one offshore jurisdiction to another offshore jurisdiction.

•Sample language


                        Conclusion
•Nevada Asset Protection Trusts are becoming more utilized by
practitioners as a means of asset protection for their clients.


•An attorney has a duty at the very least to advise clients that
offshore asset protection trusts may have distinct advantages
over a Nevada Trust.

•Full understanding of the advantages and disadvantages of a
domestic and offshore trust is essential to best plan for a
client’s asset protection needs.
             FOREIGN ASSET
           PROTECTION TRUSTS



• Commonly referred to as an “Offshore Trust”.
• Offshore Trust Jurisdictions such as the Cook
  Islands do not recognize judgments ordered by
  U.S. Courts.
     Laws of Foreign Jurisdictions


•Asset protection afforded by the laws of foreign
jurisdictions should be greater than in the United
States.


•The offshore asset protection trust declares the
law of the foreign country to be applicable and
appoints at least one trustee from the foreign
jurisdiction.


•Cook Islands courts are not required to enforce a
U.S. judgment.
Cook Islands’ international Trusts Act of 1984
•Obstacles for creditors created by the cook
islands’ international trusts act of 1984.

 •   Self-settled spendthrift trusts are fully
     enforceable
 •   Cook islands court will not recognize a U.S.
     fraudulent conveyance judgment
 •   If U.S. Judgment creditor litigates the fraudulent
     conveyance claim in the cook islands, the creditor
     must prove that the settlor acted with intent to
     defraud and that the transfer rendered the settlor
     insolvent.
 •   Creditors must bring suit in the cook islands within
     one year from the date of the fraudulent transfer.
  Courts’ Response to Offshore Asset
           Protection Trusts
•U.S. Courts have used civil contempt proceedings to coerce a
party to a civil action to obey court order. If the party does not
comply he may be put in jail until compliance is rendered.
•Although domestic courts lack jurisdiction over offshore trust,
they still will attempt to gain jurisdiction, but for the most part
they will be unsuccessful.
•“Anti-duress” provision in Trust directs the trustee not to take
instructions or orders from the settlor if the settlor was under
duress when giving the instruction or order.
•Even without an “Anti-duress” provision the foreign trustee would
not be able to comply; it would be a breach of fiduciary duty to the
beneficiaries.

•U.S v. Rylander 460 U.S. 752, 757 (1983) & Maggio v. Zeitz, 333 U.S.
56, 72 (1948)

Recent cases in the 9th and 11th Circuits involve bad facts:
•FTC v. Affordable Media, 179 F.3d 1228, 1239-44 (9th Cir. 1999)
Impossibility is a defense to contempt orders.
•Lawrence v. Goldberg (In re Lawrence), 279 F.3D 1294, 1299-1300
(11th Cir. 2002). Impossibility is not a defense to contempt orders.
Difficulties of Attaching Foreign Assets

•If Trustee has opened Trust accounts and brokerage houses
worldwide the hunt for assets could become costly for the
creditor.

•Until a Trustee is restrained from moving assets from one country
to another, the creditor may encounter false starts in global
hunting.

•U.S. creditor will be forced to sue in the foreign jurisdiction.


•Trustee’s jurisdiction will confront the U.S. creditor with many
practical and legal difficulties.


•The practical difficultly are expenses for :
         •Attorney’s fees for foreign lawyers
         •No Pro Hac Vice
         •Travel expenses
         •Paying opposing party’s attorney’s fees
         •No Contingency Fee Agreements
    The Nevada Trust and Limited
      Partnership Combination



                Safe Assets



                  Limited
                Partnership


 General
                              Limited Partnership
Partnership
                                    Interest
  Interest


Trust, L.L.C.
                                          Education Trust
    or            The Nevada Trust
                                           For Children
Corporation
  The Offshore Trust and Limited
     Partnership Combination



                Safe Assets



                  Limited
                Partnership


 General
                              Limited Partnership
Partnership
                                    Interest
  Interest


Trust, L.L.C.
                                          Education Trust
    or             Offshore Trust
                                           For Children
Corporation
     Presentation provided by:



Lionel Sawyer & Collins
   Attorneys at Law
    www.lionelsawyer.com

       In conjunction with