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Spendthrift Trusts are a Great Asset Protection Tool

Spendthrift Trusts have long been regarded as an effective asset protection tool. A Trust is a centuries old legal tool for estate planning and asset protection. A trust is defined as a legal entity in which a trusted person - the Trustee - holds property for the benefit of another - the Beneficiary.

It has long been held that by using particular language, a parent may create a trust for the benefit of his child and keep the assets in that trust away from his child's creditors. The creditors could neither reach the assets in the trust nor compel the Trustee to distribute the assets to the child. A spendthrift is defined as a person who spends improvidently or wastefully.

While it has well established that one person can create a one of these trusts for another person, it was likewise the common law that a person could not create such a trust for himself. The theory was that it would be unfair, if not fraudulent, to allow a person to put his assets beyond the reach of his own creditors.

This age old rule has been changed by statute in a few states including Nevada. In Nevada a person can create one of these trusts for himself - called a self settled trust - upon certain conditions. Those conditions include:

1. The Trust must be irrevocable.

2. The Trustee must be a Nevada resident or a Nevada bank.

3. At least part of the Trust assets must be located in Nevada.

4. The Trustee's powers to distribute to the Settlor (the person who creates the trust) must be purely discretionary. That means that the Settlor cannot force the Trustee to make any particular distributions to the Settlor.

The validity of The Spendthrift Trust Act of Nevada has not yet been decided by the Nevada Supreme Court. If you would like to research the Act found in Chapter 166 of Nevada Revised Statutes, you can find a copy by clicking here.

If you would like assistance in preparing one of these very effective asset protections tools for yourself and your family, you can contact our firm by clicking here.

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