Protecting Your Wealth One Piece At A Time

What is a self-settled spendthrift trust?

On Behalf of | Aug 13, 2021 | Estate Planning |

Choosing how you go about protecting your assets can involve many considerations, including minimizing taxes and avoiding probate. Creating a trust can be an excellent choice to achieve your financial goals and Nevada provides one of the most powerful tools to do so.

Spendthrift trust

A traditional spendthrift trust has often been used to pass on assets to children. But rather than passing the assets all at one time, the asset principal remains in the trust while the beneficiary receives disbursements instead of everything at once. This allows the creator of the trust to control the amount and timing of the disbursements.

One of the advantages provided by a spendthrift trust is that it provides a great deal of protection against creditors. Since the beneficiary has no control over the asset itself, creditors can only lay claim to the disbursements. Meanwhile, the principal remains unavailable to them.

Self-settled spendthrift trust

Nevada allows an individual to create a spendthrift trust for themselves, known as a self-settled spendthrift trust. The statute allowing such trusts is one of the best in the nation, with many advantages not found elsewhere.

Like a typical spendthrift trust, the self-settled version protects the asset from creditors. But it also provides a shield against former spouses. There is a two-year window following creation of the trust in which creditors can attempt to lay claim to the asset. But once that has passed, future creditors cannot access it. Furthermore, Nevada does not tax the income from a self-settled spendthrift trust.

The requirements for creating such a trust must be followed precisely, such as at least one trustee must be a resident of Nevada. And the trust must not be created with the intent to delay or defraud creditors. But meeting these requirements and setting up the trust can provide you with powerful financial protections in the future.