Nevada is fast becoming a popular state for high-net-worth individuals and families seeking greater flexibility, optimal tax savings, and maximum protection in their financial and estate planning. As a trust-friendly state, Nevada offers a range of benefits for new and established residents alike. My colleagues and I at Whittier Trust recommend Nevada as a trust situs for building and preserving wealth, and we have compiled a comprehensive, but not exhaustive, list of state-specific laws, protections and rules that demonstrate why.
Compounding Tax Savings:
Nevada does not have a state income tax, which means that a Nevada trust will generally only be accountable for federal income tax. The lack of state income tax is important to consider when building comprehensive tax planning strategies, as it has a significantly positive compounding effect on the long-term growth potential of wealth.
Extended Perpetuity Protection:
Nevada law allows interests to be held in trusts for up to 365 years, effectively protecting the transfer of assets from one generation to the next free from tax burdens. In contrast, California law allows trust protections for only 21 years after the death of the last trust beneficiary who was alive when the trust was created or 90 years after the creation of the trust.
Directed Trust Protection:
Nevada is one of only a few states that permits the use of directed trusts, which allows certain decisions related to the trust to be made by designated advisors. This grants trustees greater flexibility and control over the trust assets, and is particularly useful for those with closely-held businesses or concentrated holdings.
Decanting and Non-judicial Settlements Option:
Nevada law allows for property from one trust to be appointed, or “decanted,” to a second trust to address changes in the law or to simply consolidate or separate assets. Additionally, Nevada has a well-established non-judicial settlement process, which allows interested parties in a trust agreement to correct mistakes, address ambiguities, and change administrative provisions without the need for court approval.
Domestic Asset Protection Trust:
Nevada is widely considered to be the best jurisdiction for a domestic asset protection trust. It is one of the only states that has a two-year statute of limitations for existing creditors (versus four years in other states). In many cases, trust property is not subject to the personal obligations of the settlor, even if the settlor suffers a legal judgment or becomes insolvent.
Nevada Uniform Prudent Investor Act:
Nevada’s adoption of the Uniform Prudent Investor Act includes an important provision that a trustee’s decision relating to investments in individual assets must be evaluated, not in isolation, but in the context of the portfolio as a whole. Diversification is generally required unless the purposes of the trust are better served without diversifying. This provides a trust with greater flexibility.
Conversion of Income Interests to Remainder Interests:
Nevada state law allows for the reclassification of income-generating assets, such as investments or property, from being held by one person (the income beneficiary) to another person (the remainder beneficiary) for tax planning purposes. This can help to lower the overall tax burden by transferring income to beneficiaries in a lower tax bracket, and also by removing the assets from the estate of the income beneficiary, which can help to reduce estate taxes.
Nevada’s laws, rules, regulations, and protections make it a good state for trusts because they are designed to offer strong protection for trust assets and beneficiaries while providing flexibility in trust management. The state’s laws provide a high level of protection from creditors, making it difficult for them to access assets held in a trust. Nevada also has a pro-trustee approach, which allows for greater flexibility in managing the trust, including the ability to use trusts for a wide range of purposes. Additionally, Nevada’s laws also provide for anonymity, which can protect the beneficiaries’ privacy. Overall, Whittier Trust has found that Nevada’s legal framework creates a strong and secure environment for trusts that is beneficial for both the trust’s assets and the beneficiaries.