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Will a Nevada Self-Settled Spendthrift Trust replace the need for a living or family trust, or will it be in addition to such trust(s)?
A Nevada Self-Settled Spendthrift Trust should be used as part of an Integrated Estate Plan ("IEP"), in addition to or in conjunction with your revocable trust. We recommend that you transfer your investment assets, such as stocks, bonds, partnership and LLC interests and real estate into a Nevada Self-Settled Spendthrift Trust. Assets which your revocable trust should continue to hold include your automobile(s), home(s), and other personal property.
Are new transfer documents needed to transfer assets already in a revocable trust to a Nevada Self-Settled Spendthrift Trust?
Yes, you will need to transfer the assets you wish to protect into the Nevada Self-Settled Spendthrift Trust. Without the appropriate transfer documentation, those assets which you intend to transfer into a Nevada Self-Settled Spendthrift Trust would remain vulnerable to creditor attack.
Will I maintain complete control over whatever property I transfer into a Nevada Self-Settled Spendthrift Trust?
Nevada law allows you to control the investment and most administrative aspects of your Nevada Self-Settled Spendthrift Trust. The only significant limitation on your ability to control property transferred into a Nevada Self-Settled Spendthrift Trust relates to distributions of trust property made to you, the grantor. The law states that the terms of a Nevada Self-Settled Spendthrift Trust may not require that distributions of trust income and/or principal be made to the grantor/beneficiary of the trust. Nevertheless, the selection of a friendly yet independent Distribution Trustee should provide you with the reasonable assurance that you will still have reasonable access to whatever property you transfer into your Nevada Self-Settled Spendthrift Trust. Furthermore, the law allows you to control the distribution of your Nevada Self-Settled Spendthrift Trust income and principal made to the other beneficiaries of your Nevada Self-Settled Spendthrift Trust (i.e., you may retain the power to veto any distributions of trust property made by your Distribution Trustee to the other beneficiaries of the trust).
May a non-Nevada resident serve as the Distribution Trustee of a Nevada Self-Settled Spendthrift Trust?
Yes. The law requires that at least one of the trustees of a Nevada Self-Settled Spendthrift Trust be a Nevada resident. This means that you can have a Nevada resident serve as the Investment/Administrative Trustee of your Nevada Self-Settled Spendthrift Trust (i.e., if you are a Nevada resident, you can serve in this capacity) and a non-Nevada resident serve as the Distribution Trustee, such as a close friend or relative living outside of Nevada whom you trust and who you believe will make trust distributions in a thoughtful manner.
What is the role of a Trust Protector, and does a Nevada Self-Settled Spendthrift Trust require one?
A Trust Protector is an individual or entity that serves to protect the settlor's interest in a trust like a Nevada Self-Settled Spendthrift Trust. Offshore trusts commonly employ the use of a Trust Protector in case the trust needs to move from one foreign jurisdiction to another or where a new Trustee needs to be appointed because the current Trustee is abusing his or her duties as Trustee. Although a Nevada Self-Settled Spendthrift Trust does not require that a Trust Protector be appointed, we recommend that you appoint one in your Nevada Self-Settled Spendthrift Trust. This way, you have the power to have your Distribution Trustee removed if he or she abuses his or her duties as Trustee.
Will property transferred into a Nevada Self-Settled Spendthrift Trust escape federal estate taxes?
Probably not. Since the settlor of a Nevada Self-Settled Spendthrift Trust may retain the power to veto distributions of trust property to other beneficiaries and control the ultimate disposition of trust property when he or she dies, whatever property the settlor transfers into the trust will be included in his or her taxable estate for estate tax purposes. If a settlor chooses to create a Nevada Self-Settled Spendthrift Trust without any power to veto distributions of trust property or to control the ultimate disposition of trust property at death, whatever property the settlor transfers into the trust may qualify as a "completed gift" under the federal Tax Code and regulations and thereby be excluded from his or her estate for estate tax purposes. However, such property transfers will not escape gift tax liability which the settlor would incur at the time of transfer.
How will distributions of trust income and/or principal be made from my Nevada Self-Settled Spendthrift Trust?
Distributions of trust income and/or principal from your Nevada Self-Settled Spendthrift Trust can be made at such times as the Investment Trustee (usually the grantor/settlor) and your Distribution Trustee deem are in the best interest of the trust's beneficiaries. For beneficiaries who have other sources of income, distributions from the Nevada Self-Settled Spendthrift Trust may not even be necessary, in which event your Nevada Self-Settled Spendthrift Trust assets can be left alone to increase in value.
How should I report distributions made from a Nevada Self-Settled Spendthrift Trust?
A Nevada Self-Settled Spendthrift Trust is not a tax protected trust; rather, it is a "grantor trust" under the federal Tax Code and regulations, causing the trust's income and deductions to be attributable to the settlor (grantor). All income and deductions relating to a Nevada Self-Settled Spendthrift Trust must therefore be reported on the trust settlor's individual income tax return.
Does a Nevada Self-Settled Spendthrift Trust require a separate income tax return?
No. However, we recommend that a separate informational income tax return be filed for a Nevada Self-Settled Spendthrift Trust. Since a Nevada Self-Settled Spendthrift Trust is a "grantor trust" under the federal Tax Code and regulations, all the income and deductions relating to a Nevada Self-Settled Spendthrift Trust must be reported on the trust settlor's individual income tax return. Thus, if you create a Nevada Self-Settled Spendthrift Trust, you will report on your individual income tax return all of your Nevada Self-Settled Spendthrift Trust's income and deductions.
Should a Nevada Self-Settled Spendthrift Trust have a separate Tax Identification Number?
The law does not require that a Nevada Self-Settled Spendthrift Trust have a separate Tax Identification Number, or TIN. However, we recommend that the Nevada Self-Settled Spendthrift Trust have a separate TIN. The main reason for having a separate TIN for your Nevada Self-Settled Spendthrift Trust is to segregate those assets transferred into your Nevada Self-Settled Spendthrift Trust from your other assets held under your name and/or Social Security Number. There are other administrative reasons for having a separate TIN for your Nevada Self-Settled Spendthrift Trust. For example, individuals having multiple accounts with the same bank or brokerage firm will want to ensure that those accounts transferred into a Nevada Self-Settled Spendthrift Trust have a separate TIN to avoid accounting and other administrative complications. Also, some banks and brokerage firms only allow you to hold a certain number of accounts with the same TIN or Social Security Number. Therefore, having a separate TIN for your Nevada Self-Settled Spendthrift Trust allows you to avoid these administrative problems.