- Hey guys, Toby Mathis here, and I'm joined by John Anderson of Anderson Business Advisors. And today we're going to dive
into everything you want to know about Nevada Asset Protection Trust, and more importantly, how
you can put one together. So first off, hey John, welcome. - Thanks, it's great to be here. - All right, John's been here
before, he's a trust expert, a trust attorney, deals with
this stuff day in and day out, so it's really easy for him. And what I've asked him to do is, please make it easy for us. So John, I'm going to hand
it to you so you can explain what Nevada Asset Protection Trusts are and who might benefit from 'em, and then if it is something
that would benefit somebody, how they could actually put one together. - Sure, so in order to understand the Nevada Asset Protection Trust, we've got to kind of
understand what we had before when it comes to trusts
and asset protection. So primarily there's two types of trust. You have revocable and irrevocable. If you have a revocable trust, there is no asset protection at all. But we could use irrevocable trusts to provide some asset protection. But in order to do that, you
had to either give up control or not receive any kind of benefit from the assets in the trust. So if you think back to, you know, when Mitt Romney was
running for president, there was a big uproar about
how he had so many assets and he could use his position as president to enrich himself. And one of his proposals was that he would create a blind trust where he would turn over all
of his assets into a trust and give full control over
to an independent trustee. He wouldn't have any control over it, he wouldn't even know what
they're doing in there, and that way he couldn't
technically enrich himself. That's what we used to have to do in order to get some
protection out of a trust. But that changed in
1997, Alaska, you know, they don't have anything
else to do up there, decided to create a whole new trust that, what we do is we take
and we split the trustee powers into different pieces, and
I'll explain that in a minute. But it allowed the grantor, the
person who creates the trust to still have some
control over the assets, but still provide asset protection. Alaska did this in order
to try and draw business to the state, particularly the banks, because one of the requirements
was one of the trustees had to be a bank in the state of Alaska. So that was their motivation for this. Since then, 19 states
have adopted these laws of those states that have adopted it. The two best states are
Nevada and South Dakota. The reason why they
are considered the best or the strongest for asset protection is because they have what's called a no statutory exception for creditors. Meaning that in most of the other states they have some type of
a creditor like alimony, child support, other types of creditors that can access the assets in the trust, but in Nevada and South
Dakota, there's nobody allowed to access the assets in the trust without the approval of a, what's called a distribution trustee. So let's talk about
kind of what is involved when you set up one of these trusts. So it's an irrevocable trust. That means once you sign the document, you can't change the terms. I mean, there's some limited
changes you can make to it, but for the most part,
it's going to be set. You have a statute of limitations period, or what we call a seasoning
period where the assets need to sit in the trust
for that time period in order to get the full
protection from the trust. Now, it does give some protection, even if it's before the
seasoning period has ended, but we want to at least
get the assets in there for that full seasoning period. Now, depending on the
state where you're at, it's going to have a
different seasoning period. Nevada has one of the
lowest seasoning periods, which is two years or six months, depending on if you make publications. If you do publications at six months, if you just transfer the assets but don't do any kind of
notices or publication, it's two years. Now, I talked about how the
trustee powers are split. They're actually split into
three different trustees. You have an administrative trustee, and this is the person who
signs on behalf of the trust. They move the assets around. You have an investment trustee who determines how assets
within the trust are managed. So for example, if you
had a house in the trust, you wanted to sell that
house, the investment trustee would tell the administrative
trustee, go sell that house, take the proceeds, and
go buy this new house in the name of the trust. So the investment trustee is telling the administrative trustee how to actually manage the assets. The third trustee, and this is where we get
the asset protection from, is what we call a distribution trustee. This has to be a independent person, typically from the other trustees, has to be independent from the
person who creates the trust, the grantor, and it also has to be someone who's located in the state of Nevada. So that we can avail ourselves
of the laws of the state. So we can use Nevada laws. Now the distribution trustee
is the only person authorized to allow for a distribution. That doesn't mean they have
access to the assets themselves. It just simply means
if you as a beneficiary want a distribution, you want to pull out $100,000. You have to go to the distribution trustee and say, "Hey, I want to pull
out $100,000 from the trust." The distribution trustee
has full discretion on whether to say yes or no. If they say yes, then they tell the administrative trustee "Hey, take $100,000 out of the trust, go give it to the beneficiary." Okay, now, of those three trustees, you as the grantor can be
the administrative trustee and you can be the investment trustee. So you can take an asset, you
can put it into the trust, you can still manage it and control it. You're the one that has the authority to sign on behalf of it, but
you just don't have the ability to remove the asset from the trust. That's only the distribution trustee. So that means if a court
tries to get to the assets, you can just simply tell them, I don't have access to these
assets, someone else does. And in order for me to remove it from the trust to give to the creditor, I'd have to have their approval first. And the distribution
trustee has full discretion on whether to allow that or not. So if the court says, "Hey,
pull this out of the trust," the distribution trustee can just say, "No, I'm going to keep it in the trust." And that's what allows us to
have this asset protection because you don't have the authority to pull assets out of the
trust a third party does, okay? The trust is also a grantor
trust for tax purposes. That just means it's a path through. If you put a business into the trust, you still file your
taxes exactly the same. It just flows straight through
the trust to you personally. So it doesn't create
any kind of tax issues. And then also one thing
that's fairly unique to Nevada is they, within the code, it allows you to remove an asset from
the trust temporarily to, you know, refinance or use it as collateral
or something like that. And then put it back into the trust, and it doesn't reset the seasoning period or the statute of limitations period. So if you've had a property in there, it's been there for two years, you decide, "I want to refinance this property," you could pull it out of the
trust into your own name, refinance it, and then put
it right back into the trust. And you're not restarting
that seasoning period. So that's another
advantage that Nevada has over most of the other states. Now, you as the grantor, what kind of powers do you retain? You still have some
control over the assets as far as how they're
invested within the trust. You have veto power
over the distributions. So even if a, I mean this
probably wouldn't happen, but if a court ordered a
distribution from the trust and for some reason the
distribution trustee said yes to it, you still have the power to veto that and say, "No, I'm going
to veto that distribution. You can't pull that out." You can have powers of appointment. Now, power of appointment
is where you can redirect what's going to happen with
the assets after you pass away through something like a living will or not a living, a living trust or a will. It allows you to kind of change
who the beneficiaries are. The problem with an irrevocable
trust is you can't go in and change who the beneficiaries are or redo the trust very easily. But there's ways around that
by using powers of appointment or even having a living trust tied to as a contingent beneficiary
on the irrevocable trust. So you can remove and replace a trustee. So for example, if you
named a distribution trustee and you decide, "I don't
want to use them anymore, I want to get a new distribution trustee," as long as it still qualifies
as a Nevada trustee, you could fire that trustee
and go hire a new one. So you still have the
ability to move around who the trustee is going to be. And then you also have the
use of the trust assets. So if you put, a lot of
people will actually use this as protection for their
personal residence. So you can have the use and
enjoyment of your personal home have it within this trust and protect it from potential creditors. So what kind of protection
does this actually provide? So the beneficiary can't
assign or demand access to any of the trust assets. And because the beneficiary can't do that, that also means a court can't force it. So any powers that a beneficiary can have, a court can exercise on their behalf. So we got to make sure
that the beneficiary doesn't have any kind
of rights to the assets or to request or require a
distribution from the trust. Distributions can only be made directly to a named beneficiary. So if you have a creditor,
we can't make a distribution, if we're the distribution trustee, we couldn't make a
distribution to that creditor because they're not a named beneficiary. And if you even tried for some reason to assign your interest,
your beneficial interest, the distribution trustee can
just say, "Nope, can't do that. I'm not going to honor that in any way." So it really does lock down the assets so that no one can really get to them. And then also the trust can
make payments on your behalf. So for example, if you have a lawsuit that's coming against you and you've got income
coming into this trust, you could technically have the trust go and pay for your mortgage. It could pay for your utilities, it could pay for your
food and things like that. That's not necessarily
a distribution to you, it's just paying for those
things straight out of the trust. And so it allows you to have
creditors coming after you, but they can't get to anything. But you can still receive benefits from the trust indirectly. It's not distributions of cash to you, it's paying for whatever your needs are. Now, there's a few things
you don't want to do with a asset protection trust. One is create voluntary insolvency. In this situation, you would
be taking all of your assets and putting it into one of
these irrevocable trusts. If you do that, you create
voluntary insolvency because you don't have any assets anymore. And that can trigger as
a fraudulent transaction and undo the trust. So we don't want to do that. We want to keep some
assets out of the trust, but we want to have
other assets in the trust that are going to be
segregated and protected. I'll show you what that might
look like here in a minute. You don't want to declare bankruptcy. You want to try and force the creditor to either do an involuntary bankruptcy, which is incredibly difficult to do, or you just make them sit and you keep getting, you know, the trust to pay for your needs
and things like that. The main purpose of this
trust isn't necessarily to get into that position where you have creditors
already coming after you and they have judgements against you. The purpose of the trust
is when someone sues you, if they have a valid claim,
you can go to them and say, "Okay, maybe you have a valid claim, but I have most of my assets in one of these asset protection trusts. It's going to be very difficult for you to even get to those assets. So let's negotiate, let's settle and maybe for pennies on the dollar we can make this all go away." That's typically what
happens with these trusts. When you look at the case law,
as far as Nevada trusts go, there's only two cases, but these have been around
for a couple decades. The reason for that is
because most of them are just settling out. They don't want to go to court and try and fight these things 'cause it's going to
be incredibly difficult and incredibly costly. So it gives you incredible
leverage in the negotiations if someone is trying to sue you, okay? The other thing is tax avoidance. This is not helping you
with taxes in any way. There are a lot of marketing out there for spend thrift trusts that are going to help
you avoid paying taxes. That is not what a
spend thrift trust does. So income taxes or even estate
taxes, this is not a vehicle for reducing or eliminating
those types of taxes. It's just for protecting the assets from potential creditors. So what would this look like? Let's, you've got your asset, you transfer it into the trust, the trust is going to
manage it by the trustees for the benefit of the beneficiary, which can be you as the beneficiary. The trust can make distributions of income and other assets to you if the distribution trustee allows for it. And then upon your death,
we're going to have some type of a contingency distribution so that the assets can then be
transferred within the trust to whoever you want your heirs to be. A lot of times we actually
use a living trust in that situation to allow
for distribution provisions to be changed. So we would say distribute it according to what my
living trust has set out, and it will allow you more flexibility as far as how you want that to look. As far as structuring it
goes typically the situation where we want to use one of these trusts is where you have a high liability, right? You know, I set these up for
doctors, restaurant owners who are serving alcohol,
tow truck drivers, or they have a tow truck business, they get sued all the time. So where we've got this high liability, we're going to have that segregated. You're going to own that
business off to the side and then you're going to have
safe assets like real estate. If it's not too risky, some
real estate can be risky, you might be a high liability. But safer real estate,
stocks, bonds, cash, things like that that aren't going to create
a liability of their own. And we'll put those into typically some type of a holding LLC, like a Wyoming LLC, and then
we'll have the ownership be 90% to the asset protection trust, 10% to you as an individual or to your living trust if you have one. The reason why we give you 10% ownership is because if you don't have any creditors coming after you, you
can take a non-pro rata distribution out of the trust. And so you can get
income from these assets and you don't have to go through
the distribution trustee, but as soon as you have a
creditor coming after you, you can switch it and you have the income going into the asset protection trust and not to you personally. When you take out non-pro
rata distributions from like an LLC, it skews
the capital accounts. In other words, what we're
doing is we're almost creating a lien on behalf of the
asset protection trust for that holding LLC. So if a creditor comes along and somehow they force the
liquidation of that LLC, first thing you have to do in liquidation is even out the capital accounts and the trust is owed
a whole bunch of money because we've skewed the capital account in favor of you as an individual, and so there's a bunch of
money owed now to the trust. So that creates asset
protection in that situation. Because if you've got the high
liability outside the trust, if they sue you, they somehow
get to you personally, then all the assets are locked down under this asset protection trust. If you didn't have an
asset protection trust and you just had the LLC, they could get a charging
order against you. Now they may not be able to
actually get to the assets, but you wouldn't be able to make any kind of distributions to yourself. If you make a distribution from
the LLC to you as the owner and they have a charging order against it, all that money goes to the creditor. But if we have the asset
protection trust in place, the asset protection trust,
like I mentioned before, can pay for personal expenses. We can get around the charging order. So it's giving even more protection than just what an LLC
would provide on its own. And so it's very difficult
to get into these trusts. It's going to cost the creditor a lot of time and a lot of money. And so most of 'em will
just settle and allow you to, you know, get out of
the lawsuit fairly easily. The two cases where we do have someone that challenged the
asset protection trust, both of them are divorce cases. In one of the cases the trust was upheld and the other spouse could
not get access to it. The other case, the trust was,
the spouse was allowed access to the assets in the trust. But the reasoning why
under the court ruling was because the lawyer who
drafted the trust screwed up. And he said it was a revocable trust, not an irrevocable trust, okay? That was why they were allowed access. And in that case it had to go all the way up to the state supreme court before they could even get that ruling. If you looked at the legal fees versus how much the
marital assets were worth, it far exceeded everything that they had. It was basically mutually
assured destruction each spouse just hated each other and they were just willing to do anything to just destroy each other in the courts. And most creditors are not
that vindictive. (chuckles) Maybe an ex-spouse, but
other types of creditors are not going to be going that far. So you're able to get
quite a bit of protection for the assets in the trust. Now one one little story about
how these trusts protect, even in the case of a divorce,
there was a case in Texas, rich billionaire guy. Texas is community property. So I'm going to ask you Toby,
what you think the outcome was. So we've got community property or do you already know this case? - No, I don't, gimme the facts. - Okay, so Texas community property. Married for over 30 years. The business that's worth all this money was founded while they were married. The husband put most of the assets into, it was a South Dakota
Asset Protection Trust and divorced his wife.
- Did the wife know? - The wife did not know. - Yeah, then that's a
community asset, so she's yeah. That's going to get pierced. - So in the court they, he filed for divorce, how
much do you think she got? - I mean, if I'm that judge and I clerked for a divorce lawyer who ended up being a
judge, I would imagine that they would make
an example out of him. So if it was me, if I'm that judge, I'm probably punishing the guy for secreting marital assets. But what happened? - So this actually made national news, it was written up in Forbes, CNBC, Wall Street Journal
all did stories on this before it even got to the court case. Basically lampooning this
rich billionaire guy. There was, you know,
women's rights organizations protesting his company and him personally. I mean, it went on and on
because of COVID partially, but in the end she settled for less than a hundred million dollars. - Oh, so she ended up, they didn't take the
asset out of the trust. It seems to me like that
would've been a community asset that they transferred in there. So there would have to be something where-
- There was. - Yeah, that doesn't make sense to me. - So, basically the costs of
actually going after the assets and trying to pierce one of these trusts was going to take so much
time and so much money that the wife just said,
screw it, I'll take, you know, we don't know the specific amount 'cause it's in a settlement, but she said it was less than a
hundred million dollars. - Did the court have
jurisdiction of the assets? I mean, he must have had something that was not in the State of Texas. - They never got that far in the case. - Yeah, that sounds like
he secreted marital assets. And I would expect the court to treat it much like, I know there's
the case in Washington where they had an Alaska
Trust and a guy went bankrupt and they used the 10 year
clawback to get it out. I would say that the court
would've been apt to say, "Nope, take it out" and grab the guy. And you know what they like
to do is put you in jail for contempt until you
move the asset, right? So even if they don't have
jurisdiction over the asset, they might still have jurisdiction over the person and force
them to do something. But she gave up, huh? - Yep, she gave up. Even for, you know, she was owed, I mean the estimate, they don't, there's a lot of different
estimates I've read out there, but it's between one and $3 billion. - Yeah, I'm not familiar,
but she might've just said, "You know what, a hundred
million I'm good." Or whatever it is. Do we even know the amount
or is it just hyperbole? - It's, we don't know the exact amount, but she has publicly said it was less than a hundred million. - Geez, yeah, I'm not familiar with that. I'm going to take a look at that now. But yeah, that smacks of unfairness. And here's the thing, whenever you have a fraudulent
conveyance, these things don't necessarily work
or voidable transaction. I have a creditor and I remove it. There's a timeline where
it starts ticking, right? And then it can work. But generally speaking,
when you're moving assets, like whether it be Medicare or bankruptcy or you put yourself in insolvency, which means you have less assets
than you have liabilities, court can undo that, they
can unring that bell. - They can, but it's going
to take quite a bit of effort on behalf of the creditor to be able to get to those assets. That's why you don't want
to declare bankruptcy with one of these trusts
you just sit on it and just say, "Hey, I'm
just going to sit on this for a long time until the
statute of limitations or something runs out. If you want to try and get to, you know, something out of it, let's
go to the negotiating table and settle this." - So, John, two questions. Number one, are these trusts subject to the Corporate Transparency Act and this new beneficial owner reporting? - Nope, they are not subject to the Corporate Transparency Act. It's another benefit
of one of these trusses you can hide assets. - Number two, how do you set one up? Is it something you have
to file it with the state or is it something you just document with a trust attorney like yourself? - So it's not recorded
or published in any way. You draft up the documents, sign it. Once the trust is signed, it is legal and then you have to fund
or transfer the ownership of the asset into the name of the trust. So if it's, that's why we often
will use a holding company. So you'll have a holding company on title so no one will even know
that this trust exists. - Yeah, and then do you publish any notice or do you do anything that
puts anybody on notice that you've set up the
trust and funded it? - You can, if you want to shorten that statute of limitations period from two years to six months, you can make a publication
in a newspaper about, "Hey, I set up this trust and assets have been transferred into it." Some people want to do
that, some people don't. Some people just want to
keep it on the down-low. They don't want anybody
to even know about it. That just means you have a two year statute of limitations period
instead of the six months. - And then who do you normally
make as the beneficiary? So let's say that I'm married, but I am really bad at marriage and let's say you're, you know,
rich executive at a casino who likes to go through
wives or vice versa, a wife who likes to go through husbands or somebody who likes to go
through partners, whatever. Is there a language
that we can put in there to protect ourselves so that
you don't create a trust and then you get a divorce and now my spouse is still
the named beneficiary? - Yeah, so we can
technically write it in a way that we can say that your
spouse can be a beneficiary, but we don't kind of
identify who that spouse is. - My then spouse. - Right, so when they
become your ex-spouse, they're no longer a
beneficiary of that trust because it's only your
spouse that qualifies. And then if you get remarried, hey, your new spouse is now a beneficiary - So they can have distribution. So if you get the
lightning suit out of you, they can still get assets
to help your household. Is the beneficiary, yeah, go ahead. - Yeah, we might also, you know, name you and your kids as the beneficiaries so that when it goes to court you can say, "Hey, I set this up for
the benefit of my kids." - Pretty wild, so I think
you did a really good dive. I just sat back and listened 'cause I thought you
were doing a great job. If somebody wants to set one up, can they just reach out to you? I mean, I could put a link
that gives 'em a consult and get set up. - Yeah, you can reach out to me. Probably the best way is to email EstatePlanning@AndersonAdvisors and I've got a secretary and
some paralegals that man that, and they'll set you up an
appointment with me directly and we can talk about how
to set one of these up, whether it's a good fit for you or not. I talked to one client this morning that thought they wanted one of these, but after going through
all of their things it really wasn't a good fit
for what they were doing. So you really need that higher liability that you're worried about. If everything you've got is
just low liability, LLCs, corporations, those types of
things will work just fine. You don't need to add
this on top of it, so. - Perfect, well I appreciate
you coming on and educating us and I'll make sure that that link gets put in the show
notes, thanks again, John. - Hey, you're welcome, have a good day.
