Legal considerations when creating spendthrift trusts

On Behalf of | Jan 16, 2018 | Trusts

People in Nevada have the option of forming spendthrift trusts to transfer assets to beneficiaries. These legal instruments also go by the label of domestic asset protection trusts. Although they possess features that could protect assets, the grantor of the trust should take care not to appear intent on impeding legitimate claims from creditors or accessing the funds for later personal use.

Funds or assets placed into a trust that could have been used to meet an obligation to a creditor have the potential of being designated as voidable transactions or fraudulent conveyances. A creditor might make a claim that the grantor used the trust specifically to segregate assets from a creditor’s reach. A creditor might prove such an accusation by showing that the grantor knowingly wanted to hinder, delay or defraud a creditor.

When creating a trust, a person could build defenses against claims of fraud. To shield a person from possible legal claims, an attorney should ensure that a person understands that placing assets in a trust represents giving up legal possession of them. Someone should also avoid putting more than 40 or 50 percent of liquid assets into a trust.

Although the creation of a trust requires careful scrutiny of possible future liabilities, a spendthrift trust could accomplish many goals for a person. Benefits such as management of a young heir’s access to wealth, prenuptial planning, privacy and reduction of taxes may all result from the effort. An attorney familiar with trust planning might evaluate the specific liabilities of a person who wants to form a trust for purposes of charity or the benefit of a special needs person. After studying the person’s financial position, an attorney may propose how to pursue the person’s goals for asset protection and wealth transfer.