Just a few weeks ago, the Nevada Supreme Court issued their ruling in a case involving a domestic asset protection trust (DAPT) or a self-settled spendthrift trust (SSST), which our office calls the Nevada On-Shore Trust. The court decision can be accessed here.
This case involved a dissolution of a marriage and whether a SSST can be invaded to satisfy a judgment for child support. In this case, Klabacka V. Nelson, the Nevada Supreme Court expressly upheld the validity of Nevada’s “self settled spendthrift trust” statute, found in Nevada Revised Statutes, Chapter 166. In the Court decision, the requirements for establishing a SSST were reinforced:
“A spendthrift trust is created ‘if by the terms of the writing (construed in the light of [NRS 166] if necessary) the creator manifests an intention to create such a trust.’ In addition to the spendthrift requirements, to create a valid SSST, NRS 166.015(2)(a) requires the settlor to name as trustee a person who is a Nevada resident. Further, NRS 166.040(1)(b) provides that the SSST must (1) be in writing, (2) be irrevocable, (3) not require that any part of the trust’s income or principal be distributed to the settlor, and (4) not be ‘intended to hinder, delay or defraud known creditors.’”
We also note that the Court’s decision specifically stated that Nevada’s SSST statute is not subject to any type of “exception creditors.” Many states which have joined Nevada in offering DAPTs, have built into their statutes exceptions for certain types of creditors, such as child support, alimony, tort creditors, or contract creditors. While these other states may have their own purposes and public policy in mandating certain exceptions to the protection of an SSST, the Nevada Supreme Court has made it very clear that the intent of the law in Nevada is that Nevada-based DAPTs are to be free from exception creditors. The Klabacka case states:
“We conclude Nevada SSSTs are protected against the court-ordered child support or spousal support obligations of the settlor/beneficiary that are not known at the time the trust is created.”
This court decision adds to the commentary and writings of many practitioners in this area of the law and reinforces the claim that Nevada is the best state for establishing DAPTs/SSSTs, or the Nevada On-Shore Trust. If you would like more information regarding the Nevada On-Shore Trust, please investigate our website or contact our office to schedule a consultation.