The Nevada Asset Protection Trust – Setting Up a NAPT

How to Keep Your Assets Safe from Creditors (Even If You Don’t Live in Nevada)

When it comes to asset protection laws, all states are not created equal.

The bad news is that if you live in California, then you will be dealing with a set of state asset protection laws which are very hostile to debtors.

These include:

  • Low homestead exemption rates. The homestead exemption in California is only $75,000 if you are single and $100,000 if you are married. Several other states have unlimited exemptions, and many other states’ exemption rates are much higher than in California… and that’s not even taking into account California’s high property values.
  • Low exemption rates in general. You’re not just getting shortchanged on your homestead exemption. The motor vehicle exemption in California only goes up to $3,325, the unmatured life insurance policy exemption to $13,975, and non-ERISA qualified retirement accounts do not receive great protection, either, beyond what is necessary for your support upon retirement.
  • Strong fraudulent transfer laws. In California, fraudulent transfer is a criminal matter as well as a civil one, unlike in most states where it is purely civil. Furthermore, the statute of limitations for fraudulent transfer is extremely long, up to seven years.

California’s weak asset protection laws are bolstered by the fact that California is one of the most litigious states in the nation.

This article on widespread abuse of the civil court system in California from a few years back is sobering and well worth reading, detailing how well-intentioned laws such as the Americans with Disabilities Act are abused in order to drive small companies out of business, often by conniving out-of-state trial lawyers who take advantage of California’s lax attitude towards frivolous lawsuits. Meanwhile, California politicians stand by and rarely take measures to curb these excesses.

Clearly, California is not an optimal place to protect your assets. Fortunately, though, you have the option of moving your money further afield…

The Nevada Asset Protection Trust

Nevada Asset Protection Trust

How Domestic Asset Protection Trusts Work

If you are a California resident, you have the option of setting up a domestic asset protection trust (DAPT) in another state.

How does a DAPT work? Well, an ordinary trust has three parties: the settlor, the trustee, and the beneficiary or beneficiaries. In a typical trust, such as the one used for estate planning, the settlor places assets under the purview of a trustee, who will distribute them to beneficiaries in accordance with the provision of a trust.

An asset protection trust is the same thing, with a twist: you are allowed to be both the settlor and the beneficiary. This type of trust is known as a self-settled trust.

Asset protection trusts are not only self-settled, but they are also irrevocable, meaning that you cannot change the terms of the trust without the approval of the trustee. This is necessary for the trust to serve its asset protection function; if the trust were revocable and you had easy access to the money, then it would be easy for creditors to recover it. Making a trust irrevocable sets up a shield around it that allows it to protect your assets.

It may not surprise you to learn that California does not allow for asset protection trusts. However, there are 17 other states which do.

The laws in these states vary, and some are better than others. A few states consistently top the list for being the best states to create a DAPT, including Nevada, Delaware, and South Dakota. In our opinion, though, Nevada is far by far the strongest jurisdiction in which to create a DAPT.

process of setting up NAPT

How to Set Up a Nevada Trust

A domestic asset protection trust set up in Nevada (known, in a stunning stroke of originality, as a Nevada Asset Protection Trust, or NAPT) can be set up by anyone. You do not have to be a resident of the state to create a NAPT.

Nevada doesn’t mind this; if anything, they like the out-of-state business revenue that comes with people creating trusts in their state, which is why they passed the law allowing for NAPTs to be created.

You do have to have a trustee who is a resident of Nevada. You have the option to have multiple trustees, and not all of your trustees will need to be located in Nevada. You yourself can even be a trustee. You will, however, need at least one trustee in Nevada. They might be an actual Nevada resident you know, but more often it will be a bank or other financial institution located within the state.

In practice, therefore, you don’t have to have any personal connection to Nevada whatsoever in order to set up a NAPT. If you do have a connection to Nevada, such as a property there, it may make your trust even stronger, but this isn’t necessary.

The precise legal code permitting NAPTs can be found in the Nevada Revised Statutes Chapter 166.

The Purpose of a Nevada Asset Protection Trust

The primary purpose of a NAPT is to protect your assets from creditors.

In this regard, NAPTs are not foolproof – they can be accessed under certain circumstances – but there is no question that they make your assets significantly safer than they would be if you left them in an account or trust in California.

However, there is a secondary purpose of creating a NAPT, and that is dissuasion.

Remember: most lawsuits end in settlements long before going to court. As a result, much of the process of resolving a lawsuit involves the plaintiff and defendant each negotiating for the best possible settlement they can get.

In this process, there are few bargaining chips stronger than a NAPT.

For those seeking to obtain money from a NAPT, there is very little case law of people having successfully done so. That’s not to say that your case might not be the one to set the precedent, but all things considered, that’s not too likely. Attorneys representing creditors in these cases have very little firm ground to stand on, legally speaking.

A NAPT will let attorneys from the other side know that they will be fighting an uphill battle in trying to get your assets back from Nevada. This will tilt the playing field heavily in your favor, and make the other side much more likely to drop the case entirely or accept a settlement favorable to your side.

In essence, a NAPT sends a strong message that you will not be pushed around by frivolous lawsuits.

The Benefits of a Nevada Asset Protection Trust

So, what exactly makes the NAPT such a good option for asset protection? There are a number of factors, but some of the most important are:

  • Location. One of the most straightforward benefits of a NAPT is that Nevada is very close to California, and the two states share a time zone. This will make it much easier for a Californian to do business in Nevada than it would be in, say, Delaware, and if you end up needing to travel to Nevada in order to oversee some aspect of the trust in person, then this will be also be easier to do.
  • Taxes. Nevada has fairly low tax rates, and it stands above most other states, including many of those which allow DAPTs, in that it has no state income tax for trusts. This means that the trust will be effectively tax-neutral.
  • Statute of Limitations. The statute of limitations in Nevada for fraudulent transfers of assets to a NAPT is extremely short. Creditors have only two years to file a claim of fraudulent transfer – a much shorter period than in many other states. There is also a very short tolling period of six months from when the plaintiff finds out about the allegedly fraudulent transfer.
  • Burden of Proof. For fraudulent transfers in Nevada, the plaintiff must prove their case by the clear and convincing evidence standard. This is a significantly higher standard than the preponderance of the evidence standard, which is used in many other states to adjudicate fraudulent transfers.
  • Decanting. Decanting involves the trustee moving assets from one trust to another. Only a few states allow decanting at all, and of those, Nevada has some of the most permissive decanting laws. This is good news for you if you create an irrevocable trust and later decide to change the terms. By decanting, you can move assets from your old irrevocable trust into a new trust with different terms.
  • Dynasty Trusts. Nevada has an extremely lax rule against perpetuities. This means that, in Nevada, your trust can continue for a very long time – up to 365 years. This will allow the trust to avoid estate taxes even after the initial settlor is deceased.
  • Directed Trusts. Nevada allows for directed trusts. With a directed trust, you can appoint a financial advisor or other party to share the duties of managing the trust with the trustee. This allows you to let someone familiar with your financial situation handle some of the responsibilities rather than giving all the power to a corporation or bank you do not know, while simultaneously allowing yourself to benefit from the resources of the larger entity.
  • Exception Creditors. Many other states, even those which allow asset protection trusts, permit certain classes of exception creditors to have access to the trust even when ordinary creditors do not. These often include divorcing spouses, as well as exceptions for alimony and child support payments. Nevada is unique in that it allows no exception creditors at all.

Other Issues with Nevada Trusts


Some clients might be dissuaded by the fact that NAPTs are irrevocable.

This concern is overblown for a few reasons. First, if you draft your trust thoroughly and carefully, it will likely not need to be changed. (A good attorney can help a great deal in this regard.)

Second, an irrevocable trust does not prohibit you from altering the terms of your trust entirely. It simply prevents you from doing so without the permission of the trustee. Much of the time, the trustee will be amenable to changing the terms, and if they are not, you may be able to change trustees.

Finally, as we mentioned earlier, Nevada’s decanting laws allow you to move money between trusts fairly easily.

Fraudulent Transfer

It is important to note that while Nevada’s laws concerning fraudulent transfer are less strict than those of California, creating a NAPT does not protect you from a claim of fraudulent transfer.

Such a claim will arise if you move money into a trust or other asset protection vehicle with the intent of making yourself insolvent in order to avoid paying a creditor.

This is not to say that you cannot protect your assets at all, but you cannot do so in order to avoid a debt you already owe or one you anticipate owing in the near future. With Nevada DAPTs, as with other forms of asset protection, you must plan ahead proactively.

Nevada Versus the Cook Islands: Why Not Move Your Assets Offshore?

Previously, we’ve written about how to move your assets offshore and into a foreign jurisdiction friendly to asset protection, such as the Cook Islands.

So, when should you create a NAPT rather than a Cook Islands trust?

Well, the most obvious concern is cost. As you can probably guess, moving your assets to Nevada is much cheaper than moving them offshore.

How much cheaper is Nevada? It’s impossible to give an exact estimate, as a lot will depend on your circumstances, but retainer fees for a NAPT start at around $12,000 to $15,000. For starting a Cook Islands or other offshore trust, the fee will probably be closer to $40,000 or $50,000. This figure includes a number of transaction costs, such as IRS reporting, that you must fulfill with an offshore trust but not with a domestic one.

Another concern is the degree of security. The Cook Islands has a number of protections which Nevada trusts do not have. Unlike Nevada, they do not recognize the judgments of American courts. To file a fraudulent transfer in the Cook Islands, a plaintiff will have to overcome a number of hurdles, including an even higher burden of proof (beyond a reasonable doubt) than in Nevada and several procedural obstacles which make it expensive to hire a lawyer.

Nevada trusts do not have these protections; a trustee in Nevada will have to comply with a court order from a judge in California. Since bankruptcy is handled in federal court, bankruptcy judgments also apply across the United States.

However, it is worth noting that an offshore trust is not necessarily foolproof. Even if it is harder to pursue a claim of fraudulent transfer in some offshore jurisdictions, if an American judge gives you a direct order to surrender your assets, you must comply or be jailed for contempt of court.

If you committed fraudulent transfer, you’re going to get in trouble for it, no matter where your money is.

Essentially, a NAPT allows you to enjoy many of the benefits of an offshore trust without the high cost. If you have an extremely large estate or are at a very high risk of a threat to your assets, or both, then you should go offshore, but for moderate-sized estates that face medium to high but not extreme risk, Nevada is likely the most efficient option.

In Summary

Las Vegas may be a city of high rollers, but a Nevada asset protection trust is no gamble. On the contrary, it is a low-risk and low-cost way to keep your assets safe, and with all the Californians who go to Vegas to spend their money, it’s only fair that the state of Nevada would do something to help us save our money for a change.

Creating a trust in Nevada is not difficult with the right financial and legal advice. That is why, if you are looking to create a NAPT, you should speak with an experienced asset protection attorney today.

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