with Northwest Trustee & Management Services

Introduction

To better serve our clients, we (Northwest Trustee & Management Services (NWT)) launched our Nevada affiliate, Northwest Trust Company of Nevada (“NWTCN”), providing access to planning opportunities available only in traditional trust jurisdictions. We chose Nevada because its laws are designed to give the drafting attorney significant flexibility and because it is friendly to trust administration and geographically convenient. Paired with the tax, privacy and asset protection benefits of Nevada trust framework, these benefits increase the client’s user experience. 

With nearly 40 years of professional trust and estate administration serving clients in the Northwest, we believe local jurisdiction trust administration remains the right answer for most clients and most situations. Nevada is an additional resource, not a replacement. 

Multi-Jurisdictional Planning and Why Nevada

Clients increasingly request multi-jurisdictional planning—often driven by relocation—and we want to continue to serve clients as their circumstances change. From our point of view, multi-jurisdictional planning supplements, rather than replaces, whatever planning the client already has in place in their home state. We observe clients incorporating a jurisdiction like Nevada for these five primary reasons: (1) taxes, (2) asset protection, (3) dynasty, (4) privacy, and (5) administrative flexibility. We have a physical location in Reno, Nevada to support direct, onsite trust administration subject to and taking advantage of the laws of the State of Nevada.

If your client is asking about Nevada planning options and you are not yet familiar with Nevada’s laws, the great news for drafting counsel is that Nevada’s primary rule is that the trust instrument controls. [See NRS § 163.004.] The drafter has near-total autonomy to establish the rights of beneficiaries and the duties of trustees by agreement, which, in practice, means an attorney can adapt an existing trust template for Nevada purposes with limited modifications. The trust templates you currently use are already enforceable in Nevada. The drafting focus is on adjustments to comply with federal tax law or differences that appear in practice, not statute.

This paper is a resource for advisors with clients, like ours, asking about Nevada planning options. We aim to provide useful information to aid you and your staff as you deliver advice and documents to your clients.

1. Taxes

A client uses Nevada for tax planning because Nevada has no income tax. Accordingly, non-grantor trust status is crucial to successful tax planning.

COMMON SOLUTIONS

We’ve seen many Nevada incomplete-gift non-grantor (NING) trusts. These trusts are separate taxpayers for income tax purposes but can be funded without creating gift tax or income tax consequences. Accordingly, a client will fund a high-value asset with low-basis into this trust before a liquidation event. The liquidation event happens in Nevada, where you pay federal taxes but no state income taxes.

These trusts are often a temporary solution for a liquidity event. Sometimes multiple trusts are used for a single transaction when the asset is eligible for exclusion from gain under IRC § 1202 (QSBS).

Many PLRs were issued on these trusts over the years, a few of which are:

  • 200502014 The first PLR issued regarding INGs
  • 200729025 3 Member distribution committee
  • 201310002 – NING 201426014 – (later revoked by 201642019) for example of reversionary interest that destroys the planning
  • 201510001 Guardians serve on committee for minors
  • 201653001 Community property issues201908008 – Included charitable component to avoid private foundation restrictions
  • 202017018 Final PLR

IMPLEMENTATION

Documents required:

  • Trust agreement 
  • Assignment of assets to the trust
  • Form SS-4 (EIN for each non-grantor trust)

Reporting required:

  • Form 1041 (federal fiduciary income tax return, filed annually by NWTCN’s CPA)
  • Form 709 is NOT required at funding 

Key drafting considerations:

  • Eliminate all IRC §§ 673–677 grantor trust powers
  • The transfer must be an incomplete gift: include a lifetime limited power of appointment (LPOA), which prevents gift completion under IRC § 2511 while avoiding grantor trust status under IRC § 674(b)(5)(A)
  • Grantor may be a discretionary beneficiary only if distributions to them require consent of an adverse party; the common solution is to create a multi-member distribution committee whose consent is required before making distributions to the settlor; a key element is the members can distribute assets among themselves by unanimous act, which renders them substantially adverse
  • Multi-member distribution committee is important because a single-member distribution committee can create gift tax consequences to that member if/when they consent to distributions to the Grantor
  • Do not give any beneficiary an IRC § 678 power (unrestricted power to vest trust corpus in themselves)
  • No foreign trusts (IRC § 679)
  • For QSBS stacking: document independent purposes for each trust and do not use substantially similar primary beneficiaries to avoid IRC § 643(f) aggregation risk 

2. Asset Protection

A client uses Nevada for asset protection when the client is the wealth creator and will be both the grantor and the beneficiary of the trust. Nevada law protects this type of trust from the client’s creditors.

COMMON SOLUTIONS

A Nevada Asset Protection Trust (NAPT) treats the trust as a separate legal person; a judgment against the grantor/beneficiary does not attach to trust assets. The practical power of a NAPT is deterrence: a creditor evaluating whether to litigate considers both the law supporting the merits of the claim and, just as important, the likelihood to collect on any judgment received. A NAPT increases obstacles to collection which discourages lawsuits in the first place.

Furthermore, for ultra-high-net-worth clients, the often-overlooked dangerous creditor is the child’s or grandchild’s future ex-spouse who may seek to target family money via the divorce. These adverse parties often seek egalitarian jurisdictions to issue inflated support awards, knowing it will require trust assets to satisfy the claims. Nevada is the only no-tax asset protection jurisdiction that protects from these types of claims. (NRS § 166.015; NRS § 166.040-.050)

IMPLEMENTATION

Documents required:

  • Trust agreement 
  • Assignment of assets to the trust 
  • Trustee publication of the transfer (recommended 18 months after initial funding)

Reporting required:

  • Often none: it is usually a grantor trust and incomplete gift; therefore, it does not require an EIN, a Form 1041, nor a Form 709

Key drafting considerations:

  • The trust must be irrevocable
  • Include a spendthrift clause restricting both voluntary and involuntary transfers of beneficial interests
  • A Nevada resident trustee is required (NRS § 166.015)
  • Use solely discretionary distribution standards 
  • Avoid naming co-trustees or trust advisors domiciled in states with creditor-favorable trust law (Oregon, California, Washington) — a co-trustee in an adverse state creates nexus in that state and invites a court there to apply its own law
  • Do not over-fund: assets needed for regular cashflow should not be in the NAPT because discretionary distributions are not automatic; cashflow disruption is both practically problematic and a bad fact in litigation
  • Avoid placing personal use real estate in the trust
  • When placing real estate located in other jurisdiction, use LLCs to own the real estate and then transfer the LLC membership interest into the trust
  • Affidavit of Solvency is a nice addition, but not legally required

3. Dynasty

A client uses Nevada for dynasty planning when the client wants an irrevocable trust to survive for multiple generations without triggering the rule against perpetuities (RAP).

COMMON SOLUTIONS

Nevada abolished the common law RAP by statute (NRS § 111.1031) and replaced it with a flat 365-year maximum trust duration — approximately 12 generations. Irrevocable trusts formed using Nevada law and with a Nevada trustee may exist for Nevada’s 365 years before they must terminate.

IMPLEMENTATION

Documents required:

  • Trust agreement that is governed by Nevada law and sitused in Nevada

Reporting requirements:

  • Make sure the Form 709 allocates GST exemption properly and timely, if GST exemption is available

Key drafting considerations:

  • Sufficient nexus with Nevada at creation: naming NWTCN as trustee of an irrevocable trust from inception establishes the nexus needed to use Nevada’s RAP period
  • Use discretionary distribution standards — mandatory distributions at specified ages pull assets out of the trust and into the beneficiary’s taxable estate, defeating the dynasty purpose
  • Include a trust protector with power to amend for changes in applicable law — a trust drafted today will need to adapt over decades; a trust protector mechanism avoids recurring court involvement

4. Privacy

A client uses Nevada for privacy when the client wants to eliminate an adverse party’s access to trust records and information. This is of particular concern for ultra-high-net-worth families, where a future ex-spouse may attempt to compel disclosure of trust data to leverage a larger divorce settlement. 

COMMON SOLUTION

Silent trusts are designed to eliminate a beneficiary’s right to information. Most families still provide the information to their heirs but eliminating that right is key to preventing adverse parties from accessing the information.

Nevada’s primary rule is that the trust instrument controls (NRS § 163.004). Unlike most states, Nevada strictly enforces this principle and has minimal mandatory disclosure requirements. The only information right that cannot be denied is notice that the trust exists (NRS § 163.004(1)(a)), and even that may be withheld for a reasonable time. All other rights — accountings, copies of the trust agreement, investment information — are subject to the drafting attorney’s control. Discretionary beneficiaries have no statutory right to an accounting (NRS § 165.1207(1)(b)(5)). A beneficiary who has no right to an accounting has no right to the trust agreement (NRS § 165.147). If a court orders disclosure, the information can be directed to a neutral third party rather than the adverse party and can be sealed in the Nevada court record (NRS § 164.041).

IMPLEMENTATION

Documents required:

  • Trust agreement with express privacy provisions (the instrument is the primary vehicle — no separate filing is required) and a mechanism for delivering information to independent professionals who are responsible for informing the court of potential claims, if any

Key drafting considerations:

  • Use solely discretionary distribution standards — discretionary beneficiaries have no statutory accounting right under NRS § 165.1207(1)(b)(5); mandatory beneficiaries do
  • Expressly deny the right to an accounting or an inventory
  • Expressly deny the right to a copy of the trust agreement 
  • Designate a trust protector or independent inspector with limited authority to investigate potential fiduciary claims — this is not optional as a drafting matter; if no independent review mechanism exists, a Nevada court will create one under NRS § 165.145, on the court’s terms rather than the attorney’s

5. Administrative Flexibility

Much like Washington, Oregon and Idaho, Nevada provides powerful and convenient statutory mechanisms for resolving trust administration issues or complications. These tools enable clients to obtain efficient practical administration.

COMMON SOLUTIONS

Nevada’s three primary administrative tools are: (1) Nonjudicial settlement agreements (NJSA) (NRS § 164.940), which allow virtually any modification to an irrevocable trust with the consent of all indispensable parties without court involvement; (2) Decanting (NRS § 163.556), which allows the trustee to distribute assets from an existing trust to a new trust with different terms — uniquely in Nevada, this requires no notice to any party, reducing the ability of a hostile beneficiary to interfere; and (3) Notices of proposed action (NPA) (NRS § 164.725), which allow the trustee to give notice of a proposed action to financially interested parties and, if no objection is received within 30 days, proceed without liability. 

IMPLEMENTATION

No separate documents are required to access Nevada’s administrative statutes — NWTCN’s appointment as trustee is sufficient. 

Key drafting considerations:

  • Use discretionary distribution standards throughout (mandatory distribution language prohibits decanting under NRS § 163.556)
  • Avoid “free of trust” or “outright” distribution language, which also prohibits decanting

Summary

Ultimately, incorporating Nevada’s framework for tax, asset protection, dynasty, privacy, or administrative flexibility is not about replacing local estate architecture, but about equipping drafting counsel with the precise operational tools needed to meet the client’s planning goals and secure the family’s legacy.

This paper is prepared for informational purposes only and does not constitute legal, tax, or investment advice. Northwest Trust Company of Nevada does not practice law.