A Conversation with Steven J. Oshins
On Nevada Asset Protection and Trust Planning: A Conversation with Steven J. Oshins, Esq., AEP (Distinguished) – Interview conducted by Neil Schoenblum, J.D., LL.M.
Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC (www.oshins.com) in Las Vegas, Nevada, with clients throughout the United States. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He is listed in The Best Lawyers in America® and has been named The Best Lawyers’ Las Vegas Trusts and Estates “Lawyer of the Year” twice.
Mr. Oshins kindly agreed to an in-depth, four-part interview on Nevada asset protection and trust planning. Part I of this conversation focuses on the Nevada Asset Protection Trust; Part II on the Hybrid Nevada Asset Protection Trust and the NAPT plus LLC(s) Structure; Part III on the NING Trust; and Part IV on Nevada Dynasty and Directed Trusts as well as recent developments.
Part I: The Nevada Asset Protection Trust
(Published: May 8, 2015)
Schoenblum: In 1999, Nevada became one of the very first states to enact legislation allowing domestic asset protection trusts. Approximately how many Nevada Asset Protection Trusts (NAPTs) have you designed and implemented since then?
Oshins: I lost track a long time ago, but it must be around a thousand NAPTs if you count both regular NAPTs and Hybrid NAPTs.
Schoenblum: Are these NAPT clients mostly Nevada residents? Out of state? Or a combination?
Oshins: It’s a combination of both. For the Nevada residents, we typically use regular NAPTs and for non-residents we typically use Hybrid NAPTs. The great thing about NAPTs is that there’s a use for both residents and non-residents.
Schoenblum: When selecting the appropriate asset protection trust jurisdiction, there are some factors that can vary widely from state to state. In your experience, which of these factors have your clients placed the greatest emphasis on?
Oshins: It is more me explaining to them why Nevada is the #1 domestic asset protection trust jurisdiction than them putting greater emphasis on certain factors. The good news is that I have never had even one client disagree with using Nevada once they learn about the differences. Probably the biggest factor is the short two-year statute of limitations in Nevada. After all, why would anyone set their trust up in a state like Alaska or Delaware where they have to wait four years when they can obtain protection in only two years under Nevada law? Secondly, clients love that Nevada has no exception creditors. Exception creditors are certain classes of creditors who, under applicable state law, can penetrate a trust despite there being a domestic asset protection trust statute in place. Nevada and Utah are the only two states with that advantage.
Schoenblum: Regarding pre-existing creditors, there is a six-month discovery extension, meaning they must commence an action to challenge the transfer to the NAPT within the later of (i) two years from the date of transfer of the assets or (ii) six months after the creditor discovers or reasonably should have discovered the transfer. Nevertheless, does Nevada’s statute provide for a way for this potential six-month discovery extension to be effectively limited?
Oshins: Yes, Nevada has this spectacular statute allowing the six-month clock to start ticking by merely making the transfer a matter of public record. So we will often record the assignment to the trust in both Clark County, Nevada and in the county and state where the client resides in order to obtain this benefit.
Schoenblum: Before the two-year window shuts and bars suits by creditors, is the settlor left wholly vulnerable? Or rather, even during this seasoning period, would a creditor need to prove “by clear and convincing evidence” that the transfer of property to the spendthrift trust was fraudulent or “violates a legal obligation owed to the creditor under a contract or a valid court order”?
Oshins: The way the Nevada statutes are drafted, the two-year statute of limitations is separate from the question of whether you can obtain immediate protection. The two-year statute places a limit as to when a creditor may bring an action. The transfer to the spendthrift trust can be protected immediately rather than having to wait out the two years. A creditor who brings an action during the first two years won’t necessarily win. This distinction is often missed by planners and creates an amazing planning opportunity.
Schoenblum: Nevada and Utah are the two asset protection trust states without any statutory exception creditors. Can you give examples of the types of exception creditors found in the other states?
Oshins: In Alaska, for example, divorcing spouses are exception creditors. Another example is Delaware which has divorcing spouses, alimony, child support and preexisting tort creditors as exception creditors. So, for example, you would never have a physician set up a DAPT under Delaware law given that physicians are worried about possible preexisting tort creditors.
Schoenblum: And these statutory exception creditors could pierce the trust even after the state’s applicable statute of limitations period has expired?
Oshins: Yes. That is why to avoid these states.
Schoenblum: In your Annual Domestic Asset Protection Trust State Rankings Chart, you recently added an additional factor: whether a new affidavit of solvency is required for each transfer into trust. What led to this addition?
Oshins: This may be the most important difference among the DAPT states. Since our clients don’t always follow our instructions, it is imperative that we make the plans as user-friendly as possible. Six of the DAPT jurisdictions require the settlor to execute a new Affidavit of Solvency for each and every new transfer to the trust. If the settlor fails to follow that statutory requirement, then that transferred asset will not get the benefit of the state’s asset protection trust benefits. This is a huge deal since I know that people are failing to follow these rules. I get a lot of input from practitioners throughout the United States each year. This particular item is a big deal to many of the planners. For example, I just had an attorney refer me a family that had some Alaska DAPTs where they had neglected the Alaska Affidavit of Solvency requirements. We moved the DAPTs to Nevada to fix the problem going forward.
Schoenblum: While there must be a Nevada trustee to take advantage of the state’s asset protection trust laws, and while the NAPT must be irrevocable, Nevada’s statute permits settlors to retain seemingly broad powers and rights. What are some of those?
Oshins: Some of the more important powers that can be retained by the settlor include the power to be the investment trustee, the power to fire and hire trustees, the power to veto any proposed distributions and the power to appoint the assets to anyone but the settlor, the settlor’s estate, the creditors of the settlor or the creditors of the settlor’s estate. There’s a lot of ability to retain control and flexibility under Nevada law.
Schoenblum: And, under Nevada’s statute, the settlor can use real or personal property owned by the NAPT?
Oshins: That is correct.
Schoenblum: If the settlor wants to remain involved with trust investments, how do you typically accomplish this, i.e., appoint the settlor as investment trust advisor under Nevada’s directed trust statute, as an investment co-trustee, or in some other manner?
Oshins: I usually appoint the settlor as the investment trustee. I feel that that provides the greatest, simplest manner of retaining investment control.
Schoenblum: To assure that a fraudulent transfer is not being made and since the settlor cannot receive mandatory distributions from the NAPT, settlors should not place a majority of their wealth into the trust. Accordingly, is there a particular percentage of a client’s wealth that you use as framework and specific factors that you consider when advising as to how much should be contributed to the NAPT?
Oshins: Different practitioners have different views about this. I like to start my analysis at about 50% in and 50% out. The larger the net worth, the greater the percentage I feel can be placed in the trust. Whether the client is working and drawing a large salary also influences how much I feel comfortable placing into the trust. I like to ask myself whether, if I were the judge, I would believe that the client would put that much of his or her net worth into the trust without having control over distributions. That answer helps me make solid judgments about what to put into the trust versus leave out of the trust.
Schoenblum: Are you seeing clients turn to the NAPT as part of their premarital planning—either as an alternative to or in tandem with a prenuptial agreement?
Oshins: Absolutely. But I always tell clients that there is nothing more valuable in premarital planning than a prenuptial agreement. If the client is afraid to have that conversation with the future spouse, then the DAPT should be a backup plan. And, yes, the DAPT might work in tandem with the prenuptial agreement.
Schoenblum: What are some of the planning considerations when dealing with NAPT clients in a community property state?
Oshins: The DAPT will have two settlors if community property is being contributed. And since the attorney is jointly representing the clients, this would not be any sort of divorce protection plan. This is being done to protect assets from other types of creditors. And always consider what would happen if the married couple gets divorced in the future. For example, we draft language into our trusts splitting the joint DAPT into two separate DAPTs with equal assets in each DAPT should there be a divorce. And we have each spouse lose control and beneficial rights over the other spouse’s DAPT in that situation.
Schoenblum: What are your thoughts as to whether or not the settlor’s full name should be included as part of the NAPT name?
Oshins: I do whatever the client wants. I am more focused on obtaining asset protection than I am on obtaining privacy. My personal view is that you shouldn’t be afraid to lay all of your cards out on the table. This is why, for example, I usually use Hybrid DAPTs for resident of states other than Nevada – because of the greater protection. It is also why I will often combine the DAPT with LLCs – also because of the greater protection. Privacy doesn’t mean much to me. If a creditor is going to sue, then certainly they will find out about the DAPT during the discovery phase. But for clients who are concerned about privacy, certainly, we’ll draft the trust without including the client’s last name in the name of the trust.
Schoenblum: Thank you, Steve, for your time and for providing all of the foregoing valuable insights concerning Nevada asset protection trust planning. In Part II of our conversation, we will remain in the asset protection trust arena but will explore a couple of related techniques that might even yield greater protection than a traditional NAPT: the Hybrid NAPT and the NAPT plus Nevada LLC(s) structure.
Steve Oshins was interviewed by Neil Schoenblum, Senior Vice President, Wealth Management at First American Trust of Nevada, LLC. Mr. Schoenblum specializes in asset protection and trust law, particularly the advantages offered by Nevada. He can be contacted at (702) 784-7611 or by e-mailing firstname.lastname@example.org.