Debts, claims for damages from your employees and consumer protection issues can reduce your small-business assets significantly. You never know when your assets could be in danger, which is why you should take measures to protect them from creditors. One way to do this is by creating a Nevada Asset Protection Trust (NAPT).
What is a NAPT?
A NAPT is an irrevocable trust in which the trust creator (the settlor) can also be the trust beneficiary. Once your assets are within the trust, creditors can’t gain access to them. You can transfer many business assets like intellectual property, inventory, equipment, real estate, and cash to the trust.
Only 17 states allow this type of trust, and Nevada is one of the two states with no statutory exception creditors. This means that the trust will be protected from all kinds of creditors, including a divorcing spouse or child support, alimony and tort creditors.
One of the best features of NAPTs is you can still have indirect control of your assets even if they are irrevocable trusts. This works because, in NAPTs, you cannot make distributions of your assets without the approval of another person, called the distribution trustee. You can receive the assets because you can appoint yourself as a beneficiary of the trust. Still, you can’t control the distributions, which is why creditors can’t claim the assets. However, as the settlor, you can change the terms of the trust and deny any distributions. Another Benefit of NAPTs is that they are exempt from all Nevada personal and corporate income tax.
Creditors cannot access your assets after you transfer them to the NAPT. However, there is a limitation that you must keep in mind. Your assets will only get protection from future creditors after two years that you made the transfer. This means that you cannot transfer your assets right after someone threatens to sue or sues you or your business. If you already have existing creditors, they can challenge your transfer within the two years of the transfer or six months after they found out about it, whichever is later. If you transfer your assets in a way that violates the law, the court can accuse you of fraud.
NAPT as a preventive measure
You may not have debts now. Fortunately, you won’t have them in the future, either. However, it would be in your best interest to create a NAPT and transfer your business assets to it so that you can protect them from any future creditors. That way, you won’t risk losing your property and other assets, which you will need to grow your business.