USA – NEVADA Law and Practice Contributed by: Brian K. Steadman, Alexander LeVeque, Jeffrey Luszeck and Craig Friedel, Solomon Dwiggins Freer & Steadman
3.4 Tax Consequences of Fiduciary and Beneficiary Roles Nevada does not impose state income taxes on trusts, fiduciaries, or beneficiaries. Generally, any ultimate income tax consequences to a fiduciary or beneficiary will be governed by the terms of the trust along with the jurisdiction in which the fiduciary or beneficiary resides. Removing the state income tax burden allows for unique income tax planning for non-residents and, properly drafted, can reduce or even eliminate income taxes imposed by other jurisdictions. Notably, how - ever, if the fiduciary or beneficiary resides in Nevada, there are state imposed income tax burdens that would apply. Nevada law provides for the creation of Self-Settled Spendthrift Trusts (also known as the Nevada Asset Protection Trusts), which are primarily established for creditor-protection purposes to shield assets from an individual’s creditors during their lifetime. Moreover, Nevada’s laws provide robust asset protec - tion for properly drafted third-party spendthrift trusts (ie, a spendthrift trust established and funded by a third party, such as a parent establishing a spendthrift trust for a child). Nevada’s laws allow for significant flexibility without losing asset protection. 4. Family Business Planning 4.1 Asset Protection In addition, Nevada law provides protection for busi - ness owners through various types of entities, such as limited liability companies, corporations, limited part - nerships, limited liability limited partnerships (LLLPs), restricted limited liability companies, etc. A well-designed structure that incorporates self-set - tled spendthrift trusts, third-party spendthrift trusts, and limited liability business entities can provide maxi - mum asset protection. 4.2 Succession Planning Dynasty Trust planning is the most popular tool for passing wealth and control from generation to gen - eration. Dynasty Trusts are primarily established to take advantage of federal gift, estate and generation-
skipping transfer-tax benefits in a manner that can help limit tax liabilities, sometimes eliminating them. With a Nevada Dynasty Trust, assets that are subject to federal gift, estate and generation-skipping transfer taxation (or application of the federal estate tax life - time exemption) initially upon transfer to a trust can eliminate application of said taxes for future genera - tions if a trust is properly structured, allowing many generations to enjoy gifted assets inheritance-tax free. Dynasty Trusts can also be designed to layer control in almost unlimited ways, through trusteeship, trust pro - tectors and trust advisors. These layers can include third parties who can mediate family disputes and/ or modify trust dispositive provisions, including divid - ing trusts, limiting problem beneficiary’s access and eliminating a beneficiary’s rights to force distributions. 4.3 Transfer of Partial Interest Nevada’s laws allow for incredible flexibility in creating interests that are subject to conditions that allow for maximum discounts on lack of marketability and con - trol. Nevada’s corporate statutes have been designed to allow for multiple types of restrictions to be built into interests, including restricted limited-liability com - panies, allowing for voting and non-voting interests, and delayed or conditional vesting of interests. Nevada’s attractive estate, trust, family offices and creditor-protection laws have increased trust-related disputes, which include, but are not limited to, the following. • Validity of estate planning documents – disputes may arise due to questions surrounding a settlor’s capacity, susceptibility to undue influence, fraud or mistake. • Unclear terms – unclear or ambiguous language contained within estate planning documents can lead to disputes regarding interpretation of said documents. 5. Wealth Disputes 5.1 Trends Driving Disputes • Failure to communicate – communication between a fiduciary and beneficiaries is key, and failure to communicate clearly, including failing to account
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