California residents may want to include trusts in their estate plans whether they are wealthy or not. Trusts allow an estate to be settled without going through the costly and time-consuming probate process. Trusts can also be used to shield an owner's assets from creditors.
The trust does not necessarily have to reside in California but can be domiciled in another state. Nevada and Alaska rank high in order of states that provide the best asset protection. Nevada laws are favorable due to the lack of a state income tax. California's state income tax rate, which also applies to capital gains, ranges up to 13.3 percent. Nevada's laws also provide advantages in transferring funds for asset protection because of the short statute of limitations on fraudulent transfers.
A trust can last as long as 365 years in Nevada, allowing for a generation skip when necessary. In lieu of using offshore instruments, some estate planners are opting for a Nevada Asset Protection Trust. One limitation, though, is that one of the trustees has to be a state resident, so it may be necessary to hire a professional person in Nevada to serve as a trustee. A high level of asset protection can be established by setting up a limited liability company in Nevada in combination with a NAPT. This could be good for business owners and high net-worth individuals who are concerned about the protection of assets.
Although choosing another state in which to domicile a trust might be a smart idea, anyone considering such a move should make sure they thoroughly understand the governing laws including any possible negative consequences. A lawyer with experience in estate planning might be able to provide valuable information that could be used in making such decisions.
Source: Marketwatch, "Why trusts aren't just for the wealthy", Kenneth Roberts, September 09, 2014