People from around the world travel to Las Vegas for the bright lights, entertainment and the chance to roll the dice and win big. What they often don’t see are the many small businesses that support, enhance and flourish in the shadows of the entertainment and gaming industry.
In fact, small businesses are essential to Nevada, and not just because they’re needed to support what’s happening on the Strip. It can be said that the state doubled down on its support of small business growth, as evidenced by Nevada’s trust, asset protection and income tax laws that are very favorable for small and family-owned businesses.
Here are three plays that Nevada’s small business owners should be aware of and incorporate in their business succession planning:
Irrevocable trusts
Nevada law allows irrevocable trusts to be structured to benefit the individuals who created and transferred assets to the trust after the trust is established. This is unlike most other jurisdictions where once a business owner transfers company interests into an irrevocable trust, he or she can no longer benefit from the company assets. Any resident of Nevada, or non-residents who utilize a Nevada trustee, may benefit from the protections afforded by these self-settled trusts.
Credit protection laws
Nevada’s statute of limitations when it comes to most transfers made to trusts are some of the most attractive in the country. Nevada doesn’t have a state income tax, and it only imposes a two-year statute of limitations on most transfers made to trusts. In addition, no affidavit is required by the transferor with regard to solvency after a transfer is made. Finally, Nevada’s creditor protection laws have no exceptions to the spendthrift statue for spouses, children, pre-existing or future creditors, after the statute of limitations expires.
Legacy trust planning
Once a trust is created to transfer business ownership in Nevada, it stays active for a long time, much longer than in most other states. For example, most states require trusts to be abolished and assets distributed no later than 90 years after the trust is created, or alternatively upon the death of a grandchild. When this happens, trust assets are forced back into the income tax base and taxable estates of the trust beneficiaries and protection of assets provided by the trust is lost. Generation-skipping transfer tax liability may also result, currently at 40 percent tax rate.
In Nevada, a trust may exist for 365 years, providing business families protection for many generations to come.
It’s important to note that business succession planning is not a project that happens once over a short period of time. It is an ongoing and evolving process involving tax, financial and legal advisers, and should be started before a business owner is even considering the transfer of a business. Having a plan, and taking advantage of the unique planning opportunities available in Nevada, can help protect business owners and heirs from future unforeseen circumstances.
With that peace of mind, a business owner can work to grow his or her business and flourish under the bright lights of Vegas.
Daniel G. Wani is managing director of trust and wealth planning for The Private Client Reserve of U.S. Bank.
