subject: It's An Irrevocable Trust (But it's Not What You're Thinking) [print this page] It's An Irrevocable Trust (But it's Not What You're Thinking)
The Nevada Asset Protection Trust ("NAPT") must be irrevocable. Trusts can be revocable or irrevocable. In my experience, most people with assets or income have revocable living trusts. Think of the trust like a castle. If you want lawsuit protection as well as probate, you must build the castle walls out of strong materials (you must make the trust irrevocable). The revocable living trust has walls made of straw and the NAPT has walls made of steel (when it comes to lawsuit protection).
Just because the NAPT is irrevocable, that doesn't mean that it's irrevocable in the normal sense of the word. Nevada Revised Statute 166 states this trust must be irrevocable, but we can change certain things if we need to.
You as the grantor, or as the person who started the trust, can continue to change the trustees or the beneficiaries if those ever needed to be changed. And the fact that the trust is irrevocable does not mean that you cannot get the assets back out of the trust. It would be scary if you thought you were going to put the assets in the trust and never be able to get to them again.
There are two ways to change the beneficiaries in the trust: the trust protector and the limited power of appointment. To assist in changing the beneficiaries, I like to use something called the "trust protector." Trust protector language is quite sophisticated and is based on the concept from the United Kingdom. Normally, the trust protector is not actually named in the trust. You have the ability to appoint a trust protector if you ever need to make certain changes.
The trust protector is usually going to be something that is temporary. They come in, make a change according to your request, and then back out again. You have the ability to remove the trust protector and appoint a new one.
You also have the ability to change beneficiaries in your will. If you need to change the distribution pattern, you can do that without using a trust protector, merely by changing your will. That's called the testamentary limited power of appointment. So you have a couple of different avenues you can use to change beneficiaries.
Furthermore, the other item my clients want to change from time to time are the trustees. There must be two different types of trustees in the trust: the managing trustee (who often is you) and the blocker trustee or the distribution trustee. This blocker trustee is somebody that is typically a friend or family member. You can remove or replace this person at any time. You don't need to go through any trust protector or any other provisions; you simply remove them.
And so, even though it's irrevocable, you can still change the beneficiaries and you can still change the trustees.
Now, often many folks wonder, "If I place the assets into the trust, because it's irrevocable, I'll never be able to get these out again," and nothing could be further from the truth. There are special rules about how to get the assets out, but it's actually quite simple. Once you get the authorization from the blocker trustee to take the assets out, then that's it.
Using the castle analogy, the fact that the trust is made of steel (irrevocable) doesn't mean you cannot move furniture in and out of the castle. And so with the trust, the fact that it's irrevocable doesn't mean you can't move assets in and out of the trust. Yes, the rules must be followed. But the whole point of the trust is that you can keep a significant degree of control over the trust but it is not in your name. Once the assets have seasoned in the trust for the required time (two-years from the date of the transfer and six-months from the date the creditor discovers or reasonably should have discovered), then no action may be brought against those assets in the trust. What a great concept!
