Commercial real estate investors, even those with properties in Houston, Texas, may be able to use a Nevada Domestic Asset Protection Trust (DAPT) for advanced asset protection when forming LLCs to hold their commercial real estate properties. (This is not legal advice. Be sure to contact your attorney before implementing anything in this article.)
But what is a Nevada Domestic Asset Protection Trust (DAPT)? It is a self-settled trust designed to protect assets from creditors. And it is one of the strongest ways to protect yourself and your assets.
Experienced real estate attorney and business adviser Clint Coons explains DAPT in more detail here:
Typically, a DAPT involves two or more Trustees.
Firstly, there is an Investment Trustee. This is you. You are the one who decides how to invest the money.
In addition, the Trust involves a Distribution Trustee. As the title implies, this person distributes the money held in the trust. However, you (the property owner) cannot be both the Investment Trustee and the Distribution Trustee. An attorney or another individual in Nevada will manage the trust. Neither the Investment Trustee (you) or the Beneficiaries you name can distribute the assets in the Trust.
The people who receive money from the DAPT are the Beneficiaries. These Beneficiaries can be anyone you choose. Typically, you will name yourself, a spouse, your children and grandchildren, or other family members as Trust Beneficiaries. Additionally, you can set up the Trust so different Beneficiaries receive varying amounts of percentages of the Trust income.
Once the Trust is established, your commercial real estate investments produce income. You can then funnel all or part of this income into the DAPT. The Distribution Trustee can make distributions to anyone they want under the terms of the trust.
In a Nevada DAPT, someone else besides you must control the money.
Create an LLC Owned by the Trust
If you want more control over the money you earn, without all of it entering into the Trust managed by a third-party, you have some options. You can create a Nevada LLC, and name the Trust as the owner. However, you would be the manager of that LLC. As such, you would funnel earnings from all your other properties, assets, and other real estate activities into the Nevada LLC. As the manager, you then control what percentage you take (let’s say 10%) and which percent goes from the LLC into the DAPT.
Benefits of a Nevada Domestic Asset Protection Trust
The main benefit of a Nevada Domestic Asset Protection Trust, if you own Texas commercial properties like office buildings, RV parks, or warehouses, is that it may provide tremendous asset protection for your money. For example, if someone sues you for some reason, you don’t have access to the money within the Trust. Neither you nor any of the other Beneficiaries have direct access to the LLC’s funds. Therefore, the creditor cannot access the money in the Trust under the lawsuit.
Because the LLC is you, it gives you major protection by keeping most of the assets in the LLC.
If you created the Nevada LLC and gave yourself a 10% interest as discussed above, but name yourself the manager, you, therefore, control all monies generated from other properties, LLCs, sales, or other investments. In turn, the DAPT has a 90% interest in the LLC. Although the LLC owns all the property, you can control the LLC, even with only a 10% controlling interest.
When it comes to distribution, the Distribution Trustee can give money to any of the Beneficiaries. These assets can be distributed once a month, once a year, or however often you choose under the terms of the Trust.
The benefit comes if the LLC enters a lawsuit. While creditors can give a charging order against your 10% interest, they cannot attack the DAPT. Therefore, anything you have funneled into the Domestic Asset Protection Trust from the Nevada LLC and other sources is safe from any creditors.
Own Real Estate in a Trust
As a property owner, it may be in your best interest to consider a real estate trust like the DAPT for your LLCs. A Nevada Domestic Asset Protection Trust lets you be a direct beneficiary while also protecting your assets from creditors. Not only that, but these trusts may allow for financial flexibility.
If you’re interested in a DAPT for your Texas commercial real estate assets, there are some things that you should know.
Firstly, in order to set up a Nevada trust, the state law generally requires at least one trustee to be either a Nevada bank or trust company, or a Nevada resident. Also, be aware that a Nevada asset protection trust has a two-year seasoning period. According to the state of Nevada statute which covers trust, two years after establishing the trust, your assets are totally protected.
What’s more, Nevada is ranked first for asset protection trusts. Nevada has one of the shortest statutes of limitation periods, making it the most favorable location for DAPTs. Additionally, Nevada is one of only two states with ‘no exception creditors. Nevada also has no state fiduciary income tax. And lastly, if an owner of a Nevada LLC or LP is sued personally, a creditor cannot take over or gain control of either the incorporated entity or its assets.
Learn More About CXRE and Asset Protection
Contact CXRE today and our team of experts can tell you more about a Nevada Domestic Asset Protection Trust. We can also help you learn more about investing in Houston, Dallas-Ft.Worth, or San Antonio real estate.