Nevada law can shelter your assets |

Nevada law can shelter your assets

Nightmares sometimes become reality. Every day someone somewhere is having their entire world turned upside down. It could be a terminal medical diagnosis, a terrible vehicle accident, or even the death of a spouse. To make these terrible events worse, they are sometimes accompanied by significant financial liability. Of course everyone should have medical and auto insurance to protect against unforeseen events. However, insurance doesn't always cover the bill. For terrible situations, good financial planning or what I like to call "exemption planning" can protect your property and your future.

I am not suggesting that you set up an irrevocable trust or move assets off shore. Rather, I am encouraging basic planning that provides protection for your hard-earned cash by utilizing three of Nevada's best property exemptions to shelter your financial assets. Under Nevada law, several types of property are exempt from being seized to satisfy debt. Nevada's exemptions also prohibit the use of this property to satisfy creditors in bankruptcy. In other words, investing your resources in these types of property protects them from your creditors in any lawsuit or bankruptcy.

The first and most important exemption under Nevada law is the "homestead exemption." After you've homesteaded your home, the homestead serves you to protect the equity you have built in your residence up to $550,000. So long as you have your homestead in place at the time a creditor obtains a judgment, the homestead will prevent the judgment from attaching to your property. This means that a homestead will give you the ability to sell your home and purchase another without your equity being taken to pay off a recorded judgment.

The second important exemption primarily pertains to retirement accounts which accrue subject to an IRS tax exemption. Nevada law exempts individual retirement accounts such as a Roth or Traditional IRA, simplified employee pension plans such as a 401k, deferred compensation plans, profit sharing plans, and qualified tuition programs such as a 529 plan — so long as the total funds in the accounts do not exceed $500,000. Thus, rather than putting money in a savings account for your children's future college expenses, you should start a 529 tuition investment plan. Before establishing an investment account to take advantage of a growing economy, you should establish an IRA that will accomplish the same goals. Once your IRA is setup, don't invest funds in any other type of nonexempt account until you have maxed out your IRA contributions for you and your spouse.

Lastly, Nevada law protects funds that have accrued under a life insurance policy as well funds paid out to beneficiaries. This exemption is last on the list because it should not be utilized as a sheltering device until after you have reached your goals of building equity in your home, and funding your 401k, IRA, and 529 plans. However, if you have met your home and IRA goals establishing a whole life policy may provide you additional resources in the future as well as provide security for those you have named as beneficiaries.

Importantly, if you are going to receive a distribution under a life insurance policy, make sure the distribution is made into a new account in your name only. Also, do not co-mingle the account with funds from any other source. Keeping the funds separate and in the beneficiary's name will transform the savings account or investment account holding the funds into exempt property, regardless of the value of the account.

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By focusing your efforts to contribute to the three types of property above you will be protecting your financial future from your own unfortunate "nightmare." These exemptions are available to every individual under Nevada law and permit you to protect your home, retirement, and family. By planning, you will be better equipped to negotiate and settle your unanticipated liabilities rather than being forced to sacrifice your property and more importantly your future. It is never too late to start and utilizing Nevada's exemptions to protect your hard earned cash.

Michael Millward is an attorney at Heritage Law Group in Minden. Michael focuses on business planning, litigation and bankruptcy. He may be reached at 782-0040.