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Can’t relocate to Nevada? You can still enjoy the benefits of Nevada Trusts

For decades Nevada has been a top choice for high-net-worth (HNW) families and individuals seeking to protect and grow their wealth.  Some have relocated to Nevada to benefit from advantages such as no state income tax, no state inheritance tax, and asset protection opportunities. Others have been unable to move to Nevada but have also been able to enjoy Nevada’s benefits through the use of irrevocable trusts with a Nevada trustee.

Nevada’s longtime benefits are even more compelling currently as a number of high tax states such as California are seeking to raise taxes on their most successful and high earning residents.  In one noteworthy example, the California legislature considered a “wealth tax” which would have taxed the assets of HNW California families and would have continued to levy the tax on those families ten years after they left the state.

While that bill did not make it out of the legislature, California already has a top income tax rate of 13.3% in addition to the federal income tax.   On income of $1,500,000, a California couple’s effective state income tax rate is 10.60% or $159,028.

Meanwhile, the Biden administration is planning to increase the federal tax burden on American families of wealth, proposing an increase in the top individual income tax bracket from 35% to 39.4%, and an increase in the top capital gains tax rate from current 23.8% to 43.4%.

The Smith family in 2021 projected income is as follows:

FEDERAL                                                                                                     Current tax                         Proposed

Dividends and Interest of $500,000                                                  124,087                             127,820

Long-term capital gains $1,000,000                                                  200,000                            396,000

Net Investment Income Tax at 3.8%                                                      47,500                               47,500

STATE

State Income Tax                                                                                           159,028                             159,028

Total                                                                                                                    530,615     35.37%         730,349     48.69%

On income of $1,500,000 Mr. and Mrs. Smith current total federal & CA income tax is $530,615, or 35.37%. Proposed new federal tax rate Is $730,349, or 48.69%, and that assumes no change in California’s tax rates, an unlikely scenario.

Fortunately, HNW families can lessen the tax burden on their wealth through the use of irrevocable Nevada trusts, utilizing Nevada Trustees.  The state’s lack of income tax and trust-friendly laws allow great flexibility in planning and provide HNW families with opportunities to better protect and grow their wealth.

 

Advantages of Nevada Irrevocable Trusts

1) No trust state income tax or state capital gains tax.

2) No state inheritance tax.

3) Asset protection opportunities

4) Flexibility in drafting including decanting.

5) Advanced planning opportunities:

  • DAPT is a self-settled Domestic Asset Protection Trust.
  • NING is a Nevada Incomplete Nongrantor Trust.

Nevada continues to rank #1 or #2 in the nation as one of the most friendly to family trusts and their beneficiaries.  See the 11th Annual survey of DAPT Trusts, link attached.  https://www.oshins.com/state-rankings-charts

 

We welcome your comments and are pleased to offer a complimentary meeting to discuss your questions on these important wealth management issues.  If you would like additional information, please give us a call at 775-200-7306 or send us a message at contact@rswwealth.com.

Please note:  This material is provided for information purposes only and is not to be construed as investment or tax advice.  Readers are strongly advised to consult with their professional advisors regarding the information herein.

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