Using State and Federal Exemptions as Part of an Asset Protection Strategy
Exemptions Provided by Federal Law Under Federal Law, specifically the ERISA Anti-Alienation Provision (29 U.S.C. § 1056(d)(1)), qualified retirement plans are protected from judgment creditors (this protection typically does not apply to spouses and/or the IRS). The law states”[e]ach pension plan shall provide that benefits provided under the plan may not be assigned or alienated.” This means that assets held in an ERISA pension plan are not available to creditors. Therefore, ERISA qualified asset protection planning gives a method for business owners and individuals to shelter assets that may otherwise be available to creditors, while at times generating a sizeable tax deduction in the process.
Exemptions Provided by Nevada Law
The Nevada Legislature has enumerated several “exempt” assets via NRS § 21.090.
Nevada Homestead Protection
Under $550,000 NRS § 21.090(1)(l) and NRS § 115.01, the equity interest in a properly claimed homestead will be protected from judgment creditors. However, there are limitations to this exemption that should be noted. Most significant is the limitation of the state homestead exemption in bankruptcy to $125,000, regardless of state law providing for a larger or unlimited exemption. This limitation applies to homestead interests that are acquired within a 1215-day (3 years and 4 months) period prior to the filing of the bankruptcy petition. Consulting a qualified Bankruptcy Attorney regarding these issues could be helpful as these issues can be complex and must be handled on a case by case basis.
Other Exemptions Provided by Nevada Law
Nevada also provides for protection of up to $500,000 worth of non-qualified Retirement assets (NRS § 21.090(1)(r)). Please note that many of the limitations under ERISA law apply to this exemption as well.
NRS 21.090 provides for additional exemptions, such as the cash value associated with whole life insurance policies (limited to an amount prorated to annual premium payments of $15,000 per year).
Other useful NRS 21.090 exemptions include (please note, this list is not exhaustive):
- Social Security Payments;
- Payments from the Division of Welfare and Supportive Services of the Department of Health and Human Services;
- Proceeds from a life insurance policy;
- Payments received as disability, illness or unemployment benefits, unemployment compensation and Veteran’s benefits;
- A vehicle, if your equity in the vehicle is less than $15,000;
- Child support and alimony received;
- Personal property up to $1,000 in value;
- Personal injury payments, in an amount not to exceed $16,150, received as compensation for personal injury (not including compensation for pain and suffering or actual pecuniary loss);
- Seventy-five percent of the take-home pay (with qualifications); and
- Wrongful death settlements (with qualifications).
No discussion of asset protection is complete without a thorough analysis and understanding of Fraudulent Transfer law. For example, a transfer to defeat the rights of existing of anticipated creditors that would violate fraudulent transfer laws is illegal. Additionally, hiding assets in an offshore account (and not disclosing the account in a bankruptcy schedule), and hiding funds from the IRS is illegal.
Tiffany N. Ballenger, Esq.