Putting Your Trust in Nevada

You don't have to live in the Silver State to benefit from its trust tax advantages.

As a lifelong resident of Nevada, I've welcomed countless new neighbors from California who have discovered the many benefits of my state. Of course, I'm not just talking about fresh powder on the slopes of Lake Tahoe. The absence of state income tax in Nevada regularly brings high-net-worth individuals to our state, as do our numerous tax-friendly laws for trusts and wealth preservation. 

But you don't have to reside in Nevada to take advantage of some of these benefits. At the Whittier Trust Company of Nevada, many of our clients live in California, but we serve as their trustee—because what matters is the state in which your trust is administered.

Advantages of Irrevocable Trusts

This geographical choice has the greatest implications when it comes to the benefits incurred through an irrevocable trust. Most people are familiar with revocable, or living, trusts, which are relatively simple to set up and can be modified at any time, changing beneficiaries and managing the assets within the trust as you like. Why, then, would anyone opt for an irrevocable trust, which can't be modified without legal action? 

The answer is that an irrevocable trust offers greater protection and tax benefits. It effectively removes your taxable estate assets, freeing them from estate tax after you pass. It also shields your assets from creditors in the event you are sued. This safeguard can be particularly important for attorneys, doctors, and other professionals at high risk of lawsuits. 

Because of these significant protections, irrevocable trusts can be difficult to set up. Our Whittier team includes qualified fiduciaries and expert investment advisors to help clients weigh all options. We consider not only state taxes but also other laws, such as privacy issues in regard to public record laws for trusts in different states. We take the time needed to understand each client's lifestyle and long-term goals, applying those objectives to the purpose and implications of the trust.

Nevada 1-2-3

Once a client has decided that an irrevocable trust is the best fit, we often suggest that we administer that trust from Nevada because of the three key benefits: no state income tax, no state estate tax, and no state inheritance tax. In short, you can accumulate wealth in Nevada and pass it to future generations with minimal taxation. In California, any income from your trust could be subject to state taxes. If, for example, you have a $10 million trust in California and it generates $500,000 in annual income, you could lose upwards of $100,000 per year to taxes. 

Nevada also allows for the appointment of a trust protector, in addition to a trustee, who can modify your trust terms if your circumstances change. What's more, in Nevada, you can start planning for 25th-century relatives because 365 years is the limit of the "dynasty trusts" offered in our state.

Foreseeing Complications

Estate and trust rules differ significantly from state to state, and it quickly gets complicated. Some states require that a trustee or beneficiary be a state resident, while others tax any trust set up by a resident of that state, no matter where the trustees or beneficiaries live. 

As much as I love California, I can't help but use their far-reaching tax laws for comparison (you pay a price to live in paradise!). If you set up your trust in Nevada or some other tax-friendly state, California may try to claim taxes if you use California employees to administer the trust. If a trustee dies and the successor trustee lives in California, the trust is now at risk of getting taxed in California. The bottom line is that it is best to work with your professional advisors to eliminate the possibility of exposing your trust to the long arm of the California Franchise Tax Board. 

Tax law is ever-changing as well. For example, beginning in 2024, California was able to tax trusts called Incomplete Non-Grantor Trusts (ING trusts), even when they were managed in Nevada (NINGs), but because we anticipated this change, our team was able to help clients pivot to lessen the impact of the new legislation. 

Few trust companies have more experience negotiating the finer points, financially speaking, of the California-Nevada relationship than Whittier Trust. Whatever state you choose, or even if you choose both—living in California with your trust based in Nevada—Whittier Trust will work to safeguard your family's financial future as we have for multiple generations of clients, protecting your assets and your legacy for beneficiaries for many years to come.

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Written by Keith Fuetsch, Vice President with the Whittier Trust Company of Nevada, a CFP and CTFA, providing financial and fiduciary services for high-net-worth individuals and families. He serves on the boards of the University of Nevada College of Business Alumni Association and the Reno Connection Network. For more information on The Nevada Advantage, start a conversation with a Whittier Trust advisor today by visiting our contact page.