SPA Trust or Special Power of Appointment trust is an alternative to the Nevada Asset Protection Trust and offers the settlor superior asset protection while retaining the ability to remove assets from the trust without the settlor being named a trust beneficiary. This technique enables a settlor residing in a state that does not have a self-settled trust statute to still have the option of pulling assets back out of an irrevocable trust at any time.
The key is the traditional estate planning tool called the power of appointment. This power has historically been used in a testamentary manner in wills and revocable trusts to appoint assets to a specific class in a manner different than the original document provides. In the SPA trust, it may be used during the life of the settlor, allowing the donee of the power to appoint trust assets to any permissible appointee. As long as the settlor is not specifically removed from the class of permissible appointees, the holder of the power may distribute trust assets back to the settlor without the settlor being named a trust beneficiary. In plain English, that means that someone who puts assets into such a trust can ultimately have them returned to him or her without actually being appointed as a beneficiary.
More About SPA Trust
Residents of a self-settled trust state like Nevada may not need to use such a tool when in Nevada resident settlors can simply name themselves as beneficiaries of the trust and receive trust assets at any time under NRS 166. However, even non-residents who are inclined to create a Nevada self-settled trust might give the SPA trust a long look. The risk of using a self-settled trust in a non self-settled trust state is that in a lawsuit against the trust, the court may choose to apply their own law that allows creditors to reach all assets available to a settlor-beneficiary. For instance, California Probate Code section 15304(b) provides, in part:
If the settlor is the beneficiary of a trust … a creditor of the settlor may reach the maximum amount that the trustee could pay to or for the benefit of the settlor under the trust instrument.
With a SPA trust, the settlor is not a beneficiary, eliminating the risk of the court applying a similar law resulting in an unfavorable judgment. In addition to the power of appointment, the SPA trust is a spendthrift trust that utilizes a discretionary trustee to protect the assets from creditors. For the best protection, I recommend a non-resident settlor retain a professional resident trustee, whether that be an individual, trust company or bank. The benefit is the ability to use Nevada's trust statutes as the governing law offering supreme asset protection to trusts formed under its laws. A professional trustee also enhances the legitimacy of the trust with the use of a individual or entity with whom the settlor has had no prior relationship. Finally, the trustee is responsible for certain formalities like tax preparation and record-keeping that could be overlooked by others. Call me to discuss if the SPA trust is a good fit for you. I will work with you to assess your exposure, decide which assets need protection and how the trust will be used functionally on a day-to-day basis. While the SPA trust is not for everyone, it provides an excellent asset protection strategy when the fit is right.
Related Asset Protection Strategies
Learn more about other asset protection tools that work well with or as alternatives to the SPA Trust:
- Nevada Asset Protection Trust (NAPT) - Nevada's self-settled trust option
- Family Limited Partnerships and LLCs - Entity-based asset protection
- Irrevocable Life Insurance Trust - Protect life insurance proceeds
- Asset Protection Overview - Compare all available strategies