● Sarbanes-Oxley

● Nevada Self-Settled Spendthrift Trust

Sarbanes-Oxley

Introduction to Sarbanes-Oxley:

Most observers would agree that the Sarbanes-Oxley Act of 2002 (SOX) (Public Company Accounting Reform and Investor Protection Act) is the single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public accounting since the US securities laws of the early 1930s. It is, moreover, a law that came into being in the glare of a very bright, very hot spotlight - Enron!

The intent of SOX is to help restore public trust in U.S. business and corporate reporting. SOX requires public company executives, boards of directors, and independent auditors to take specific actions to achieve greater corporate accountability and transparency.

Who’s Impacted?

SOX affects public companies as well as private companies.

Expected Relevance For Companies

SOX is prompting extensive changes-which will provide more effective financial reporting and corporate governance.

Summary

SOX, and the related regulations and exchange requirements, have significantly “elevated the bar” for many areas of corporate governance and financial compliance for public companies. Many private companies can expect that several of these requirements will also, directly or indirectly, be extended to them. By taking action now to comply voluntarily with many of these requirements, larger private companies (or those companies with aspirations of achieving significant growth, going public or being acquired) can reap rewards associated with third party approvals and improved internal controls and governance, while at the same time reducing their litigation exposure. In addition, investors and acquirors may be willing to pay a premium to invest in or buy companies with sound corporate governance practices. The administrative cost—in time and dollars—associated with undertaking such actions will in most cases be outweighed by these benefits.

Rights of Boards and Committees to Independent Counsel and Advisers

Another principle of SOX is that an audit committee is to have authority to engage independent counsel and other advisors, as it determines necessary to carry out its duties, the fees and expenses of which are to be funded by the organization. The NYSE and NASDAQ are expanding these rules to authorize compensation and nominating/governance committees to engage their own independent counsel and other advisers to be funded by their organizations.

The full text of the Act is available at:

http://www.sec.gov/about/laws/soa2002.pdf

(This link may take a few minutes to download, as the Act comprises some 67 pages.)

Nevada Self-Settled Spendthrift Trust

The Nevada self-settled Spendthrift trust is a new and innovative estate planning and asset protection strategy which provides a way for individuals and families to protect their assets from potential creditor claims while maintaining some measure of control and access to such assets. Only a handful of states have statutes that allow a settlor of a trust to establish a trust in which the settlor is a permissible beneficiary and which the assets it holds is also protected from the creditors of the settlor. These types of trusts are commonly known as a "self-settled spendthrift trust" or an "asset protection trust". One of these states is Nevada, which arguably has the most favorable self-settled spendthrift trust laws because of its much shorter statute of limitations period, and therefore should be the jurisdiction of choice for asset protection trust formation.

The settlor of a Nevada self-settled spendthrift trust is protected if the trust is in writing, is irrevocable, does not require that any part of the income or principal of the trust be distributed to the settlor, and is not intended to hinder, delay or defraud known creditors of the settlor.

It is important to note that the settlor should not be the trustee of such a trust. Rather, there should be an independent trustee appointed. Otherwise, the trust may not survive an attack by a creditor because it is determined to be a sham. The trustee must be (a) a natural person who resides and has his domicile in Nevada, (b) a trust company that is organized under federal law or under the laws of Nevada or another state, and that maintains an office in Nevada for the transaction of business, or (c) a bank that is organized under federal law or under the laws of Nevada or another state, that maintains an office in Nevada for the transaction of business, and that possesses and exercises trust powers.

Once created, a self-settled Spendthrift trust also protects the beneficiary's interest in the income and principal of the trust which is not yet been distributed to the beneficiary from the beneficiary's creditors. Thus, the beneficiary's creditors cannot levy or attach such interest in satisfaction of debts and obligations by the beneficiary. It is only when trust income or principal is actually distributed by a trustee to the beneficiary that the beneficiary creditors may attempt to reach such property.

While the self-settled spendthrift trust laws of other states are very similar to those of Nevada, Nevada's laws have one major advantage. The main advantage is the shorter period of time required under Nevada law between the date an asset is transferred to the trust and the date the asset is protected from the creditors of the settlor. Generally speaking, in Nevada, a person may not bring an action with respect to a transfer of property to a Nevada self-settled Spendthrift trust unless the action is commenced within two years after the transfer is made into the trust. The laws of other states allow a creditor to bring a cause of action within four years after the transfer is made to the trust. Thus, assets in a Nevada self-settled Spendthrift trust receive protection from creditors in half the time.

In recent years, taxpayers have succeeded in protecting their assets from creditors claims by establishing trusts in foreign jurisdictions such as the Cayman Islands or the Bahamas which do not recognize the judgments of U.S. Courts. Previously, by placing assets in these so called off shore asset protection trusts, individuals could make it difficult if not impossible for a creditor to reach their assets in order to satisfy the debts owed. However, the effectiveness of these off shore trusts have been called into question due to recent court developments, heightened political and economic instability in these foreign jurisdictions, as well as the scrutiny applicable under the USA Patriot Act of 2001. As such, a Nevada self-settled Spendthrift trust now provides a reliable alternative to such an off shore trust.

Who should consider a Nevada self-settled Spendthrift trust? Any individuals exposed to certain risks and liabilities in the business world, and anyone who is concerned about losing hard earned assets due to accidents and misfortune.