When it comes to asset protection trusts, the discussion with my clients almost always comes down to whether or the Nevada Asset Protection Trust (NAPT) or the Special Power of Appointment Trust (SPA Trust) is a better fit. Of course, it's always determined on a case by case basis and I will emphatically direct you to my disclaimer at the bottom of the blog before reading further, but there are certainly a couple common factors to consider when deciding.
Both trusts are spendthrift trusts designed to prevent creditors from reaching trust assets and endow the trustee with absolute discretion over distribution decisions. Where they differ is the self-settled aspect. The "Nevada" of the NAPT refers to the provision in NRS 166 that allows a grantor (aka settlor or trustor) to also be a beneficiary. Nevada and a few other states offer this nuance which was inspired by offshore trusts that do the same. By using a domestic trust, the grantor avoids the stigma of placing assets outside the U.S. and does not have to file notice forms with the IRS.
The SPA Trust is not self-settled, instead relying on the power of appointment to appoint assets back to the grantor, should the need arise.
The NAPT offers greater access for the grantor because he is treated the same as any beneficiary. The trustee may make distributions at any time to the grantor, giving the grantor the ability to protect trust assets, but still be able to enjoy the income or principal at any time. The power of appointment used by the SPA Trust is not used the same way. Instead it's generally a single use tool to receive some or all of the trust assets without being a beneficiary of the trust.
A grantor can appoint a professional, Nevada resident trustee to the trust to qualify the trust to be governed by Nevada law. That has its own inherent benefits, but is mandatory for the NAPT if the grantor is not a Nevada resident. Even when all of the trust assets are located in Nevada, I still recommend a resident trustee for a non-resident grantor. The risk for non-resident grantors, though, is the possibility that a non self-settled trust jurisdiction could apply their own trust law in a suit against the trust, extinguishing the asset protection provided to the grantor-beneficiary. Though I haven't seen it happen, in theory it could. Nevada residents are protected from this event, but non-residents with self-settled trusts can't be sure.
As already discussed, since the grantor is not a beneficiary of a SPA Trust, such a concern is moot.
Also important to the decision is how business entities will be used to support the strategy, the availability of a trustworthy distribution trustee to the grantor, and more. There is no right answer for every circumstance so it is important to discuss these matter with an experienced asset protection attorney who will intelligently guide you through the process. Most important to the entire process is timing. As always, transfers to an irrevocable trust should be done when the waters are calm to ensure the most effective arrangement.