NRS 163.557 Reimbursement of settlor for tax on trust income or principal.

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A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

1. A governing trust instrument may authorize the trustee, in the sole discretion of the trustee or at the direction or with the consent of a directing trust adviser, to reimburse a settlor for all or a portion of tax on trust income or principal that is payable by the settlor under the law imposing such tax. In the sole discretion of the trustee, the trustee may pay such amount to the settlor directly or to an appropriate taxing authority on behalf of the settlor.

2. Except as expressly prohibited or otherwise provided under the trust instrument, if all or any portion of the trust is treated as being owned by a person under section 671 of the Internal Revenue Code or any similar federal, state or other tax law, in addition to any such discretion conferred under the terms of a trust instrument, the trustee may, in the trustee’s sole discretion, reimburse the person being treated as the owner for any amount of the person’s federal, state or other income tax liability that is attributable to the inclusion of the trust’s income, capital gains, deductions or credits in the calculation of the person’s taxable income.

In the trustee’s sole discretion, the trustee may pay such tax reimbursement amount, determined without regard to any other distribution or payment made from trust assets, to the person directly or to the appropriate taxing authority. A life insurance policy held in the trust, the cash value of any such policy or the proceeds of any loan secured by an interest in the policy may not be used for such reimbursement or payment if the person is an insured.

3. Except as otherwise provided under the trust instrument, a trustee who exercises discretion to make, consent to or direct the decision to reimburse the settlor under subsection 1 or 2 is not liable to any person in exercising such discretion to reimburse or not reimburse a settlor for tax payable by the settlor on trust income or principal pursuant to subsection 1 or 2.

4. A trustee may not exercise or participate in the exercise of the powers granted by this section with respect to any trust if the trustee is:

(a)Treated as the owner of all or part of the trust under section 671 of the Internal Revenue Code or any similar federal, state or other tax law;

(b)A beneficiary of the trust; or

(c)A related or subordinate party, as defined in section 672(c) of the Internal Revenue Code, with respect to:

(1)A person treated as the owner of all or part of the trust under section 671 of the Internal Revenue Code or any similar federal, state or other tax law; or

(2)A beneficiary of the trust.

5. If the trust instrument requires the trustee to act at the direction or with the consent of a trust adviser, trust protector or any other person, or that the reimbursement decisions permitted by this section be made directly by a trust adviser, trust protector or any other person, the powers granted by subsection 1 and the provisions of subsection 2 applicable to the trustee are instead also granted or apply, subject to the trust instrument, to the trust adviser, trust protector or other person subject to the limitations set forth in subsection 3, which must be applied as if the trust adviser, trust protector or other person were a trustee.

6. The power of a trustee, trust adviser, trust protector or any other person to make a payment to or for the benefit of a settlor or other person in accordance with subsection 1 or 2 or the decision of a trustee, trust adviser, trust protector or any other person to exercise such power in favor of the settlor must not cause the settlor or other person to be treated as a beneficiary for purposes of the laws of this State solely by reason of the application of this section. As used in this subsection, “beneficiary” has the meaning ascribed to it in NRS 163.4147 .

7. This section applies to all trusts described in subsection 2 that are governed by the laws of this State or have a principal place of administration within this State whether created before, on or after October 1, 2025, unless:

(a)At least 60 days before the effective date of such election, the trustee provides written notice that the trustee intends to irrevocably elect out of the application of this section to:

(1)The person treated as the owner of all or a portion of the trust under section 671 of the Internal Revenue Code or any similar federal, state or other tax law; and

(2)All persons who have the ability to remove and replace the trustee under the terms of the trust instrument.

(b)Applying the discretion conferred under subsection 2 will prevent a contribution to the trust from qualifying for or will reduce a federal tax benefit, including a federal tax exclusion or deduction, that was originally claimed or could have been claimed for the contribution, including:

(1)An exclusion under section 2503(b) or 2503(c) of the Internal Revenue Code;

(2)A marital deduction under section 2056, 2056A or 2523 of the Internal Revenue Code;

(3)A charitable deduction under section 170(a), 642(c), 2055(a) or 2522(a) of the Internal Revenue Code; or

(4)Direct skip treatment under section 2642(c) of the Internal Revenue Code.

MISCELLANEOUS PROVISIONS