An Ohio Domestic Asset Protection Trust can provide powerful protection of your assets from creditors, but only if the trust is drafted, implemented, and funded properly. An experienced estate planning attorney is a must when implementing this type of sophisticated trust.
The Ohio Asset Management Modernization Act (“AMMA”) was enacted into law and became effective in early 2013. Specifically, the AMMA enacted Ohio Revised Code §5816.01, et seq., also known as the “Ohio Legacy Trust Act”, which creates a unique opportunity for individuals to shelter assets from most creditors. Simply stated, the new law allows for the creation of an irrevocable trust that, if funded properly, can act as a barrier to future liabilities. A client’s financial resources or the liability risks inherent in certain professions (or some investment activities) may make it prudent to consider an Ohio Legacy Trust as another aspect of your estate planning.
The Ohio Domestic Asset Protection Trust (or Ohio Legacy Trust) is a “self-settled spendthrift, irrevocable trust” that is effective against the settlor’s creditors, as well as creditors of other beneficiaries of the settlor. “Settlor” is the legal term for the person creating the trust. “Self-settled” means that the settlor puts his or her own assets into the trust. “Spendthrift” means that the trust has specific legal protections against creditors seeking to collect against the trust assets. The effect of the spendthrift provisions will be to block most creditor attempts to force assets out of the trust to pay debts and liabilities of the settlor and/or the settlor’s beneficiaries. “Irrevocable” means that the trust cannot be revoked or amended by the settlor after it is created.
As with any trust, however, the settlor can retain certain rights. For example, the settlor of an Ohio Legacy Trust can, among other things, do the following: (i) act as a trust investment advisor; (ii) retain the power to remove and replace the trustee(s); (iii) retain rights to income; and (iv) receive certain discretionary distributions from the trust principal. On the other hand, there are also certain limitations placed on the settlor. Specifically, the settlor of an Ohio Legacy Trust cannot: (i) act as a trustee; (ii) act as trust advisor or trust protector; (iii) have unwritten (implied/tacit) understandings with the trustee(s); and (iv) have unfettered access to trust principal.
Since the primary purpose of establishing an Ohio Legacy Trust is to utilize the creditor protection aspects, there are some additional steps beyond establishing a regular trust. The most important step in this regard is for the settlor to execute a “qualified affidavit”. In this affidavit, the settlor must affirm that the settlor is: (i) the owner of the assets being transferred to the trust; (ii) not intending to defraud any creditors by the transfer of such assets; (iii) not aware of any pending or threatened court actions against the settlor; and (iv) not going to become insolvent by the transfer of assets to the trust. Of these points, the last one pertaining to solvency is the most crucial and creating a record to prove it down the road could be invaluable if a creditor attacks the trust in the future.
As such, the first step to creating an Ohio Legacy Trust (aside from drafting the trust document itself) is performing a detailed solvency analysis. Specifically, the client, attorney and the other advisers (if necessary) work together to create a comprehensive list of assets and liabilities (both current and potential). The goal is to have a work product that demonstrates with specificity that, after the Ohio Legacy Trust is funded, the settlor is clearly solvent. This solvency analysis will not only help protect the trust assets from future creditor claims, it will also enable the attorney to counsel the settlor on the proper amount of assets that could be transferred to the Ohio Legacy Trust. The paramount concern of the legislature in drafting the AMMA was to prevent the use of Ohio Legacy Trusts to defraud creditors, which is why the solvency analysis is so important.
Once the solvency analysis is completed, and it is determined that there are assets available to fund the Ohio Legacy Trust, the attorney creates an irrevocable trust that meets the settlor’s asset protection needs and distributes trust property according to the settlor’s wishes without violating the AMMA. At the time the trust is created, the settlor must execute the above-discussed qualified affidavit. This is to ensure that, if creditors ever attack the trust, there will be evidence to demonstrate the due diligence on the solvency analysis that took place prior to transferring the assets to the trust. Once these documents are signed, the attorney works with the settlor (and the other advisers, as needed) to properly transfer the assets to the trust, including obtaining a separate taxpayer identification number for the trust.
If you are interested in learning more about an Ohio Legacy Trust, please contact our Dublin, Ohio estate planning attorneys. We will be glad to set up a meeting with you to discuss your planning objectives and assist in determining if an Ohio Legacy Trust would a good tool to use in your estate plan. We will also be able to give you an idea of the cost and benefits of an Ohio Legacy Trust as it applies to your unique circumstances.
Arenstein & Andersen Co., LPA provides comprehensive estate planning and probate services. Some of our legal services relating to estate planning and probate include: preparing revocable trusts, wills, powers of attorney, healthcare powers of attorney, and living wills; assisting with advanced wealth transfer strategies, including the preparation of irrevocable trusts, such as domestic asset protection trusts, charitable remainder trusts, charitable lead trusts, and life insurance trusts, along with other wealth transfer tools such as family limited partnerships; counseling clients on probate avoidance techniques to streamline and reduce the costs associated with estate administration; assisting business owners with succession and wealth transfer planning; planning for children or other loved ones with special needs to include the use of wholly discretionary trusts, supplemental services trusts, and special needs trusts to protect the beneficiary’s eligibility for public assistance benefits; advising clients on Medicaid planning and other elder care issues; representing Executors, Administrators, and Trustees with the administration of estates and trusts, including assistance with tax planning and the preparation of Federal estate tax returns, and Federal and Ohio fiduciary income tax returns; and assisting with applications for, and the administration of, guardianships for both minors and incompetents.