Recently, a revolution in Ohio trust law, known as “The Ohio Legacy Trust Act” has created a new opportunity for Ohio residents to shield their assets from future creditor claims and establish a legacy for their children and grandchildren. This new legislation puts Ohio at the forefront of asset protection trust capabilities.
Below are a few of the most frequently asked questions we’ve received about Ohio’s new Legacy Trusts:
1. Exactly what is an Ohio Legacy Trust?
It is an asset protection trust which must be in writing and is governed by Ohio law. The person creating the trust is known as the “transferor.” The trust essentially limits creditor access to the property held in the trust. It is important to note that the trust must be irrevocable.
2. Since the trust is irrevocable, how does the creator of the trust benefit?
The creator of the trust may receive income and up to five percent of the principal per year. Additionally, the trustee may have the discretion to make additional distributions of principal pursuant to standards specified in the trust. Assets in an Ohio Legacy Trust may also pay income taxes attributable to trust income and pay debts, expenses and taxes in the transferor’s estate.
3. Who may act as the trustee of an Ohio Legacy Trust?
The creator of the trust may not serve as the trustee. The trustee must be an Ohio resident and may be an individual, the creator's spouse, or an Ohio corporate trustee.
Now that you know what an Ohio Legacy Trust is, you’re probably wondering how it can be used to protect your assets from creditors. Below are some of the questions we’ve received about how these trusts can benefit you.
1. How air tight is the trust in protecting its assets from creditors?
Once the trust is established and property is transferred into the trust, a future creditor must file suit within eighteen months of the transfer. Once that time period has expired, the trust property is protected. You may not create an Ohio Legacy Trust to “defraud” current creditors.
2. May an Ohio Legacy Trust shield assets from a spouse in a divorce?
The Ohio Legacy Trust offers no protection against spousal support, child support or division of property resulting from a divorce or dissolution of marriage, if the trust was created and the transfer occurred while the transferor was married. However, if the client is unmarried at the time the Ohio Legacy Trust is created and funded, the assets are protected from a future or “post transfer” spouse’s property settlement in a subsequent divorce action or dissolution of marriage. Thus, an Ohio Legacy Trust may be used as a substitute for, or a supplement to, a prenuptial agreement.
3. Who is taxed on the income generated in the Trust?
If the creator is the income beneficiary of the trust, they will be subject to the income tax, not the trust, which is generally beneficial.
4. Who are the best candidates to create an asset protection trust in Ohio?
Business owners, doctors, lawyers, accountants and any other professional who has increased exposure to potential liability should consider creating an asset protection trust. In addition, anyone who wants to establish a “legacy” for their heirs, making certain their hard earned wealth is retained in the family and not paid to a potential plaintiff may benefit from this trust. It may be viewed as liability insurance without an annual premium.
5. What is the creator of an Ohio Legacy Trust required to do other than sign the trust and transfer assets into the trust?
The transferor is required to sign an affidavit before or at the creation of the trust indicating the transferred assets are not from any illegal activities, that the transfer will not render the transferor insolvent, and that there is no intent to defraud creditors, pending court actions involving the transferor or a contemplation of bankruptcy by the transferor.
In conclusion, what an opportunity to protect assets in today’s ever increasing litigious society! Ohio is now the nation’s premier venue for estate, trust and asset protection planning. We have the knowledge, experience and expertise to protect your assets from creditor claims under the new law. Please contact Greg Bean, or your Stark & Knoll estate planning attorney, at 330-376-3300 or info@stark-knoll.com so, together you can review your current estate planning documents and determine if an Ohio Legacy Trust can you help you protect the assets you’ve worked hard for.