Ohio Legacy Trust

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Asset protection is a vital part of any wealth preservation plan. Thus, an individual with significant financial resources or high liability risk inherent in certain professions may find it prudent to consider an Ohio Legacy Trust as another aspect of their estate planning which focuses on risk management and wealth retention opportunities. Ohio's new laws make it easy to integrate a legacy trust into an individual's overall estate plan. The Ohio Legacy Trust is a new risk management tool for individuals looking to shelter their assets from lawsuits and creditor claims. Business owners will also find this protection especially useful in protecting their assets from claims arising out of the operation of their businesses. The Legacy Trust is a "self-settled spendthrift, irrevocable trust" that is effective against the settlor's creditors, as well as creditors of the other beneficiaries of the settlor.

The Ohio Legacy Trust Act ("The Act"), effective March 27, 2013, allows the creator to set up a trust of which he or she is a beneficiary and at the same time protect the trust assets from potential future creditor claims, while still maintaining essential control over the trust assets. Even individuals who are not Ohio residents can create and benefit from an Ohio Legacy Trust, so long as the trust is created and administered in accordance with all of the requirements of the Act. The Ohio Legacy Trust allows the creator to place his or her assets into the trust in order to shelter them from future creditors. This means that you can place your assets in a trust and if you later face creditors (lawsuits, outstanding debt), those assets will not be subject to the claims of those creditors.

STATUTORY REQUIREMENTS.

To be considered a Legacy Trust, a trust must satisfy four requirements under the Act. The requirements are:

• The trust must expressly state that it is irrevocable.
• The trust must be written and must include spendthrift provisions. Any Legacy Trust must prohibit voluntary and involuntary transfers of both the beneficiary's and the Transferor's interest.
• The trust must be administrated by a Qualified Trustee. A Qualified Trustee means someone who is a resident of the state of Ohio, a trust company or bank permitted by Ohio law to be a trustee.
• Ohio law must govern at least a portion of the trust administration and the assets must be kept in Ohio.

The Ohio trustee can be a person residing in Ohio, including the transferor's spouse or an Ohio corporate trustee. The transferor is not permitted to be the trustee of the Trust; however the transferor can be a beneficiary of the Trust. If the creator of the trust is also a beneficiary of the trust, they will be subject to income tax earned by the trust, not the trust itself.

TRANSFEROR'S RETENTION OF RIGHTS UNDER THE TRUST.

The creator/transferor of an Ohio Legacy Trust may retain several important powers over the trust without sacrificing protection from creditors. The allowable retained rights include the following:

• The right to receive the income distributions from the Legacy Trust;
• The right to withdraw five percent (5%) of the trust principal each year;
• The right to live rent-free in any residence, other real estate, or other personal assets (tangible personal property);
• The right to receive or use any asset in the Legacy Trust, so long as it comes about through the Trustee acting within the trustee's discretion or pursuant to a standard;
• The right to remove a Trustee and appoint a new one at any time;
• The right to control the investments in the trust;
• The ability to change the beneficiaries of the trust at any time, effective during lifetime or after death, with a few exceptions;
• The power to veto a distribution from the trust;
• The power to provide for the use of trust income or assets to pay income taxes due on the income of the trust;
• The right to serve as advisor to the trustee in connection with investment decisions.

WHO CAN BENEFIT FROM AN OHIO LEGACY TRUST?

An Ohio Legacy Trust can benefit anyone. However, asset protection trusts are usually recommended for individuals who are concerned about potential claims from creditors, including future spouses, or someone who works in a high-risk industry or profession and is more likely to have greater exposure to liability, and as a result, can benefit greatly from this type of trust. These people include high net worth individuals, physicians, lawyers, accountants, financial advisors, rental real estate owners, real estate investors, entrepreneurs, CEOs and Directors, and many others who engage in business activities that expose them to liability. The trust may also appeal to business owners who want to protect both their business and personal assets because business assets owned by a Legacy Trust are provided with additional protection.

People considering marriage will also find the Legacy Trust appealing. An Ohio Legacy Trust can be helpful in planning to protect assets before marriage as a partial replacement, or supplement to, a prenuptial agreement. Individuals contemplating marriage may consider creating an Ohio Legacy Trust as a more positive alternative to a prenuptial agreement, as the transferor of asset to the trust has no obligation to disclose the legacy trust to the future spouse and the future spouse does not have to sign off on the transfer. This means that if an Ohio legacy trust is created before you get married; the assets in the trust should not be subject to the claims of a future spouse. So the Legacy Trust can be used for prenuptial planning (without the consent of the future spouse to any of its provisions). However, 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 of assets to the trust occurred while the transferor was married.  But, if the Trust is established and funded before marriage, the Legacy Trust can shelter and protect the assets in the trust from many expenses associated with a divorce including property distribution and spousal support claims of the spouse or former spouse. 

A Legacy Trust should also be considered by someone who is interested in removing assets from his or her taxable estate, but still requires access to the assets funding the trust. However, a Legacy Trust cannot be used to shelter all of a person's assets because, under the Act, the use of a Legacy Trust cannot make a person insolvent, but it can provide protection for a large amount of the grantor's assets, thereby minimizing the effect of a future creditor claim or lawsuit. Also, a Legacy Trust cannot shelter assets from Medicaid.

If the Legacy Trust has been properly established and funded, most of the transferor's creditors are prevent from attaching the assets in the Trust.

QUALIFIED TRANSFER TO TRUST.

In order to obtain full protection under the Act, the creator must sign a qualified Affidavit of Solvency. For each transfer or disposition to a qualified Ohio Legacy Trust, an affidavit must be executed, either before or substantially at the same time as the disposition. The affidavit must be notarized and contain certain statements under oath, including the following:

• The property being transferred to the trust was not derived from unlawful activities;
• The transferor has full right and title to transfer the property;
• The transferor will not be rendered insolvent immediately after the transfer;
• The transferor does not intend to defraud any creditor by reason of the transfer;
• There are no pending or threatened court actions, except as identified;
• The transferor is not involved in any administrative proceedings, except as identified;
• The transferor does not contemplate the filing for relief under the Bankruptcy Code at the time of the transfer.

An affidavit, however, is not required from a transferor who is not a beneficiary of the Ohio Legacy Trust that receives the disposition.

In conclusion, an Ohio Legacy Trust will be most effective when considered in the context of an individual's overall wealth preservation plan. Thus, if you have been able to build up a nest-egg for a rainy day or if you are in a business or engaged in an activity that might likely cause you to get sued, the fact that you can set up this type of trust to protect your assets against future creditors, and that you can shelter your assets and ensure that they are passed down to other beneficiaries, then the Legacy Trust is certainly an asset protection vehicle that you might want to consider. 

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The Law Office of Ronald E. Henderson is available to discuss with you planning opportunities allowable by the Ohio Legacy Trust Act, and whether establishing a legacy trust is worth while for you. If you are interested in learning more about the Ohio Legacy Trust please contact us at (216) 861-4416 to schedule a consultation.