Ohio Asset Protection Trusts Explained by Cleveland, OH Estate Planning Attorney

01Mar
2017

Ohio Asset Protection Trusts Explained by Cleveland, OH Estate Planning Attorney

Ohio has been on the cutting edge of asset protection trust legislation since enacting its Ohio asset protection trust code in 2013.

Chapter 5816 of the Ohio Revised Code sets forth the rules and regulations for Ohio Legacy Trusts.  Ohio Legacy Trusts are sometimes referred to OLTs.  Ohio Legacy Trusts are a form of Asset Protection Trusts. Specifically, Domestic Asset Protection Trusts (DAPT).

We are an estate planning law firm for clients in the Cleveland, Ohio and Akron, Ohio. Our main office is in Hudson, Ohio.  What follows are FAQs regarding estate planning with Ohio asset protection trusts known as Ohio Legacy Trusts. If we didn’t answer your question below, please contact us and check out our Main Trusts and Estate Planning Page.

Ohio Asset Protection Trusts (AKA Ohio Legacy Trusts) Frequently Asked Questions:

Q: What is an Asset Protection Trust (APT)?

A: Asset Protection Trusts are trusts designed to protect assets from creditors.  For instance, if properly set up, any assets transferred to an Asset Protection Trust would be protected if you were to get sued.

Q: What is a Domestic Asset Protection Trust (DAPT)?

A: Domestic Asset Protection Trusts are simply Asset Protection Trusts located in the United States.  Some Asset Protection Trusts are located in foreign countries. These are Foreign Asset Protection Trusts (FAPTs) trusts designed to protect assets from creditors.  For instance, if properly set up, any assets transferred to an Asset Protection Trust would be protected if you were to get sued.

Q: What is an Ohio Legacy Trust (OLT)?

A: The Ohio Legacy Trust (OLT) is a type of “Domestic Asset Protection Trust” (DAPT).  The Ohio Legacy Trust is used as an estate planning device to protect assets from future creditors. A person (the “trustmaker”) can create an OLT, fund the trust with their assets, and be a beneficiary of the trust. Future creditors cannot access the trustmaker’s Ohio Legacy Trust assets.

Q: Do other states have asset protection trusts?

A: Yes, there are 15 other states that have DAPT trusts.

Q: How can I create an Ohio Asset Protection Trusts?

A: An Ohio Legacy Trust must meet the regulations set forth in the Ohio Legacy Trust Act. Ohio Legacy Trust Act – ORC 5816  Every Ohio Legacy Trust must have the following components.  1) It must be in writing. 2) It must nominate an Ohio trustee. 3) It must be irrevocable. 4) It must have a “spendthrift” clause.  5) It must be subject to Ohio law. and 6) The trustmaker must sign a solvency affidavit which states that, after depositing assets in the Ohio Legacy Trust, the trustmaker will remain solvent after contributing your assets to the Ohio Legacy Trust.

Q: What is a Spendthrift Clause?

A: A spendthrift clause puts the trustee in charge of making trust distributions.  If this is done, then trust beneficiaries cannot assign trust assets and creditors cannot access trust assets.

Q: What is the purpose of Ohio Legacy Trusts?

A: An Ohio Legacy Trust can be used in estate planning, wealth planning and/or business planning. Normally an Ohio Legacy Trust includes estate planning distribution clauses for your beneficiaries like you would find in a simple will or revocable living trust. An Ohio Legacy Trust works in conjunction with other less advanced estate planning documents.  Standard estate planning documents include a financial power of attorney, revocable trust, will, heath care power of attorney and living will. You must be sure the Ohio Legacy Trust meshes with the other components of your estate planning, wealth planning and business planning tools. Ohio Legacy Trusts are usually set up to benefit yourself, your spouse or life partner during your life.  Then upon your death, to benefit your children or grandchildren, but you can use a charity or friend as a beneficiary if you choose.

Q: Are Revocable Living Trusts the same as Ohio Legacy Trusts?

A: No, Ohio Legacy Trusts are not the same as Revocable Living Trusts.  Revocable Living Trusts are estate planning trusts to reduce estate taxes, avoid probate, and better plan for the transfer of wealth.  Revocable Living Trusts are not asset protection trusts, and do not provide any asset protection benefits for the trustmakers.  Ohio Legacy Trusts must be irrevocable, and Revocable Living Trusts are revocable.  Generally in a Revocable Living Trust, the trustmaker also serves as the trustee.  In an Ohio Legacy Trust, the trustmaker cannot act as the trustee.

Q: Can anyone make an Ohio Legacy Trusts?

A: Any individual over the age of 18, any corporation, residents of other states, can form an Ohio Legacy Trust so long as they comply with the other regulations.

Q: How do I put assets in my Ohio Legacy Trusts?

A: You must transfer legal title of the assets to the trustee of the Ohio Legacy Trust.  This can be done by execution assignment agreements, retitling bank accounts and financial accounts, transferring cash or check, transferring stock, executing deeds for real estate, etc.

Q: Can I control my assets after I put them in the Ohio Legacy Trusts?

A: No, the independent trustee of the Ohio Legacy Trust takes control over the assets.  The independent trustee will determine if any distributions of trust assets should happen.  You will not be able to force the independent trustee to do exactly what you want or make a distribution. This is the major downside of Ohio Legacy Trusts and all asset protection trusts – you have to give up control.

Q: When can I get distributions from my Ohio Legacy Trusts?

A: Since the independent trustee takes control over the trust assets, you must submit a request for a distribution to the trustee when you want a trust distribution.  Generally, you can only request a distribution if 18 months have passed without and lawsuits or claims being filed against you, if the trust was set up and funded properly, and the independent trustee has custody of the assets.

Q: How do Ohio Legacy Trusts protect my assets?

A: The Ohio Legacy Trust Act states that if 18 months have passed since forming the asset protection trust, and no claims have been made, all future creditors, except child support and spousal support creditor, that are not yet known will be stopped from getting these assets through a lawsuit.

Q: Is there a limit to the amount I can put in my Ohio Legacy Trusts?

A: There is no hard limit. However, you need to evaluate how much you need for monthly living expenses and make sure you are sufficiently covered with assets outside the asset protection trust.  Remember that the independent trustee will have the power to reject your request for a trust distribution, so you need to plan accordingly.  Also, you can not put assets in your Ohio Legacy Trust which would result in you becoming insolvent.

Q: What are the tax ramifications of an Ohio Legacy Trusts?

A: Generally, the assets in the Ohio Legacy Trust remain a part of the trustmaker’s taxable estate. Additionally, the OLT is normally a grantor trust.  In a grantor trust, the trustmaker remains responsible for any income tax based on trust assets throughout the trustmaker’s life.

Q: Who can I appoint as trustee of my Ohio Legacy Trusts?

A: The trustee should be an independent trustee, which means the trustee  should not be you, anyone in your family, or anyone you employ or control.  It can be an attorney, accountant, financial adviser, corporate trustee, or other adult. However, technically, the Ohio Legacy Trust Code only requires that the trustee be an Ohio resident, and someone other than the grantor of the Trust, or a business qualified to serve as Trustee. By using an independent trustee you further strengthen your Ohio Legacy Trust and cut off additional angles of attack from creditors.

Q: Will you be the trustee of my Ohio Legacy Trusts?

A: In many cases I will not agree to serve as the trustee.  I am an estate planning attorney, and would be best utilized as an adviser to you or your trustee.  However, in certain circumstances I may be willing to serve as a trustee of an Ohio Legacy Trust.

Q: Does an attorney need to setup my Ohio Legacy Trusts?

A: There is no requirement to use an attorney to set up your Ohio Legacy Trust, but like all asset protection trusts, it is a very complex trust to create and fund. Many precautions must be taken in designing, drafting and funding the Ohio Legacy Trust, and if it is not done right, it will not provide the asset protection benefits you need.

Q: Do I need an Ohio Legacy Trusts?

A: Do you work in a field which makes you a target for lawsuits?  Are you a doctor, attorney, entrepreneur, engineer or other professional that may have a tendency for litigation?  Do you have a high net worth? Have you been sued in the past?  If you feel there is a significant likelihood that your career, lifestyle or other characteristics make you vulnerable to creditors and lawsuits, then yes, you should consider an Ohio Legacy Trust.

Q: How do I get started on me Ohio Legacy Trusts?

A: Pick up the phone and call Valente Law.  We will walk you through the entire process and help you get a plan in place to protect your assets!  Call us today at (330) 665-5000.