Ohio enacted legislation that allows for unprecedented estate planning and asset protection. The Ohio Legacy Trusts Act allows individuals to create a trust and protect their own assets from future creditors and create a legacy for their children and grandchildren.
Ohio enacted legislation that allows for unprecedented estate planning and asset protection. The Ohio Legacy Trusts Act allows individuals to create a trust and protect their own assets from future creditors and create a legacy for their children and grandchildren. This can be achieved while relinquishing very little control over the assets themselves. As is often the case, the law is filled with unfamiliar and legalistic language.
A trust is merely property (corpus or principal) given by a person (settlor) to another person (trustee) to hold for the benefit of a third-party (beneficiary). Some very common examples of trusts are life insurance proceeds that are held in trust for minor children if their parents pass away or a charitable trust where property is held in trust for the benefit of a charitable organization. There are two general types of trusts—revocable (those which can be cancelled by the settlor) and irrevocable (those which cannot be cancelled by the settlor).
Benefits of an Ohio Legacy Trust
One of the primary benefits of the Ohio Legacy Trust is its ability to shield assets from future creditors. This is particularly helpful for high risk individuals such as doctors, lawyers, financial planners, and CPAs. While the Ohio Legacy Trust cannot be used to defraud current creditors, all assets placed in the trust are protected if current creditors do not make a claim against the Ohio Legacy Trust within 18 months of its formation.
The Ohio Legacy Trust must also be irrevocable. However, Ohio law allows a settlor generous rights over the property. A settlor may receive all the income from the Ohio Legacy Trust and may even receive up to 5% of the principal per year. The settlor of the trust retains the ability to veto trust distributions. While the settlor cannot be the trustee of the trust, the ability to veto trust distributions allows the settlor some management authority over the Ohio Legacy Trust.
The settlor may also exercise powers of appointment at death to transfer the assets of the Ohio Legacy Trust to another trust or different beneficiaries than the Ohio Legacy Trust. This allows the Settlor of an Ohio Legacy Trust never seen before abilities to change beneficiaries and gives outstanding flexibility. Additionally, an Ohio Legacy Trust can be used in place of a prenuptial agreement. While the Trust cannot avoid judgments for child support or alimony (See next section) if the Ohio Legacy Trust was created before the marriage and the property was transferred into the trust prior to the marriage, it will not be separate property outside the marriage. Accordingly, a spouse will not be able to claim or receive an award of any property in an Ohio Legacy Trust provided it is created and funded prior to the marriage.
The settlor of an Ohio Legacy Trust can also use the trust assets contributed to the Ohio Legacy Trust during the Settlor’s lifetime including living in a residence owned by the trust. The settlor also retains the right to remove or replace a Trustee of the Ohio Legacy Trust. This provides comfort and security to the settlor of an Ohio Legacy Trust should trust management or differences in opinion arise in the future.
What Can’t an Ohio Legacy Trust Do?
An Ohio Legacy Trust cannot be used to defraud current creditors of the settlor. If a current creditor files against the assets in the Ohio Legacy Trust within 18 months, it is highly likely that a creditor will be able to access a portion of the Ohio Legacy Trust property up to the amount the creditor is owed. An Ohio Legacy Trust also cannot eliminate the rights of secured creditors. Any property or asset that is transferred into the Ohio Legacy Trust takes subject to the rights of any secured creditors on the asset. For example, if a settlor transfers a home into an Ohio Legacy Trust, any mortgages on the home remain in place. An Ohio Legacy Trust also cannot absolve a settlor for any judgments against him/her for child support, spousal support, or alimony. Also, divisions of property to a settlor’s spouse are also not protected. Lastly, as you can imagine, federal agencies such as the IRS may invade the Ohio Legacy Trust property.
What is Required for an Ohio Legacy Trust?
Several requirements must be met for an Ohio Legacy Trust to be valid. The trust must be written and expressly state that it is irrevocable and contain a spendthrift provision. The spendthrift provision must prohibit the voluntary and involuntary transfers of the settlor’s and any beneficiary’s interests in the Ohio Legacy Trust.
The trust also must be administered by a Qualified Trustee. The Ohio Legacy Trust Act defines a Qualified Trustee as somebody other than the settlor and who is a natural person in the state of Ohio or a trust company or bank licensed to act as a Trustee or regulated by the FDIC. The settlor must also make a Qualified Disposition. The Ohio Legacy Trust Act defines a Qualified Disposition as a disposition from a settlor to any trustee of a trust that is or becomes an Ohio Legacy Trust.
In order to make a Qualified Disposition, the settlor must also sign a Qualified Affidavit or an Affidavit of Insolvency. If the settlor is not a beneficiary of the Ohio Legacy Trust or does not have sufficient interest in the trust, a Qualified Affidavit is not required. If the settlor the trust is a beneficiary, however, the affidavit must be notarized and contain the following provisions:
The last legal requirement for the validity of an Ohio Legacy Trust is that all or a portion of the trust must be governed by Ohio law. The trustee must also maintain all or some of the trust assets in Ohio, file income tax returns, and maintain records in Ohio.
An Ohio Legacy Trust provides countless, measurable benefits to the settlor of the trust. Contact the lawyers at Tompkins, Selph, & Associates, Ltd to discuss whether an Ohio Legacy Trust is right for you.