Over the years many friends and clients of Phillips Law Firm, Inc. have asked our lawyers whether they could use a trust to protect their property from future lawsuits and creditors. In general, our response was something to the effect of, “Yes, but you will have to give up all control over the property you put in the trust and you can’t use any of the trust’s property or income for your own benefit.” These limitations usually put a quick end to the asset protection trust discussion. In the coming months our dialogue with our clients about Ohio Asset Protection Trusts will change due to the passing of the Ohio Legacy Trust Act.
On March 27, 2013 the Ohio Legacy Trust Act will go into effect. This new law will allow an individual to establish an Ohio Asset Protection Trust, thereby protecting certain assets from future lawsuits and creditors, provided certain requirements are met. One of the main goals of the Ohio Legacy Trust Act is to enhance the attractiveness of Ohio as a state in which to live and retire. Many retirees move to Florida or Texas with their more-or-less unlimited homestead exemptions, or move assets to jurisdictions outside of the United States. The main goal of the Legacy Trust Act is to allow Ohio to be more competitive in the areas of trusts, asset protection and business.
Under the terms of this new law, an individual will now be permitted to transfer property to an irrevocable trust, thereby placing the transferred property out of the reach of certain creditors. After the transfer is made, the individual would still be allowed to receive the benefits of the transferred property and still retain a certain amount of control over it as well. These types of so called “self-settled spendthrift trusts” were not permitted under Ohio law prior to the passing of the Ohio Legacy Trust Act.
Ohio Legacy Trusts are subject to certain rules when it comes to their creation and operation. For example, the individual who creates the trust cannot serve as the Trustee of the trust, however he or she can retain the power to remove or replace the trustee. When the Ohio Legacy Trust is created, the individual must sign an affidavit stating among other things, that the property being transferred to the trust was not derived from unlawful activity, that the transfer won’t make the individual insolvent and that the transfer is not being made to defraud a creditor.
The Act contains a lengthy list of rules and requirements that must be followed. But by enacting this legislation it is now very clear that an Ohio resident can now use an irrevocable trust to protect their hard earned property, while still enjoying all of its benefits. And as Marvin Lewis has been known to say, “That’s a good thing.”
Paul is a lawyer with Phillips Law Firm, Inc. whose practice focuses on estate planning, probate and representing entrepreneurs and business owners. He can be reached at (513) 985-2500.