Those looking to aggressively protect their assets while still benefiting from them have a new, realistic option under the Ohio Legacy Trust Act, Ohio Revised Code Chapter 5816 (the “OLTA”), which became effective March 27, 2013. The OLTA permits an individual to create and fund an asset protection trust (a “Legacy Trust”) that will protect his or her assets from the claims of his or her own creditors.
Under the OLTA:
- Creditors have a shortened period of time to make claims against the Legacy Trust
- The person setting up the Legacy Trust can be beneficiary of it
- While the person setting up the Legacy Trust can’t be the trustee he or she does other significant rights
- The burden of proof on anyone trying to attack assets in a Legacy Trust is on the creditors
- Assets in a Legacy Trust aren’t protected from child support or alimony from marriages established prior to the trust
The most attractive aspect of the OLTA is the strict time frames placed on creditors to file claims. In other trusts creditors can make claims against the trust during the life of the person setting up the trust, but with a Legacy Trust they have a short window to file. First, a creditor must prove that the trust was established to defraud creditors. Creditors who were acting as creditor before the trust was established have either 18 months after the establishment or 6 months after the trust could have reasonably been discovered by the creditor if they file a suit within 3 years after the trust was established. If they were not a creditor before the trust, they have 18 months.
Although the person who creates trust (the “transferor”) cannot serve as trustee, they are granted other significant rights under the OLTA. As a transferor, one can:
- change the trustee,
- veto distributions from the trust,
- withdraw up to 5% of assets annually,
- direct that Trust assets be distributed to anyone other than the transferor or the transferor’s creditors, estate, or creditors of the transferor’s estate,
- live in residences given to the trust, and
- advise on investments of the trust’s assets.
There are some stipulations, however, as to the establishment of a Legacy Trust. Since the OLTA is designed to protect assets more so than a regular trust, the transferor has to sign an affidavit, which must state the following: (1) the assets are not the product of illegal activity, (2) the transferor has the full right to transfer the assets, (3) the transferor will not be insolvent after transferring the assets, (4) there is no intention to defraud creditors, (5) there are no pending court actions against the transferor, (6) the transferor is not involved in any administrative proceeding (other than opinions on investments), and (7) the transferor does not foresee filing for bankruptcy.
Once a Legacy Trust has been properly established and funded, most of the transferor’s creditors are precluded from seizing assets in the Trust. Persons concerned about exposure to claims of creditors should consider using this technique when planning their estates. Please contact the attorneys at KJK to set up a time to discuss a Legacy Trust.