Wealth & Estate Planning / 07.03.2019

Asset Protection Trusts: Balancing Control and Security

By Samir Dahman

Wealth & Estate PlanningWe often think that the only way to truly protect our assets from creditors is to put the money in an offshore Swiss or Cayman bank account, complete with all of the uncertainty, hassle and lack of control which that entails. In other words, we assume that to get protection, we have to give up control.

But that’s not necessarily true nowadays. Ohio actually legalized asset protection trusts (“APTs”) in 2013. And once an APT has been properly established and funded, most of the funder’s creditors are precluded from seizing assets in the trust. Ohio APTs also allow the funder to retain a fair amount of control.

Protection

Future creditors of someone who has funded an APT have only an 18-month window to file claims against assets in an APT. Existing creditors also have a shortened window: either (i) eighteen months after the establishment of the APT, or (ii) six months after the asset protection trust could have reasonably been discovered by the creditor if the creditor sues within three years of the transfer to the APT. Even if a creditor does file within these windows, the creditor must prove bad faith or intent to defraud by “clear and convincing evidence,” which is the highest standard of proof in civil law. Thus, once an APT is properly established and funded, most of its funder’s creditors will be precluded from reaching the assets of the trust.

Control

You can fund an APT with virtually any kind of asset, like stocks, personal property, artwork, investments and real property. The funder of an APT maintains the power to:

  • Be a beneficiary
  • Withdraw up to 5% of the trust assets every year
  • Appoint and change the trustee
  • Veto a distribution from the trust
  • Appoint property to other beneficiaries
  • Live in a home in the APT

When to Set Up an APT

The duality of control and protection makes the APT such a powerful tool. Given the time limits on funding an APT, it is best to put assets into an APT before you even know of a claim.

Because the APT can be a powerful guard limiting exposure to assets, business owners and professionals should consider using the APT as part of their estate plan to plan for their family’s future and to guard against potential claims.

If you have any questions, please reach out to Samir Dahman at sbd@kjk.com or 614.427.5750, or contact any of our Wealth & Estate Planning professionals.

 

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