Ohio Enacts Asset Protection Trust Legislation
In December 2012, Ohio become the fifteenth state to enact domestic asset protection trust (DAPT) legislation, which will be effective March 27, 2013. An Ohio DAPT, referred to in the statute as a "legacy trust," is an irrevocable trust with a "qualified trustee," either an individual who is an Ohio resident (not the grantor) or an Ohio bank or trust company. A successful legacy trust protects assets from all creditors except the grantor's spouse or former spouse.
The grantor of a legacy trust can retain any or all of the following rights and powers:
(i) the power to veto a distribution; (ii) a testamentary limited power of appointment; (iii) the right to mandatory income; (iv) the annual right to withdraw up to 5% of the principal; (iv) the right to discretionary income and/or principal; and (v) the right to remove and appoint qualified trustees.
A creditor, to void a transfer to a legacy trust, must bring a successful "fraudulent transfer" action before the expiration of the statute of limitations period, which is the later of (i) 18 months after the transfer, or (i) six months after the transfer is or reasonably could have been discovered, provided the creditor's claim is based upon an event prior to the transfer and the claim is filed within three years after the transfer. For a future creditor, the statute of limitations is 18 months from the date of the transfer. A fraudulent transfer is defined as is a transfer made with the specific intent to defraud the specific creditor bringing the action.
Used in the proper circumstances, and implemented well in advance of a potential creditor claim, an Ohio legacy trust is a welcome addition to the tool kit of asset protection strategies. For questions regarding trusts, or other estate planning matters, please contact an attorney in our Estate Planning, Trusts and Probate Practice Group.