Ohio Legacy Trusts
The Ohio Legacy Trust Act became effective today, March 27, 2013. With this statute, Ohio joins 13 other states that allow “domestic asset protection trusts.” An Ohio legacy trust allows the creator of a trust to transfer assets that will then be protected in the trust from creditors’ claims, as long as statutory requirements are satisfied. The trust must be irrevocable, and the trustee must be an Ohio resident or a corporate trustee with trust powers in Ohio. The trustee may be required to follow the direction of an advisor (who does not need to be an Ohio resident).
With some exceptions, the creator of an Ohio legacy trust may retain several important powers over the trust without sacrificing protection from creditors, such as:
- The right to receive income and principal from the trust in the trustee’s discretion.
- The right to withdraw up to 5% of the trust principal each year.
- The power to veto a distribution from the trust.
- Certain rights to control how trust property will pass to other beneficiaries after the creator/beneficiary’s death.
- The right to remove and replace trustees and other trust advisors.
An Ohio legacy trust can also be helpful in planning to protect assets before marriage as a partial replacement for, or supplement to, a prenuptial agreement.
Although some Ohioans have established domestic asset protection trusts under the laws of other states, many have been hesitant to do so because of the cost and concern about using an unfamiliar trustee located in another state. In addition, there has been some concern that asset protection trusts established in other states would not be protected in Ohio. With an Ohio legacy trust, Ohio law will govern, and an Ohio resident must be used as the trustee.
Inherited IRAs and College Savings Plans Receive Creditor Protection
Ohio now specifically extends protection from creditors to “inherited” or “stretch” IRAs and to 529 college savings plans.
The homestead exemption has been expanded to $125,000 per debtor from the $21,625 exemption Ohio previously recognized, subject to certain exceptions. A married couple can claim up to $250,000 in exempt homestead equity to the extent of his or her interest.
Attorneys in Taft’s Private Client group are available to discuss planning opportunities afforded by the law with our clients and friends. We encourage you to contact us with any questions.