Estate Planning Specialist, Joseph Balmer, digs deeper into the new Ohio Legacy Trust Law Act, and reveals how it can be used as a protection tool in the area of Family Law.
Effective March 27, 2013, the Ohio Legacy Trust Act became law. With the passage of this act, Ohio became one of 14 states to allow self-settled trusts. Ohio also, arguably, has one of the 4 or 5 strongest legacy trust act laws with respect to protecting one’s assets against creditors. This repeals the long held English rule that one cannot set up a trust for himself or herself and protect his/her assets against one’s potential future creditors.
In a nutshell, with a Legacy Trust, a settlor can set up an irrevocable trust with a third party as the trustee. The unique aspect of this trust is that, generally, a settlor’s creditors cannot attach trust property, even if the settlor is a trust beneficiary (both income and principle) and has retained powers over the trust property. The caveat is that the trust settlement cannot be a fraudulent transfer. Thus the transfer cannot be with the intent to defraud the settlor’s creditors. Thus, the settlor needs to make sure that the transfer does not leave him or her insolvent with respect to claims and potential claims. However, for a physician, corporate executive or anyone prone to possible litigation, the Legacy Trust can be a powerful asset protection tool.
Ohio Legacy Trust Vs. Antenuptial Or Prenuptial Agreements
Now, what does this have to do with family law? With respect to an Ohio Legacy Trust established prior to marriage, if the distribution of principle is at the sole discretion of the trustee, the asset is not a marital asset. Also, if the settlor is married after the trust is funded, any spousal support resulting from the termination of the marriage cannot be taken involuntarily from the Legacy Trust. Thus, when an antenuptial or prenuptial agreement is not an option, the Ohio Legacy Trust can be a very effective premarital planning tool.
As with a prenuptial agreement, if enough money is involved, one has to be prepared for potential litigation down the road. Thus, one has to do much due diligence and be very careful to protect oneself against arguments that the transfer was a fraudulent transfer or that Ohio law should not apply. If done carefully, though, this would be a vehicle that anyone with a substantial accumulation of wealth, one with “sudden wealth” (i.e. lottery winner) or one in an occupation prone to potential lawsuits might want to consider.
The author of The Legacy Trust as a Premarital Planning Tool, Attorney Joseph E. Balmer is a partner at the Dayton, Ohio law firm of Holzfaster, Cecil, McKnight & Mues and has been handling estate planning and elder law matters since 1991. He has been certified since 2006 by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law. Joe’s email is email@example.com .
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Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.