On December 11, 2012, the Ohio Senate voted unanimously approving a bill referred to as the Ohio Asset Management Modernization Act and also known as the Ohio Legacy Trust Act. After it was approved by The Ohio House of Representatives, it was signed by Governor John Kasich on December 20, 2012, and will become effective March 2013.
The general purpose of this law is to allow Ohio residents to better protect their assets from creditors. Currently, a dozen other states already have similar laws, and based upon the provisions in the law, Ohio will become one of the most asset protection-friendly states.
This law is also considered a jobs bill and will allow Ohio financial institutions, professional service firms, and other businesses to be highly competitive with other states in various trust administration and asset protection areas. This is expected to create and retain thousands of jobs and provide increased revenue to the State of Ohio.
Another benefit of the passage of this law is to retain retirees in the State of Ohio as residents instead of them moving to other states that are more asset protection friendly. For example, currently, a number of retirees are moving to Florida and Texas because those states have much more friendly asset protection laws, no income tax, and no estate tax. Ohio still has an income tax, but the passage of this law and the abolishment of Ohio’s estate tax beginning for any deaths after January 1, 2013, are certainly more attractive to retirees.
The following are some of the specific provisions in the new law:
- The Homestead Exemption is increased from $20,200 to $125,000. This means that up to $125,000 of the value of a house is protected from creditors;
- Inherited IRAs are protected from the reach of creditors;
- 529 Education Savings Accounts are protected from creditors;
- Individuals are permitted to execute asset protection-friendly trusts referred to as Legacy Trusts.
The ability to execute a Legacy Trust is a substantial benefit of this new law. After executing a Legacy Trust, an individual then transfers assets to this trust and is still able to remain a beneficiary of the trust and use those assets through the actions of a qualified trustee. That individual is required to sign an affidavit, either before or contemporaneously at the time the trust is established. The affidavit has to state that the transfer of assets to this Legacy Trust will not render the individual insolvent, is not intended to defraud creditors, the individual has no pending or threatened court actions, and the individual does not contemplate filing for bankruptcy. Creditors would be prohibited from bringing an action against any property held in this Legacy Trust unless the creditor can prove that the individual established this Legacy Trust with the specific intent to defraud a creditor.
Creditors are required to follow the formalities of the law when bringing a lawsuit against the individual in the future. For example, if a creditor was a creditor before the establishment of the Legacy Trust, then the creditor would be required to bring an action by the later of (a) 18 months after the establishment of the Legacy Trust, or (b) six months after the establishment of the Legacy Trust could have been reasonably discovered by the creditor if the creditor has filed a suitor makes a written demand for payment within three years after the establishment. If the creditor becomes a creditor after the establishment of the Legacy Trust, the creditor must bring an action within 18 months after a debt is due. The burden is on the creditor to prove these matters. In addition, the court must award attorney fees and costs to the successful party in this type of action.
The trust must have at least one trustee who is an Ohio resident or is an entity authorized to act as Trustee in the State of Ohio and who materially participates in the administration of the trust. The trust also must expressly incorporate Ohio law to fully or partially govern the trust. In addition, the trust must be irrevocable and include a spendthrift provision which states that the Trustee may not be forced to take distributions from the trust for the benefit of a creditor.
The passage of this law will certainly provide a win for those Ohio residents who are interested in asset protection. If you are one of those Ohio residents, please contact your attorney who can educate you regarding this new asset protection law and potentially assist with the establishment of an Ohio Legacy Trust.
NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.
James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., LPA
158 North Broadway
New Philadelphia, Ohio 44663