Q: What is an Ohio Legacy Trust (OLT)?
A: The Ohio Legacy Trust (OLT), also known as a “domestic asset protection trust” (DAPT), is an estate-planning tool used to protect assets from future creditors. Ohio is one of 14 states in the United States that allow DAPT trusts. A person (the “trustmaker”) can create an OLT, fund the trust with his or her own assets, and be a beneficiary of the trust. Future creditors cannot access the trustmaker’s OLT assets if the trust was properly formed.
Q: How do I create an Ohio Legacy Trust?
A: To be valid, an Ohio Legacy Trust must: 1) be in writing; 2) appoint an Ohio trustee; 3) be irrevocable; 4) have a “spendthrift” clause (making the trustee responsible for distributions so that trust beneficiaries cannot assign trust assets and creditors cannot access trust assets); and 5) be subject to Ohio law. At the time your assets are contributed to the OLT, a “solvency affidavit” is also signed; it states that you are and will still be solvent after contributing your assets to the OLT.
Q: How might I use an Ohio Legacy Trust?
A: An OLT is an estate planning and/or business planning tool. Normally an OLT includes estate planning distribution provisions for your heirs and beneficiaries similar to those of a will or revocable trust. An OLT does not replace a will, heath care power of attorney, living will, financial power of attorney or revocable trust, and you must coordinate the OLT’s terms and provisions with your other estate and business planning tools. Typically, OLT beneficiaries will include you (the trustmaker), your spouse and your children, but you can also name a charity, grandparent, parent or friends as beneficiaries.
Q: How does an Ohio Legacy Trust differ from a revocable trust?
A: Unlike a revocable trust, the Ohio Legacy Trust is irrevocable (cannot be changed). Also, because you give up control of your OLT assets to an independent trustee, you should put only a small percentage of your assets or your excess assets, in the OLT. The assets should not be encumbered by personal guarantees, liens, claims or lawsuits.
Q: Who can form an Ohio Legacy Trust (OLT)?
A: Any adult, business, corporation, out of state resident or out of state business can form an OLT.
Q: What kinds of assets can I place in an OLT?
A: Investment or financial accounts, mutual funds, investment real estate, shares of stock, LLC membership interests, artwork or personal property can be put into an OLT. IRAs and retirement accounts cannot be put into an OLT. Also, make sure the assets are titled in the name of the OLT.
Q: How are OLT trust asset distributions made?
A: You ask the independent trustee, in writing, for a distribution. Normally there is no limit to amount or the number of times you can request a distribution, but you can request a distribution only if: 1) proper steps were taken to form and fund the OLT; 2) the independent trustee has custody and control of the OLT assets; and 3) 18 months have passed without any threatened, existing or filed claims against you or the trustee.
Q: Must the OLT’s independent trustee grant my distribution request?
A: No. The trustee can refuse to distribute your OLT assets. This can be frustrating, but it helps to protect your OLT assets from creditor claims.
Q: Can any creditors access OLT assets?
A: If properly formed, and the required time period has passed (18 months) with no claims, future unknown creditors cannot access funds in the OLT. Ohio law does provide exceptions to this rule for child and spousal support (alimony).
Q: How much can I put into an OLT?
A: Generally, you can fund your OLT with assets not needed for monthly bills, loan payments, expenses or longer-term debts. Because OLT distributions are made by an independent trustee, you may not be able to get your money out, so don’t put in more than you can afford to lose.
Q: Who can be an OLT trustee?
A: An independent trustee should not be related to or under the control of the trustmaker or any of the beneficiaries. Independent trustees may include, for example, corporate bank trustees, institutional trustees, professional trustees, accountants, attorneys or financial planners.
Q: Does a trustmaker need an attorney to form an OLT?
A: Yes. Because the formation of OLTs involve, giving up rights to assets, creditors’ rights, beneficiary rights and tax and estate planning issues, it is wise to engage an attorney experienced in OLT matters.
This "Law You Can Use" consumer legal information column was provided by the Ohio State Bar Association. It was prepared by D. Bowen (“Bo”) Loeffler, Esq. of Port Clinton/Sandusky.