In Ohio, asset protection attorneys should NOT use living trusts alone as an asset protection plan because, under Ohio trust law, they do not protect assets from creditors, lawsuits, bankruptcy or other threats during the lifetime of the Trustmaker.
Living trusts, also known as revocable trusts, only protect assets for beneficiaries after the Trustmaker’s death. Once the Trustmaker has died, the assets in a revocable trust can be wholly protected against all kinds of threats, but during the Trustmaker’s lifetime, the assets are still vulnerable.
Since the maker of a revocable trust can revoke the trust and regain ownership of its assets at any time, the transfer of assets to a living or revocable trust is not considered a transfer of ownership and the transferred assets are obtainable by creditors. In Ohio, your asset protection attorney should advise against using living trusts if your goal is to protect your assets from creditors and other threats during your lifetime.
Unfortunately, Ohio trust law does not currently provide a trust format for protecting assets during a person’s lifetime. However, there are a couple of ways to protect your assets that don’t involve Ohio-formed trusts. The first is to use an Ohio limited liability company (LLC). The other is to use an asset protection trust formed in a state with stronger trust laws, like Delaware or Wyoming, or in another country.
Using an Ohio LLC for asset protection
An LLC is a type of corporate business entity. When assets are transferred to an LLC, they are no longer owned by the individual, but by the LLC and all of its shareholders. Because it would be unfair for all of the shareholders of an LLC to have the business’ assets taken be a creditor of just one shareholder, Ohio law prohibits confiscation of an LLC’s assets to pay the debts or judgments of one of its shareholders — even if there is only a single shareholder. An LLC also allows the original asset owner continued control over the assets when appointed as manager of the LLC. Your Ohio asset protection attorney can assist with setting up a manager-managed LLC and transferring your assets to it.
Using Out-of-state asset protection trusts
While Ohio trust law does not yet permit self-settled asset protection trusts, there are several states that do. It is a common practice among Ohio asset protection attorneys to help Ohio clients set up asset protection trusts in these states. Doing so is perfectly legal and provides an excellent level of protection. It is also possible to set up asset protection trusts in foreign countries. This is even more secure than a domestic asset protection trust because the governments in the countries typically used for this purpose don’t recognize U.S. court judgments. However, off-shore trusts are far less convenient, more expensive, and may provide less access to their assets than their domestic counterparts. Both off-shore and domestic trusts in other states are more secure than living trusts.
In Dayton, Ohio, Gudorf Law Group, LLC, can assist in setting up living trusts to protect assets for heirs under Ohio trust law or establishing an asset protection plan for your lifetime using out-of-state asset protection trusts and LLCs. Call our Ohio asset protection attorney’s office at 1-877-483-6730 to schedule a free consultation.