Using Legacy Trusts for Prenuptial Planning

About half of marriages end in divorce, and second marriages are more likely to end in divorce than first marriages. What this means is that approximately half of all families are confronted with a situation in which assets need to be divided between the divorcing spouses. In second marriages, that can result in an ex-spouse receiving property that the other ex-spouse had hoped to leave to his or her adult children from a previous relationship. Even if there are no children, a divorcing spouse might well prefer to keep his or her hard-earned assets out of the reach of a greedy ex.

For these reasons, prenuptial agreements are a popular planning tool. These agreements can keep assets out of the category of “marital property” subject to division upon divorce. But prenuptial agreements do not work for everyone. For one thing, both parties to an upcoming marriage need to sign a prenuptial agreement for it to be effective.

Some people are, justifiably, hesitant to ask a fiance(e) to sign an agreement. On the threshold of a marriage, when you are supposed to be planning to be together forever, it can seem as if one of you is already thinking about divorce. A prenuptial agreement, to be effective, requires a full disclosure of assets and liabilities. While it is certainly ideal for parties to a marriage to be forthcoming about their financial matters, some people may be uncomfortable laying all that information on the table.

Even if a prenuptial agreement appears to be valid, there is no guarantee that one party will not later ask to have it set aside, or that such a request will not be granted. If that happens,

There is an alternative to prenuptial agreements for planning and asset protection: an Ohio legacy trust. Using legacy trusts for prenuptial planning can achieve the same goals as a prenuptial agreement without the problems a prenuptial agreement can pose.

What is an Ohio Legacy Trust?

An Ohio Legacy Trust (OLT) is a domestic asset protection trust. A creation of the Ohio Legacy Trust Act of 2013, an Ohio Legacy Trust allows individuals to create trusts that place a considerable barrier between the assets in the trust and the trustmaker’s future creditors (who could include a divorcing spouse).

An OLT has five requirements:

  • The trust must be in writing and subject to Ohio law.
  • The trustmaker must appoint an independent Ohio trustee.
  • The trust must be irrevocable.
  • The trust must contain a “spendthrift” provision which prevents a beneficiary from assigning away, or a creditor from attaching, trust assets.
  • The trustmaker must execute certain affidavits, including one that establishes that the trustmaker will remain solvent after placing assets in the trust.

Note that in order for the trust to be effective in protecting assets from a spouse in divorce, the trust must be established prior to the marriage.

Advantages of an Ohio Legacy Trust Over a Prenuptial Agreement

An Ohio Legacy Trust has numerous advantages over a prenuptial agreement. First, it protects assets not only from being claimed by a spouse, but from a variety of other creditors as well.

Second, there is no need for the trustmaker to disclose any assets to a fiance(e) prior to making or funding the trust, nor is there any requirement for the fiance(e) to sign off on, or even be aware of, the trust. This can prevent the discomfort of having to ask a partner to sign a prenuptial agreement while in the midst of planning a wedding, and the unpleasant emotions that go along with that. While the trustmaker may at some point need to disclose the existence of the trust to a spouse, it can be described as having been created for asset protection from potential creditors (without necessarily mentioning that the spouse might fall into that category).

Third, once established, an OLT is much less vulnerable to challenge than a prenuptial agreement, offering more certainty and security to the trustmaker. Since no disclosure is required for the creation of the trust and the prospective spouse need not sign off on the trust, a spouse cannot challenge it on the grounds that he or she was not fully informed of the assets in the trust, or forced to make an agreement under duress.

There are also some potential disadvantages to an OLT. For one, the trustmaker must be willing to permanently relinquish control over the assets in the trust, even if he or she remains a beneficiary. Also, there are administrative costs involved with a trust that would not be present with a prenuptial agreement.

As noted above, an OLT cannot be created after the marriage, but since Ohio bars postnuptial agreements, this is not really a disadvantage by comparison; either the OLT or the prenuptial agreement must be created before the marriage takes place.

If you are contemplating marriage, you may be contemplating the protection of your assets as well. If you are interested in exploring the possibilities of an Ohio Legacy Trust, we invite you to contact our law office.

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