What is an Ohio Legacy Trust, and When Do You Need One?

There are many types of trusts with different features designed to achieve different estate planning goals. Depending on the type, trusts can keep assets out of probate, prevent beneficiaries from wasting their inheritance, protect assets of beneficiaries with special needs, minimize tax burdens, and protect assets from creditors.

If placing your hard-earned assets out of the reach of potential future creditors is one of your goals, you may want to consider an Ohio Legacy Trust. An Ohio Legacy Trust (OLT) is a type of domestic asset protection trust (DAPT). The OLT is a relatively new tool in Ohio estate planning attorneys’ toolkit, having only been authorized by the Ohio Legislature in 2013. For those who need an OLT, it offers tremendous benefits. But because it is a relatively new option, and has very specific requirements, it is best to work with an Ohio estate planning attorney who has extensive experience in creating estate plans that involve OLTs.

Benefits of an Ohio Legacy Trust

The primary benefit of an OLT, of course, is that it shields assets from future creditors. That’s important: you cannot place assets in an OLT to remove them from the reach of a current creditor or an expected creditor.

An OLT is irrevocable, meaning the trustmaker (also called the “settlor” or “grantor” of the trust) cannot later dissolve the trust and take back the assets in it. And unlike a living trust, the trustmaker cannot serve as trustee of an OLT. That said, there are still significant benefits for the trustmaker above and beyond protection of trust assets from creditors.

Unlike many types of irrevocable trusts, the trustmaker can be a beneficiary of an OLT. They can use certain trust assets during their lifetime, and can receive distributions from the trust. A trustmaker who has transferred assets into an OLT has the power to change trustees, beneficiaries, and the terms by which they can access the contents of the trust.

Requirements of an Ohio Legacy Trust

Because of the significant benefits an OLT offers, there are stringent requirements to ensure that OLTs are not abused. Unless a trust complies with these five criteria, it cannot be an OLT and assets in the trust may not be shielded from creditors.

The first requirement is that the trust must be in writing and subject to Ohio law in order to qualify as an Ohio Legacy Trust. The second requirement is that the trustmaker must appoint someone else as trustee, and at least one of the trustees must be an Ohio resident. The trustee can be a family member, including a spouse or child. Oftentimes, clients select their attorney as trustee of an OLT.

The third requirement, as discussed above, is that the trust must be irrevocable. Because the trustmaker cannot later dissolve or remove assets from the trust, they should not place in the trust assets that they will need to pay regular ongoing expenses or emergent expenses.

The fourth requirement of an OLT is a “spendthrift provision.” This language is what gives the OLT the ability to protect trust assets from creditors. Simply put, a spendthrift position prevents a beneficiary of the trust from assigning away rights in the trust. Because the beneficiary cannot assign their beneficial interest in the trust, they do not control the assets such that a creditor could reach them.

These first four requirements are common to almost all DAPTs. The fifth requirement is common to all states, but Ohio has a “due diligence” requirement for OLTs. Essentially, the trustmaker must affirm in an affidavit that they will remain solvent after placing assets in the trust.

Who Needs an Ohio Legacy Trust?

While almost everyone has some creditors, not everyone needs an Ohio Legacy Trust. Because of the irrevocable nature of the trust and the requirement that the trustmaker be solvent, these trusts are best for individuals who both own significant assets and could face significant exposures to lawsuits or other major creditors. This category includes professionals such as doctors and lawyers, who could face malpractice lawsuits; small business owners; farmers; and other high net worth individuals. Legacy trusts can also be used for prenuptial planning.

If you would like to learn more about Ohio Legacy Trusts or make an appointment for a consultation with an estate planning attorney who is well-versed in creating OLTs, contact Dayton Estate Planning Law.