In the last edition of the WealthCounsel Quarterly, Steve Oshins provided an overview of Domestic Asset Protection Trusts and James Kalicki examined Nevada’s DAPT statute (known as a “Legacy Trust”). The authors of this article were involved in the drafting and passage of the law and were invited to meet the Governor when he signed the bill. Beginning March 27, 2013 Ohio becomes the first state in the Midwest to offer DAPT’s. Ohio incorporated the best provisions from other jurisdictions and has already received national recognition for being a top tier statute.
Ohio’s law incorporates provisions commin in other jurisdictions. An Ohio Legacy Trust must be in a written instrument, incorporating the laws of Ohio governing its validity, construction and administration, be irrevocable and contain a spendthrift provision. There must be at least one Ohio trustee who has custody of the assets, maintains the trust records or materially participates in the management of the trust.
In many cases, practitioners look to the quantum of proof, statute of limitations and exception creditors to determine in which jurisdiction to situs a DAPT. In each of these categories, Ohio’s statute will be at the top of a practitioner’s list.
Ohio sets limits on a creditor’s ability to void a disposition to a Legacy Trust. The creditor will not be able to set the disposition aside unless he proves that the disposition was made with the specific intent to defraud the specific creditor bringing the action. The creditor is required to prove his claim by clear and convincing evidence. This is the highest standard of proof in civil cases.
Ohio will have the shortest statute of limitations in the country. A creditor of the transferor whose claim existed before the qualified disposition has eighteen months after the qualified disposition of six months after he could reasonably have discovered the disposition to file an action to void it. The new law also incorporates a centralized filing system for personal property. By filing and recording a qualified disposition, a creditor is charged with notice. This will start the period for deemed knowledge or discovery of a transfer. Therefore, a settlor of a DAPT can effectively have an eighteen month statute of limitations for an existing creditor. The authors believe that Ohio will have the first centralized filing system for personal property in the country. In addition, a creditor whose claim came into existence after the qualified disposition has eighteen months to file an action to void the disposition. Most DAPT jurisdictions have statutes of limitation ranging from two to four years.
The exception creditors that Ohio allows are limited to domestic relations. A settlor’s spouse, former spouse, or children can attach an interest in a Legacy Trust for child support, spousal support, or alimony and the division of property (but the spouse must have been married to the settlor at the time of the qualified disposition). These are common exception creditors in most states. However, some states go far beyond these exceptions and allow exceptions for such things as governmental claims and tort creditors.
Ohio further protects its Legacy Trust by providing that if a court takes action in which is refuses to apply Ohio law, then a qualified trustee who is party to the action shall cease to be a trustee of the Legacy Trust. This deprives the court of jurisdiction over the trust.
Practioners are also careful to analyze the state income taxes associated with the situs of an irrevocable trust. Ohio does not assert income tax on Legacy Trusts established by individuals who are not Ohio residents unless one of the beneficiaries is an Ohio resident.
When the Ohio Legacy Trust is compared to DAPT’s of other states, it becomes clear that Ohio provides as much or more protection than most of the other states. Ohio will be one of the best states in the country to create a DAPT. The new law also has incorporated provisions to allow an asset protection trust from another jurisdiction (foreign or domestic) to “move” the trust to Ohio and have Ohio law govern. As estate planning and asset protection practitioners, we invite you to review the Ohio Legacy Trust to determine whether it will meet the needs of your clients. We are confident that it will.