Marcia Kendle

Ohio is now viewed as one of the leading states in the asset protection arena, thanks to the passage of the Ohio Legacy Trust Act, says Marcia Kendle, Senior Vice President and Chief Fiduciary Officer at FirstMerit Bank. 

The law, which went into effect March 27, 2013, as part of Ohio House Bill 479, allows for the creation of self-settled irrevocable trusts – also known as domestic asset protection trusts (DAPTs). These trusts permit the transferor of assets to also be the beneficiary of the trust. An Ohio DAPT provides a high level of protection from creditors dependent upon certain factors, says Kendle.

“A qualified Ohio DAPT is different from a standard irrevocable trust in that it serves as a means to protect assets -- with a few statutory exceptions -- from creditors,” she says. “The Ohio Legacy Trust Act puts Ohio at the forefront.”

Trusts of this kind, which provide an alternative to potentially riskier offshore trusts, are gaining in popularity. With trillions of dollars ready to pass from one generation to the next in the coming years, DAPTs are becoming an increasingly attractive option. As legislatures nationwide consider similar asset protection measures, Ohio joined 13 other states -- most notably Alaska, Delaware and Nevada -- that permit domestic asset protection trusts. 

If you’re thinking about creating an Ohio DAPT, here are some things to consider:

Who can benefit from an Ohio DAPT?

Due to the complexities of the act, you should discuss your individual circumstances and goals with an experienced trust attorney, financial planner and/or wealth management professional to determine if an Ohio DAPT, or perhaps another asset protection planning strategy, is in your best interest. The act generally presents considerable benefits to those wanting to protect their wealth, as well as individuals in professions with high exposure to litigation (e.g., business owners, accountants, attorneys, medical professionals, executives, etc.). For individuals considering a prenuptial agreement, an Ohio DAPT is viewed as a viable option for an individual yet to be married.

What are the requirements and restrictions associated with creating an Ohio DAPT?

An Ohio DAPT must, amongst other items, be written and irrevocable, have spendthrift provisions, state that Ohio law applies and appoint at least one qualified trustee, who is either an Ohio resident, a bank, or a trust company, such as FirstMerit Bank, authorized to operate in Ohio. The statute also mandates that the transferor of an Ohio DAPT cannot serve as trustee of the trust.

Residents of any state may create an Ohio DAPT, providing that some of the trust assets are held in Ohio and that other regulations of the Ohio Legacy Trust Act are fulfilled.

What rights and powers can the creator of an Ohio DAPT retain?

The transferor retains the right to receive income from the trust, receive and use assets (within the trustee’s discretion) in the trust, remove a trustee and appoint a new trustee, appoint a protector of the trust, be the investment advisor to the trust, retain the power to change the beneficiaries of the trust (per restrictions detailed in the statute), provide for the use of trust income or assets to pay income taxes generated by the trust, pay debts after death and veto distributions from the trust.

How does the creator of the trust obtain full protection that might be available under the Ohio Legacy Trust Act?

When transferring assets to an Ohio DAPT, the transferor is required to execute an affidavit, consistent with the timing of the transfer of assets stating, among other things, that he or she is not insolvent and is not considering filing for bankruptcy. There are additional steps that should be taken as detailed in the Act and as unique circumstances of a creator may dictate.

Are all debts and payments protected under the Ohio Legacy Trust Act?

No. Exemptions include child support, spousal support or alimony (unless an Ohio DAPT was validly set up prior to marriage), as well as IRS obligations. These exceptions are consistent with DAPTs in most other states, although other states may include additional and more far-reaching exemptions in their DAPT statutes.

What about claims from creditors?

The current untested consensus is that the provisions of the Ohio Legacy Trust Act make it difficult for creditors to challenge an Ohio DAPT and prevail. For example, according to the Act, a creditor has the burden of proving, through “clear and convincing evidence,” that a transfer to a DAPT was made with “specific intent to defraud the specific creditor bringing the action.” Additionally, a creditor must file an action to void a transfer within the later of 18 months after a transfer, or six months after a creditor should have reasonably known a transfer occurred.

Marcia Kendle is senior vice president and chief fiduciary officer for FirstMerit Bank.

The information contained herein is being provided as general information of an educational nature and is intended for current and prospective clients of the Trust Department of FirstMerit Bank, N.A. Also, this information has been derived from sources believed to be accurate and reliable and FirstMerit Bank, N.A. makes no representation as to its’ completeness and acknowledges that due to the complexity of the subject matter relevant information is not complete. This information is not intended to be legal, financial or tax advice and is not a covered opinion as defined by the IRS Circular 230. For advice that is specific to your circumstances, you should consult a qualified financial, tax and/or legal adviser. 

Ohio is now viewed as one of the leading states in the asset protection arena, thanks to the passage of the Ohio Legacy Trust Act, says Marcia Kendle, Senior Vice President and Chief Fiduciary Officer at FirstMerit Bank. 

The law, which went into effect March 27, 2013, as part of Ohio House Bill 479, allows for the creation of self-settled irrevocable trusts – also known as domestic asset protection trusts (DAPTs). These trusts permit the transferor of assets to also be the beneficiary of the trust. An Ohio DAPT provides a high level of protection from creditors dependent upon certain factors, says Kendle.

“A qualified Ohio DAPT is different from a standard irrevocable trust in that it serves as a means to protect assets -- with a few statutory exceptions -- from creditors,” she says. “The Ohio Legacy Trust Act puts Ohio at the forefront.”

Trusts of this kind, which provide an alternative to potentially riskier offshore trusts, are gaining in popularity. With trillions of dollars ready to pass from one generation to the next in the coming years, DAPTs are becoming an increasingly attractive option. As legislatures nationwide consider similar asset protection measures, Ohio joined 13 other states -- most notably Alaska, Delaware and Nevada -- that permit domestic asset protection trusts. 

If you’re thinking about creating an Ohio DAPT, here are some things to consider"

Who can benefit from an Ohio DAPT?

Due to the complexities of the act, you should discuss your individual circumstances and goals with an experienced trust attorney, financial planner and/or wealth management professional to determine if an Ohio DAPT, or perhaps another asset protection planning strategy, is in your best interest. The act generally presents considerable benefits to those wanting to protect their wealth, as well as individuals in professions with high exposure to litigation (e.g., business owners, accountants, attorneys, medical professionals, executives, etc.). For individuals considering a prenuptial agreement, an Ohio DAPT is viewed as a viable option for an individual yet to be married.

What are the requirements and restrictions associated with creating an Ohio DAPT?

An Ohio DAPT must, amongst other items, be written and irrevocable, have spendthrift provisions, state that Ohio law applies and appoint at least one qualified trustee, who is either an Ohio resident, a bank, or a trust company, such as FirstMerit Bank, authorized to operate in Ohio. The statute also mandates that the transferor of an Ohio DAPT cannot serve as trustee of the trust.

Residents of any state may create an Ohio DAPT, providing that some of the trust assets are held in Ohio and that other regulations of the Ohio Legacy Trust Act are fulfilled.

What rights and powers can the creator of an Ohio DAPT retain?

The transferor retains the right to receive income from the trust, receive and use assets (within the trustee’s discretion) in the trust, remove a trustee and appoint a new trustee, appoint a protector of the trust, be the investment advisor to the trust, retain the power to change the beneficiaries of the trust (per restrictions detailed in the statute), provide for the use of trust income or assets to pay income taxes generated by the trust, pay debts after death and veto distributions from the trust.

How does the creator of the trust obtain full protection that might be available under the Ohio Legacy Trust Act?

When transferring assets to an Ohio DAPT, the transferor is required to execute an affidavit, consistent with the timing of the transfer of assets stating, among other things, that he or she is not insolvent and is not considering filing for bankruptcy. There are additional steps that should be taken as detailed in the Act and as unique circumstances of a creator may dictate.

Are all debts and payments protected under the Ohio Legacy Trust Act?

No. Exemptions include child support, spousal support or alimony (unless an Ohio DAPT was validly set up prior to marriage), as well as IRS obligations. These exceptions are consistent with DAPTs in most other states, although other states may include additional and more far-reaching exemptions in their DAPT statutes.

What about claims from creditors?

The current untested consensus is that the provisions of the Ohio Legacy Trust Act make it difficult for creditors to challenge an Ohio DAPT and prevail. For example, according to the Act, a creditor has the burden of proving, through “clear and convincing evidence,” that a transfer to a DAPT was made with “specific intent to defraud the specific creditor bringing the action.” Additionally, a creditor must file an action to void a transfer within the later of 18 months after a transfer, or six months after a creditor should have reasonably known a transfer occurred.

Marcia Kendle is the senior vice president and chief fiduciary officer at FirstMerit Bank

The information contained herein is being provided as general information of an educational nature and is intended for current and prospective clients of the Trust Department of FirstMerit Bank, N.A. Also, this information has been derived from sources believed to be accurate and reliable and FirstMerit Bank, N.A. makes no representation as to its’ completeness and acknowledges that due to the complexity of the subject matter relevant information is not complete. This information is not intended to be legal, financial or tax advice and is not a covered opinion as defined by the IRS Circular 230. For advice that is specific to your circumstances, you should consult a qualified financial, tax and/or legal adviser.