Ohio's Legacy Trust Procedures

Business clients typically minimize exposure to creditor claims byusing liability-limiting business structures, by maintaining appropriateinsurance coverages, by maximally funding qualified retirement plansand by dispersing asset ownership within the family.

High-net-worth clients, whose activities subject them toextraordinary claims, may now also use an additional tool to protect aportion of their assets – an Ohio Legacy Trust (OLT).

Placing assets into a plain vanilla revocable living trust does notshield them from creditors. An OLT is an irrevocable trust, the assetsof which are protected. An OLT is funded with “excess” assets – assetsthat are not needed to take care of existing obligations and assets thatare not “already-protected.”

Step 1: Solvency analysis.  

•  Assets are listed and debts deducted, along with actual and contingent liabilities (lawsuits, personal guarantees, etc.).
•  Already protected assets (such as funds in qualified retirement plans) are also deducted.
•  Future earnings are considered.
•  A cushion is added – in case calculations are off.

Some or all of the resulting “exposed net worth” can be moved to an Ohio Legacy Trust.

Step 2: Solvency affidavit.

An affidavit is recorded saying the client is legal owner of theproperty being transferred, that creditors are not being defrauded, thatthe client will not be rendered insolvent by the transfer, that nolawsuits or administrative proceedings have been filed or arethreatened, and that bankruptcy is not contemplated.

Step 3: Waiting period.

Having created the Ohio Legacy Trust, filed the solvency affidavitand transferred property to the trust and waited, in most instances 18months, a creditor’s claims against the OLT are barred, unless thecreditor can prove by clear and convincing evidence the transfer wasfraudulent – a high and difficult hurdle.

Structure of OLT.

The client (and possibly the client’s spouse and children) is thelifetime beneficiary of the OLT. The trustee can be a qualifiedfinancial institution, or any person, other than the client. The trusteeshould not be a subordinate of the client. At least one trustee musthave ties to Ohio.

Client rights over the OLT.

The client can retain these rights and powers over the Ohio Legacy Trust:

•  To receive trust income and to receive principal – at the trustee’s discretion.
•  To name by will ultimate trust beneficiaries (but not the client’s estate or creditors).
•  To veto distributions to other current trust beneficiaries.
•  To remove the trustee and appoint a new one.
•  To demand up to 5% of the trust property annually.
•  To live in a residence owned by the OLT.

Client Management rights.

The client can retain control and management of assets moved into trust as follows:

•  A limited liability company is created to hold financial or business assets, or real estate.
•  The client is named the manager of the LLC, perhaps under a long-term contract.
•  The member’s interest in the LLC is then assigned to the OLT.

The result: While the client owns no member’s interest that could be attached, he still is in management control.

In sum, clients can achieve a great degree of asset protection bytaking common-sense steps in arranging their affairs. In addition, aclient with a large net worth and one whose activities subject him topotential extraordinary claims might now also consider setting up an OLTfor a portion of their assets.