- Ohio Embraces Asset Protection
- June 5, 2013
- Law Firm: Nicola Gudbranson Cooper LLC - Cleveland Office
Ohio became much more asset protection friendly this spring, with a new state law that protects more assets from the claims of creditors and permits the creation of self-settled trusts that may be used to protect additional assets from the claims of creditors.
The Ohio Asset Management Modernization Act of 2012 (OAMMA), which took effect March 27, has many features, but the most notable are:
The expansion and clarification of assets that may be exempt from attachment by creditors.
The adoption of domestic asset protection trust provisions.
This new law makes it clear that 529 plan investments and IRAs, even inherited IRAs, are exempt from the claims of creditors. It also increases the homestead exemption (i.e., the amount of equity in your principal residence that cannot be attached by creditors) from $21,625 per person to $125,000 per person. The homestead exemption amount is indexed to inflation and increased in less than a week—to $132,900 per person effective April 1. This means a married couple may now protect up to $265,800 of the equity in their home from creditor claims.
These changes apply only to claims arising on or after March 27, 2013. Other exceptions and limitations apply, but this is generally a very beneficial change for consumers.
OAMMA also allows additional trusts to be created to protect assets.
It has been the law in Ohio for a very long time that a person could not set up a trust for his or her own benefit, even an irrevocable trust, and protect the assets in that trust from his or her creditors. That changed with OAMMA. Ohio has joined 13 other states, including Alaska, Delaware, Nevada and South Dakota, as well as offshore jurisdictions, including the Cayman Islands, the Channel Islands, the Cook Islands and Nevis, in adopting asset protection trust laws.
What is an asset protection trust? It can be defined as a self-settled trust (one in which the creator, or settlor, is also a beneficiary) that protects assets held by the trust from the settlor's creditors and the creditors of the trust's other beneficiaries.
Does this mean that you can avoid paying your debts by setting up an asset protection trust? Generally, no. Like all asset protection trust laws, OAMMA has exceptions, limitations and provisions that protect the holders of legitimate and qualifying credit obligations. A few examples are federal claims, criminal claims, child support obligations, Medicare/Medicaid cost recovery actions and, possibly, out-of-state claims; these would not be affected by putting assets in an asset protection trust. Asset protections trusts are designed to allow an individual to protect a portion of his or her assets against the claims of future creditors, if all of the requirements are met.
Asset protections trusts are subject to many qualifications and requirements and are not simple documents. They are most effective in protecting a portion—not all—of an individual's assets. They can be very valuable tools in the right circumstances to protect assets for your family.