• Ohio's New Legacy Trust Act
  • March 14, 2013 | Authors: Joel M. Frederic; Robert M. Smyth
  • Law Firm: The Drew Law Firm Co. A Legal Professional Association - Cincinnati Office
  • Effective 27 March 2013 Ohio will join a small handful of other states to recognize the creation of an asset protection trust called a “Legacy Trust” under the Ohio Legacy Trust Act.  Generally, a Legacy Trust places trust assets beyond the reach of creditors and can help avoid or reduce Federal estate taxes.[1]

    Transferors use the Legacy Trust to hold assets to provide for family education expenses or income to children and grandchildren.  A properly drafted Legacy Trust will bar creditors’ claims against (1) those who have made or received a “qualified disposition” from the Trust, (2) property held in the Trust, and (3) trustees of the Trust.

    Under the new Ohio law, a Legacy Trust must designate a “qualified trustee” (i.e., a non-transferor person or entity) and must be (1) in writing, (2) expressly governed in whole or in part by Ohio law, (3) irrevocable, and (4) subject to a spendthrift provision that applies to the interests of both the beneficiary in and transferor of the trust property.  Unlike a traditional irrevocable trust, in which a transferor gives up complete control and access to the trust assets, a Legacy Trust transferor may benefit from the assets because the Legacy Trust Act grants a transferor the right to consume, invade, or appropriate trust funds up to 5% of the value of the trust per calendar year and to receive trust-income distributions.

    A transferor cannot revoke the trust or voluntarily or involuntarily transfer an interest in that trust. A transferor can retain the power to:  (1) terminate the transferor’s right to mandatory income or principal upon the happening of a specified condition, (2) veto a distribution from the trust, (3) receive trust income (4) consume, invade, or appropriate up to 5% of the trust corpus, (5) remove and appoint advisors and trustees, (6) reside in real property or use tangible personal property held in the trust, (7) require or permit the trust to pay income taxes due on the income of the trust, (8) pour back trust property to transferor’s estate or any trust.  Although a transferor may not be a qualified trustee, the transferor may act as an advisor, but only in connection with investment decisions.

    In addition to the enactment of the Legacy Trust Act, Ohio has also provided additional protection against creditors by increasing the homestead exemption from $20,200 to $125,000 for Ohio residents.  The homestead exemption operates to exempt $125,000 of a home’s value from execution, garnishment, attachment, or sale to satisfy a judgment or order.  Ohio has likewise recently exempted, 529 Plans (for future education) from creditors claims.

    For questions or more information about Legacy Trusts and other valuable estate planning tools, please contact any of our estate planning attorneys at the Drew Law Firm.

    [1] Ohio eliminated its estate tax for all persons dying after 1 January 2013.