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House Bill 479, known as the Ohio Asset Management Modernization Act (AMMA), takes effect on March 27, 2013. The AMMA was signed by the governor on December 20, 2012, and provides significant changes to Ohio’s asset protection laws, including the creation of a domestic asset protection trust (DAPT). Some of the highlights include the following:

Ohio Legacy Trust Act

This act creates a DAPT. A DAPT is a trust with at least some assets located in Ohio and a “qualified trustee” (an Ohio resident or company, other than the grantor). The trust assets will generally be protected from creditors. A self-settled trust (a trust where the grantor is also a beneficiary) is not protected from creditors, unless there is a specific DAPT statute. In the past, individuals interested in a DAPT would use the laws of other states, such as Delaware or Nevada. It was costly to pay an out-of-state trustee, and individuals were not always comfortable with their assets located in another state. This is a great tool for individuals in high risk professions, such as doctors, other professionals and entrepreneurs. Additionally, it can be used in prenuptial planning, to protect assets from claims by a future spouse.

  • The grantor may keep broad rights as an advisor to the trust.
  • The grantor may retain the right to distributions, and the trust may automatically terminate distributions to the grantor upon certain events.
  • A creditor may not bring a claim against a trustee for distributions made for the benefit of a beneficiary.
  • Creditors may only bring an action to avoid a transfer to trust for a limited period of time. If a claim is brought, the losing party must pay the attorneys’ fees of the prevailing party.
  • Distributions are treated as last in first out, preserving the protected assets.
  • Creditors may still reach trust assets to pay child support, spousal support and division of assets to a spouse or former spouse married to the grantor when the trust was created.
  • If there is a conflict with state and federal laws, federal law will prevail, such as in a bankruptcy or federal tax issues.
  • A qualified affidavit must be signed when assets are transferred to the trust, stating that the transfers are not fraudulent, nor will they render the grantor insolvent. This provides further evidence a grantor was not acting fraudulently.
  • Transfers of personal property may be registered in the grantor’s county of residence. This recording puts the world on notice, making it more difficult for a creditor to bring a claim.

Temporary conveyance

In order to secure financing, lending institutions often require that an individual rather than a trustee own real property. The AMMA provides that the temporary conveyance of property to a trust beneficiary in order to obtain financing, and the subsequent reconveyance by the beneficiary to the trust will be disregarded. The original date of conveyance to the trust will be deemed the date of conveyance.

Homestead exemption

The AMMA increased the homestead exemption to $125,000 per person, from $20,200 per person. This means a married couple may shield $250,000 of the value of their homestead from most creditors. There is an exception for debts owed to the government, and creditors from car accidents where the debtor was underinsured.

529 plans and inherited IRA’s

529 plans are now exempt from creditors, similar to IRA’s and Roth IRA’s. Further, IRA’s and 529 plans inherited from a decedent are now also protected.

Fraudulent transfers

The AMMA modifies the Ohio Uniform Fraudulent Transfer Act to provide that transfers made by a debtor may be fraudulent as to a creditor, if the creditor’s claim arose before the transfer or within four years after the transfer. Previously, there was no limit as to when a creditor could assert a claim of fraudulent transfer. A creditor could argue a 10 or 20 year old transfer was to hinder, delay or defraud credit.

Disclaimer

If an individual disclaims a right to property, under the terms of the Ohio statute relating to disclaimers, a creditor may not seek to void the disclaimer.

Nonrecourse loans

The AMMA provides language prohibiting a nonrecourse loan from converting to a recourse loan upon the breach of a “postclosing solvency covenant.”

For more information, please contact:

Katherine Esshaki Wensink

216.348.5729

kwensink@mcdonaldhopkins.com

Jeffrey P. Consolo

216.348.5805

jconsolo@mcdonaldhopkins.com

Estate Planning

Our estate planning and probate services for individuals and families are focused on helping clients meet their estate planning objectives through income, estate and gift tax minimization. Our services include preparation of wills, living trusts, financial powers of attorney, charitable trusts, and related documents. We take a comprehensive approach to the planning process to ensure that the goals of the family are carried out and that the estate is appropriately managed.

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