Many have long sought to find a feasible solution to the following question: “how can I best protect my assets from exposure to unknown, future liabilities while also maintaining the use of the assets?” This question is particularly relevant for those whose professions present malpractice liability risks. One solution is an estate planning tool called a “self-settled asset protection trust.” A self-settled asset protection trust allows an individual to fund a trust with his or her own assets and maintain use of the assets in the trust while shielding the assets from the individual’s creditors. Until recently, clients who wanted to establish self-settled asset protection trusts were forced to set up trusts in distant U.S. jurisdictions or exotic, “offshore” jurisdictions where the laws permit such trusts. Now, on account of an Ohio law enacted in 2013, clients can establish self-settled asset protection trusts here in Ohio. This new law has catapulted Ohio among the top 3 asset protection-friendly states for estate planning, according to a prominent national publication.
Clients interested in establishing an Ohio self-settled asset protection trust should be aware of important constraints and limitations. First, a client must ensure that transfers to an asset protection trust will not render the client insolvent and unable to satisfy current, contingent, and known, prospective future liabilities. Failure to carefully analyze this solvency issue could expose a client to penalties under Ohio’s fraudulent transfer laws. Second, the settlor (i.e., creator) of the trust should be comfortable with some loss of control over the assets, as the settlor cannot serve as trustee of the trust (an independent third-party is the best choice for trustee). There are several other, specific requirements for an Ohio self-settled asset protection trust to be legitimately formed and operated.
While Ohio’s new asset protection trust law is not a “one size fits all” solution to creditor protection objectives, it provides a powerful tool that should be considered by those seeking to bolster the protection of their assets from unknown, potential future liabilities. To discuss asset protection planning in greater detail or any other estate planning matters, give us a call.