Ohio Legacy Trust (Domestic Asset Protection Trust) Demystified

A domestic asset protection trust (DAPT) enables an individual to establish an irrevocable trust under Ohio law, transfer assets to it, retain the right to benefit from those assets, and shield them from future creditors, with limited exceptions. Generally, the trust’s assets are protected after 18 months from the transfer date.

Characteristics of Ohio Legacy Trusts:

1. An irrevocable trust with an Ohio qualified trustee, as described below.
2. The trust must prohibit both voluntary and involuntary transfers of the beneficiary’s interest.
3. Eighteen months after assets are transferred to the trust, they are shielded from most new creditor claims, but not child or spousal support.
4. The trust creator may retain certain rights without compromising creditor protection:
   • A provision that certain events will terminate the transferor’s right to mandatory income or principal.
   • A veto power over trust distributions.
   • A power of appointment by will or other written instruments, effective upon the transferor’s death or during their lifetime, to change asset distribution. This power cannot favor the transferor, their creditors, their estate, or estate creditors. This allows the transferor to change the beneficiaries of the trust, even though the trust is irrevocable.
   • The right to receive trust income.
   • A power to invade up to 5% of the trust principal annually (e.g., $50,000 per $1 million of assets).
   • Receipt of any principal or income solely at the trustee’s discretion.
   • The right to remove and appoint a new trustee.
   • Use of real/tangible personal property held by the trust.
   • Provisions allowing trust assets to pay income taxes on trust income.
   • Trustee’s ability to pay estate taxes, debts, or administration expenses from the transferor’s estate at death.
   • Provisions that pour back trust property to another trust established by the transferor or their estate after the transferor’s death.

Qualified Affidavit

The individual creating the trust and transferring assets must sign a notarized qualified affidavit, which must include the following statements:

1. The transferred property is not derived from unlawful activity.
2. The transferor has the full right, title, and authority to transfer the property to the trust.
3. The transferor will not be rendered insolvent immediately after the transfer.
4. The transferor does not intend to defraud any creditor by making the transfer.
5. There are no pending or threatened court actions against the transferor that are not identified in the affidavit.
6. There are no administrative proceedings involving the transferor that are not identified in the affidavit.
7. The transferor does not contemplate filing for bankruptcy at the time of the transfer.

Who Can Be a Trustee?

An Ohio Legacy Trust must have at least one qualified trustee. A qualified trustee must meet the following criteria:

• The trustee must be someone other than the transferor.
• If the trustee is a natural person, they must be a resident of Ohio, or if a trust company or bank, it must be authorized by Ohio law to be a trustee.
• The trustee must maintain custody of some or all trust property in Ohio, keep records in Ohio (either exclusively or non-exclusively), prepare or arrange for the preparation of income tax returns, or otherwise materially participate in the administration of the trust.