Asset Protection

Single or married, with or without children, once an individual is a legal adult, they begin collecting assets. Cars, homes, bank accounts, investment accounts, retirement accounts, and other material possessions are all assets. Even the clothes an individual wears are assets—the value of some assets are much lower than others, but everything someone owns is an asset.

Asset protection is the use of a variety of legal strategies to protect an individual’s wealth. This protection, when properly structured and used, can assist in protecting the individual’s assets against taxation, creditor claims, long-term care expenses, forfeiture, seizure, and other types of losses.

There are many reasons why an individual might need asset protection. Even if someone does not think they have any specific reason to protect their assets, a solid estate plan will include asset protection from creditors, long-term care expenses, disgruntled family members, and predators. Credit card companies, bank foreclosures, and aggressive lawyers in a personal injury lawsuit are all threats to an individual’s assets as well. There are several circumstances which might lead someone to want to protect their assets.

Young Parent Wanting to Protect Their Family

Parents always want to ensure their family will be taken care of. For young parents with a spouse and small children, wanting to ensure they are provided for in the event of death, disability or a downturn in business is not only practical, but very thoughtful. Using a variety of asset protection strategies can ensure that a spouse and children will be well provided for regardless of what the future holds.

Business Owner Who Is Not Used to Having Substantial Assets

Many entrepreneurs start their businesses with high hopes and dreams of wealth. In some cases, they have never had the wealth they dream of, so when it arrives, they are not sure what to do with it. They do not want to spend it all, nor do they want to simply put cash in savings accounts. With the right guidance, they can learn how to invest cash into other types of assets, such as stocks, bonds, or real estate, and then learn how to protect those assets with protection strategies.

Previous Estate Plan Is Outdated and Does Not Reflect the Current Situation

Estate plans remain valid regardless of how long ago they were written. But their validity does not necessarily indicate the current situation. Individuals might have had small children who are now grown. The estate owner may have gotten divorced or may be considering marriage for the first or subsequent time. Some of their previous beneficiaries may have died or fallen out of touch. Updating their estate plan to reflect the current situation may mean changing asset protection strategies or starting to use them for the first time.

Individual Has a Private Practice They Want to Shelter More Effectively

Lawyers, doctors, accountants, and others may own private practice businesses that put them at risk for lawsuits. If they do not handle their assets properly, those assets can be at risk when they are sued. Getting the right asset protection strategies in place can ensure that the individual’s assets are safe from lawsuits and other creditors, no matter what happens in their business.

The asset protection methods available depend on the state an individual lives in, as well as the assets they wish to protect, who they want to protect them for, and what they want to be able to do with the assets once they’re being protected. In Ohio, three of the most commonly used methods include the Domestic Asset Protection Trust (DAPT), limited liability companies (LLC), and asset transfers.

Domestic Asset Protection Trust

A Domestic Asset Protection Trust, also known as an Ohio Legacy Trust (OLT), is a unique type of irrevocable trust. Ohio is one of only seventeen states to offer this type of trust. A DAPT protects the assets from creditors while also allowing the trust creator to be a trust beneficiary. While this is an irrevocable trust, it also offers a certain amount of flexibility that an irrevocable trust usually does not have, allowing the trust creator to have specific freedoms they would not have with another irrevocable trust.

Limited Liability Companies

When assets are placed in a limited liability company, creditors cannot take them for personal debts. An LLC allows individuals to place assets in them, but unlike irrevocable trusts, the LLC can transfer the assets back to the individual should something change in the future. Depending on the individual’s circumstances, it may be wise to create multiple LLCs within which to place assets so that if one LLC becomes a party to a lawsuit, all the individual’s assets are not at risk.

Asset Transfer

When an individual is personally responsible for a debt or is successfully sued and has a monetary judgment against them, any assets in their name are vulnerable. Creditors can attach a lien to some assets or get a court order that allows them to seize some assets. They can also levy bank accounts. DAPTs and LLCs have one thing in common: they transfer assets out of the individual’s name and into the trust or LLC’s name. Other forms of asset transfers do the same thing. Creating a holding company, or transferring an asset that would have been transferred upon death to a loved one, gets the asset out of the individual’s name and prevents creditors from being able to claim them.

Determining the appropriate asset protection method for an individual requires getting to know the individual and their assets, lifestyle, and intentions for estate planning. At Rhodium Law, we will take the time to ask questions so that we can recommend protection methods that will meet your needs and desires, rather than just recommending a template of options as if one size fits all.

A DAPT, or OLT, is an irrevocable trust with a few additional requirements. First, the trust creator cannot act as trustee. The trustee must be a resident of Ohio and can be the creator’s spouse or a corporate trustee. The trust creator can be a beneficiary of the OLT, either alone or along with other beneficiaries. The creator must also sign an affidavit that confirms that the assets being transferred to the trust are not from illegal activities, they have the right to transfer the assets, the creator will still be solvent after the transfer, the creator does not intend to file for bankruptcy after the transfer, there are no pending administrative or court actions other than ones identified in the affidavit, and they do not intend to defraud the trust creator’s creditors.

Unlike other irrevocable trusts, the trust creator is able to add and remove assets to and from the trust while still keeping those assets separate and inaccessible. They can also receive distributions from the trust, use certain trust assets during their lifetime, veto distributions from the trust, change trustees and beneficiaries, and change the terms of the trust and how they are able to access the trust’s contents.

Ohio Legacy trusts can be very beneficial, but they are also quite complex. There are additional rules surrounding these trusts than those listed here. While an OLT may be an excellent asset protection strategy, individuals should consult with an Ohio asset protection attorney to receive personalized advice and guidance toward the right protection strategies for their particular asset mix.

Asset protection strategies vary depending on the individual’s asset mix. For some individuals, an asset protection strategy may be as simple as maxmizing their contributions to their retirement accounts, while others may need to consider OLT or even dynasty trusts. Taking advantage of the various asset protection options available in Ohio is not as simple as choosing options from a hat and using them.

To make the most of the protection strategies available, individuals should consider consulting with an attorney and having a complete list of their assets available. An asset protection attorney can assess an individual’s assets, gain an understanding of their lifestyle and what they hope to protect their assets from and other life goals, and assist the individual in choosing the protection strategies that are most appropriate to their needs and goals.