Ohio is now one of a number of states with a so-called “asset protection” statute. Bankers with trust authority might view this development favorably because it may be another possible service line, and indeed Ohio trust companies and Ohio trust lawyers were the main proponents of the statute.  Other bankers however, may encounter the statue as a roadblock in their collection efforts, to their dismay. The new statute was effective March 27, 2013.

Essentially, the statue creates another way to attempt to shield assets from creditor claims. Traditional spendthrift trusts provide such a shield, as does the incorporation of a business or the formation of a limited liability company. There are continuing questions about the effectiveness of asset protection trust statutes like the Ohio Legacy Trust Act. More on this later.

Here is a summary of how the statute works.  A person referred to as the “transferor” transfers assets in what the statute calls “qualified dispositions” to an irrevocable trust and, indeed the point of the statute, is that the transferor can still benefit from those assets through actions of a “qualified trustee,” which must be an Ohio trust company. A benefit might be, for example, a transfer annually of a portion of the trust. In short, …