Asset Protection Law Journal : Asset Protection Lawyer & Attorney : Kenneth J. Laino : Schneider Smeltz Ranney & LaFond Law Firm : Trusts, Estate Planning

Ohio House Bill 479 -- commonly known as the Ohio Asset Management Modernization Act (OAMMA) --would make Ohio a leading asset protection jurisdiction.  The proposed legislation would:

• Permit a so-called Domestic Asset Protection Trust (DAPT).
• Provide an essentially unlimited homestead exemption, similar to those in Florida, Texas and several other states.
• Specifically protect inherited IRAs.
• Specifically protect 529 plans from a plan participant's creditors.
• Make some other changes that would help make Ohio one of the better asset protection jurisdictions in the country.

This is proposed legislation.  As explained recently by Akron Legal News, sponsors of the proposed law argue that it would allow Ohio citizens and business owners to better protect their assets.  It would also provide a legal environment that is favorable to the expansion of banking and trust business.  But it is still too soon to predict whether the proponents of the new legislation will ultimately be able to get it enacted.

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Following up on my post of April 13, 2012 --

Ohio House Bill 48 (which becomes effective on May 4, 2012) makes important changes to Sections 1705.18 and 1705.19 of the Ohio Revised Code.  A new Section 1705.19(C) provides:

No creditor of a member of a limited liability company or any member's assignee shall have any right to obtain possession, or otherwise exercise legal or equitable remedies with respect to, the property of the limited liability company.

Section 1705.19(B) strengthened Ohio's charging order protection.  The new subsection (C) makes it even clearer that a creditor of a member simply cannot exercise legal or equitable remedies against the property of the limited liability company.

As I noted in my earlier post, these new provisions make Ohio LLCs much more appealing from an asset protection standpoint.

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A front page article in yesterday's New York Times (by Jessica Silver-Greenberg) reports that hospital patients waiting in an emergency room (or even convalescing after surgery) may find themselves confronted by a debt collector -- right in the hospital!  The Minnesota attorney general, Lori Swanson, claims that one of the nation's largest medical debt collectors (Accretive Health) was engaging in such practices.  The Minnesota attorney general has not yet filed any formal action.  But her comments have raised concerns that such practices may have become common at various hospitals across the country.

I served on a hospital Board of Trustees for ten years, and I am certainly sympathetic with the increasing financial pressures faced by hospitals nationwide.  Hospitals obviously have to employ various tactics to collect debts.  It seems, however, that some hospital collection efforts may be crossing the line of what is reasonable.

The New York Times article is another vivid reminder that debt collectors in general are getting more and more aggressive.  Focusing on asset protection (including insurance needs) before a problem arises is more important than ever.

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Ohio House Bill 48 (signed by Governer Kasich on February 2, 2012) makes some significant changes to Ohio's LLC law.  The new legislation (which becomes effective on May 4, 2012) affects Sections 1705.18 and 1705.19 of the Ohio Revised Code.

The new legislation clarifies that a charging order is the sole and exclusive remedy for satifsying a judgment against a membership interest of a debtor-member.  Other legal and equitable remedies are barred.

There had been some uncertainty about this area of Ohio law, and new legislation clears up that uncertainty.

Ohio law still does not specifically state that single member LLCs and multi-member LLCs will be treated the same.

At any rate, the new Ohio legislation makes Ohio LLCs much more appealing from an asset protection standpoint.

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Most of us now have multiple on-line accounts that require some sort of password in order to access that account.  Concerns about privacy and protecting assets make us inclined to keep these passwords secret.  Unfortunately, very few people consider what happens if they die and no one can access their on-line accounts.

Your asset protection/estate planning should include leaving a list of on-line accounts (including passwords) with a trusted advisor or family member.  This will avoid a lot of wasted time and effort in the event of your death or disability.

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Transferring an asset under certain circumstances can constitute a fraudulent conveyance.  Refusing to accept an asset can also constitute a fraudulent conveyance.

Let's say that you owe a creditor a significant amount of money.  You then learn that you have received a substantial inheritance.  If you take the inheritance it will go to the creditor.  So you decide to disclaim the inhertiance so that it can go to another family member.  In most states, that disclaimer will be deemed a fraudulent conveyance.  This all depends on state law; but the majority view seems to be that the creditor will be able to successfully reach those funds.

This is why multi-generational asset protection planning can be very important (just like multi-generational estate planning).  If the person leaving the inheritance had left it in a trust (with the right kind of provisions) it probably could have been protected.

It is important to keep in mind that many state fraudulent transfer laws are broad enough to encompass disclaiming certain assets as well as transferring certain assets.

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A domestic asset protection trust (DAPT) is one of many different entities that may (or may not) be an appropriate part of an asset protection plan.

• At least eleven states have enacted DAPT legislation.
• States that have DAPT statutes include Alaska, Delaware, Nevada, South Dakota, Hawaii, Missouri, New Hampshire, Rhode Island, Tennessee, Utah and Wyoming.
• While there are similarities, each state statute has different provisions.
• A DAPT must be irrevocable; the trustee must be a resident of the state in which the trust is formed, or a bank, trust company or other financial institution with offices in that state.
• The validity of these trusts is still unsettled.  There is no reported court decision either affirming or striking down this relatively new type of trust.

Asset protection lawyers have varying views about DAPTs.  Foreign asset protection trusts provide greater certainty because court decisions have either directly or indirectly upheld their validity in many circumstances.  But these trusts are more expensive to set up, and holding assets offshore can create certain issues and reporting requirements that are not applicable to domestic trusts.

My own view is that each client's situation has to be examined individually.  A DAPT might be an appropriate alternative for some (but certainly not all) of a client's assets.  If you are thinking about a DAPT or any other form of asset protection, it is critical that you consult with an attorney who will look at all alternatives (and who is not simply selling a particular kind of trust or other device).

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This is the time of year when we are all focused on taxes.  This includes our tax returns for 2011 and tax planning for 2012.  So it is an appropriate time of year for a reminder about retirement plans and IRAs.  We all seem to be aware of their tax advantages; but I constantly remind clients that they are also highly advantageous from an asset protection standpoint.

• An ERISA qualified retirement plan is protected from the plan participant's creditors pursuant to the 1992 decision of the U.S. Supreme Court in Patterson v. Shumate.
• IRAs received specific protection under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.
• Some IRA protections (for example, those relating to inherited IRAs) depend on state law.  For example, Texas and Florida have enacted specific legislation to provide that inherited IRAs are protected from creditors.  Ohio and some other states have passed legislation exempting inherited IRAs in bankruptcy.

The legal details of retirement plans and IRAs can be very complicated.  But a simple point to keep in mind is this: maximizing contributions to retirement accounts is a very basic (and very effective) tax and asset protection strategy.

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Being named as a defendant in a medical malpractice case can be emotionally devastating to a physician -- even if the physician is only peripherally involved in the case. Very few people fully appreciate how troubling it can be for a doctor who is named in such a lawsuit.

An excellent article by Pauline W. Chen, M.D. in the New York Times articulates very clearly how involvement in a medical malpractice suit can negatively impact a physician's way of practicing medicine.

According to the article, a recent survey of more than 7,000 surgeons found that nearly one in four were in the midst of litigation.  The lead author of the survey (Dr. Charles M. Balch of the University of Texas Southwestern Medical Center in Dallas) notes that malpractice is at the top of the list of major stressors for most physicians.

I have found that meaningful asset protection can be a huge benefit to a physician -- not only financially, but emotionally as well.  Having reasonable malpractice insurance is a critical first step.  But going a step further -- and making sure that you have done everything reasonably possible to lawfully protect your personal assets -- will usually bring quite a bit of peace of mind.

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