Debtors Are Often Easily Victimized By Bogus Collection Agencies

Anyone who is deeply in debt knows the terrible stress and fear that often results from being in that situation.  So it is no surprise that many debtors are easily victimized by phony collection agencies. 

A recent article by Sheryl Harris in the Cleveland Plain Dealer highlights a scam by a Georgia collection agency that took millions of dollars from consumers in all 50 states.  Many victims were payday loan debtors who are often most vulnerable to this type of scam. 

The FBI reported that callers routinely pretended to be FBI agents, U.S. marshalls, sheriffs or Justice Department employees.  Callers frightened people into paying them by telling them that warrants were out for their arrest—or even that officers were on the way to arrest them.  The Georgia company employing these tactics now has criminal charges pending against it. 

This is another reminder to be wary of any debt collector who is threatening or who makes unreasonable demands.  While many of these victims are low income individuals, it is important to remember that middle class and even very affluent individuals can unexpectedly find themselves in debt and the target of debt collectors.  Protecting your assets to the greatest extent allowed by applicable law is more important these days than it has ever been before.

Two or More APTs May Be Advisable In Some Situations

In Ohio (as in other states that have enacted a Domestic Asset Protection Trust Statute), it may be advisable to have two or more trusts as part of an overall asset protection plan.

For example, a husband and wife may each want to have their own, separate Ohio Legacy Trust.  Not only can this help to keep certain assets separate, but the respective trusts can then co-own other assets -- like interests in an LLC.  In many states, a multi-member LLC provides better protection than a single member LLC. 

Keep in mind that this kind of planning -- like all asset protection planning -- requires careful attention to a wide variety of factors, including tax considerations.  Many variables often need to be considered before deciding on a particular plan. 

In any event, using more than one DAPT (just like using more than one LLC or other business entity) may be advisable in many situations.

Social Media Explosion Creates Even Greater Urgency for Asset Protection Planning

An interesting article by Cindy Krischer Goodman in the Miami Herald provides some excellent examples of how fortunes today can change in an instant -- due to social media.  For example, racist comments in a private phone conversation between the Los Angeles Clippers’ then owner, Donald Sterling, and his girlfriend went viral and literally cost him ownership of an NBA team.  Private behavior can become almost instantly public through social media – and can result in almost instant financial disaster.

Certain exposure on social media is certainly not bad.  I am simply offering a reminder that in today’s world, your fortunes can turn almost instantly.  And protecting your assets before some unexpected disaster strikes is more important than ever.

Ohio Legacy Trust Not Likely To Affect Your Income Taxes

Clients frequently ask about potential income tax aspects of an Ohio Legacy Trust. 

An Ohio Legacy Trust will likely have no effect at all on your income tax situation.  The trust will be structured so that it is a grantor trust pursuant to §677 of the Internal Revenue Code.  It meets the requirements of this Code section because trust income may be distributed to the Grantor without the approval of any adverse party.  In less technical terms -- any income from the trust will simply be reported on your personal income tax return. 

An Ohio Legacy Trust can also hold S Corporation stock because it is a grantor trust.  There are certain limitations on what kind of entity can be an S Corporation shareholder.  A grantor trust is one of the entities that can own S Corporation stock.

There are many considerations that go into setting up an Ohio Legacy Trust (or a domestic asset protection trust in any other state that allows one).  But as long as the trust is properly drafted, you should not have to worry about its impact on your personal income tax situation.

Debtors Can Face Uphill Battle to Remedy Creditor Mistakes

So many Americans today are facing debt collection efforts that the system often appears to be overwhelmed.  Mistakes seem to be getting more and more common.

A recent article by Teresa Dixon Murray in the Cleveland Plain Dealer described how a minor mortgage payment error can lead to unbelievable consequences with a bank or other creditor.

The article explains that several months ago a couple in Rocky River, Ohio made a 70 cent mistake in a $1,500 mortgage payment.  The next invoice arrived with $256 in late fees.  That was followed by urgent phone calls from the bank threatening the couple with foreclosure.  The couple spent hours on the phone with various bank offices and repeatedly tried to pay the 70 cents, but the bank was unable to correct its records for months.  To make things even worse, the bank applied subsequent payments entirely to interest, causing a loss of over $2,000 to normal principal reduction. 

The bank finally straightened out its records after many months - - but only after the Cleveland Plain Dealer reporter intervened.  I have represented several clients recently who had to hire an attorney to resolve creditor errors.  Mortgages are frequently transferred from bank to bank and that makes it even more difficult to resolve even minor errors. 

Millions of Americans today are facing collection actions.  The system frequently seems overwhelmed, and common sense is sometimes in short supply.  Almost anyone can suddenly find themselves facing unanticipated debt collection efforts.  It is very unfortunate that a lawyer - - or even a newspaper reporter - - is sometimes required to correct even a minor error.

Majority of the World's Companies are Family Businesses

The majority of the world’s enterprises today are family firms.  That is according to David S. Landes, Professor Emeritus of History and Economics at Harvard and author of Dynasties - - Fortunes and Misfortunes of the World’s Great Family Businesses. Dynasties is a fascinating book which highlights the prevalence and importance of family businesses in the United States and throughout the world. 

David Landes reports that even today, about one-third of Fortune 500 companies are effectively family controlled or have founding families significantly involved in their management. 

Business succession planning - - whether with family members or non-family members - - can be enormously beneficial to all those involved in the business.  Lack of planning can have serious consequences.  While all businesses face external threats, it is frequently lack of internal planning - - especially succession planning - - that causes the business to decline or even fail.  

Ohio is Currently One of the Best States for Asset Protection

Some states offer better asset protection alternatives than others.  There are numerous factors to consider in deciding how good (or bad) a state is from an asset protection standpoint.  These factors include:

·         Whether or not the state has a Domestic Asset Protection Trust Statute

·         Provisions of the state’s LLC statute

·         The state’s homestead exemption and various other exemptions

·         State court decisions, particularly those relating to the respective rights of debtors and creditors.

Since there are many different ways to measure how favorable or unfavorable a state is from an asset protection standpoint, commentators can disagree about which states are the best. 

                Ohio’s new Legacy Trust Statute, the provisions of its LLC statute, and various other state laws and policies offer excellent opportunities for protecting assets.  This currently puts Ohio near the top of the list when it comes to state asset protection rankings.

Mississippi is Latest State to Enact DAPT Statute

The Mississippi “Qualified Disposition in Trust Act” takes effect today.  Mississippi has now become one of about fifteen states that have a domestic asset protection trust statute.

Each of these state statutes is different.  But they all offer (with certain exceptions) an opportunity for creditor protection - - as long as appropriate formalities are followed. 

This latest DAPT statute provides another reminder that asset protection is becoming more and more “main stream.”  There should be no hesitation in making use of applicable asset protection laws that specifically allow you to better protect your assets.

Ohio and Several Other States Protect Inherited IRAs

As I noted in a blog post a couple days ago - -   

On June 12, 2014, the U.S. Supreme Court unanimously ruled that inherited IRAs are not exempt from creditor claims in bankruptcy.  So in general, inherited IRAs do not have as much protection from creditors as many advisors thought they did.  But inherited IRAs can still be protected from creditors in at least two ways:

            (1)        State law creditor exemptions; and          

            (2)        Leaving assets in trust for the intended beneficiary (rather than to the beneficiary himself/herself).

It seems that states having statutes that opt out of the federal bankruptcy exemptions (in favor of their own state-created exemptions) will still protect inherited IRAs.  A limited number of states (including Florida, Alaska, Missouri, North Carolina, Texas and Ohio) offer protection for inherited IRAs.  But it may be unwise to rely on a state exemption because the beneficiary inheriting the IRA may not live in the same state when the exemption is desired.  In any event, Ohio and some other states have provided as much creditor protection as they can for inherited IRAs. 

Another alternative that is still available is for the owner of an IRA to leave the IRA to a trust for the benefit of the intended beneficiaries.  There are a variety of potential downsides to this (including increased complexity, costs and administration, and potential income tax issues), so a trust arrangement should only be considered with the assistance of a qualified professional.


It is best to consult with an attorney experienced in asset protection issues, estate planning and income tax considerations specific to retirement assets whenever you are thinking of leaving retirement assets in trust.

Inherited IRAs Not Protected In Bankruptcy

Last week, the U.S. Supreme Court (in the case of Clark v. Rameker) decided that an inherited IRA is not protected from your creditors in bankruptcy.

Until yesterday’s ruling, courts had been split on this issue.  In the Clark case, the Bankruptcy Court ruled that an inherited IRA does not share the same characteristics as a traditional IRA and held it was not exempt from creditors in a bankruptcy proceeding.  A United States District Court reversed the Bankruptcy Court, but the United States Court of Appeals for the Seventh Circuit then reversed the District Court.  The federal courts in other areas of the country had been split on this issue as well.  The unanimous decision by the U.S. Supreme Court is a very significant ruling since there is quite a bit of wealth in the United States held in inherited IRAs.

Traditional and Roth IRAs are not affected by last week’s Supreme Court decision.