Asset Protection Law Journal

Asset Protection Law Journal

Helping individuals and businesses take advantage of asset protection laws

Reflections on 2016 Ohio Asset Protection Developments

Posted in Limited Liability Company, Ohio law, Ohio Legacy Trusts

During 2016, Ohio continued to stand out as one of the best asset protection jurisdictions in the country.  I have noticed that more people are becoming aware of the significant opportunities offered by Ohio’s Legacy Trust statute.  As I have mentioned in earlier posts, an Ohio Legacy Trust is an excellent way to protect your assets – – while still maintaining a meaningful degree of control over those assets.

Changes made to Ohio’s LLC statute have made it even more effective from an asset protection standpoint.  These changes became effective on July 6.

Nationally, there has also been a trend among the states to offer more asset protection alternatives.  Years ago, anyone interested in an asset protection trust might have to go offshore in order to obtain any meaningful protection.  Now more than fifteen states have domestic asset protection statutes.  While offshore trusts remain a reasonable alternative for a certain limited class of individuals, domestic asset protection trusts (such as an Ohio Legacy Trust) can provide substantial protection at a much lower cost.

Ohio continues to be an excellent state for asset protection – – and Ohio residents should take full advantage of the rights given to us by some very favorable state statutes.

Ohio Statute Specifically Covers Single Member LLCs

Posted in Limited Liability Company, Ohio law

Ohio amended its limited liability company statute earlier this year.  As I explained in prior posts on June 16 and July 15, 2016, the amendments strengthened the asset protection provisions of the statute.

One of the most important changes was the addition of Ohio Revised Code §1705.031.  This section specifically provides that Ohio’s limited liability company statute applies to all LLCs formed in Ohio – – whether the LLC has one member or more than one member. There had been some lingering questions about whether certain protections of the statute applied when a limited liability company had only one member.  The amendment eliminates all doubt:  the provisions of the Ohio statute apply to single member LLCs.

This is just one of many provisions of the Ohio LLC law that make it favorable from an asset protection standpoint.

Settlor Can Retain a Lot of Control Over an Ohio Legacy Trust

Posted in Domestic Asset Protection Trusts, Ohio Legacy Trusts

As I previously noted in a post back in 2013, you can establish an Ohio Legacy Trust without giving up complete control of your assets.  Your Trust must be irrevocable and you cannot serve as your own Trustee.  But you can still maintain significant control over the assets in the Trust if you want to do so.

Ohio Revised Code §5816.05 specifically states that the Settlor (the person establishing the Trust) can reserve quite a few rights, including the right to:

  • veto distributions
  • remove the Trustee and appoint a new Trustee
  • remove any advisor and appoint a new advisor
  • receive trust income

Asset protection laws vary a lot from state to state.  But the other fifteen or so states that have domestic asset protection trust statutes also have provisions allowing the Settlor to retain a variety of powers when establishing such a Trust.

Some States Dramatically Better Than Others For Asset Protection

Posted in Asset Protection Strategies/Alternatives, Ohio law

Multicolored USA map vector illustration. Saved in EPS 8 file. Well constructed for  easy editing. Hi-res jpeg file included (5000 x 3661).

A recent article in The New York Times provides a good reminder that some states are much better than others with respect to asset protection.

The article by Patricia Cohen is titled “States Vie to Shield the Wealth of the 1 Percent”.  By authorizing certain kinds of trusts and providing other ways to shelter assets, a state can more easily attract lucrative trust business.  States can also enact LLC statutes and other laws that help protect businesses and individuals.  Physicians, business owners and others who are at high risk of being sued should explore asset protection alternatives in states that provide the best protection.

The New York Times article notes that when it comes to trust laws that are favorable for sheltering wealth – – some of the leaders are Nevada, Delaware, South Dakota and Alaska.  The article also mentions several other leading states, including Ohio.

Seventh Circuit Affirms Wisconsin Annuity Exemption

Posted in Annuities

On July 26, 2016, the United States Court of Appeals for the Seventh Circuit broadly affirmed a Wisconsin statute that makes annuities exempt from a creditor’s judgment.  The case – – Whitman, Trustee in Bankruptcy v. Koenig, 2016 WL 3997251 – – was argued earlier this year and the Appeals Court issued its decision on July 26.

Wisconsin Stat. §815.18(3)(j) 2.a exempts a debtor’s annuity contract that “complies with the provisions of the Internal Revenue Code.”  The Bankruptcy Trustee argued for a very narrow construction of the statute.  But the U.S. Seventh Circuit Court of Appeals interpreted it more broadly.  The Court noted that the statute in question required it to construe the exemption to “secure its full benefit to the debtors.”

This very recent court decision is a good reminder that an annuity can be an effective asset protection alternative in many states.  The degree of protection will vary from state to state – – as is the case with many other asset protection considerations.  Purchasing an annuity involves a number of significant financial considerations (and there are many different kinds of annuities).  But when considering an overall asset protection strategy, purchasing an annuity may, in a variety of circumstances, prove to be a useful alternative.

Ohio Legislators Are Firmly Behind Recent LLC Protections

Posted in Ohio law

As I have mentioned in other posts, Ohio Senate Bill 181 was signed by the Governor and became law on July 6, 2016.  The new statute improves the already excellent protections offered by Ohio’s LLC statute.  It amends various provisions of Chapters 1701 and 1705 of the Ohio Revised Code.

It is worth noting that this statute passed the Ohio Senate on October 14, 2015 by a vote of 32-0.  The vote in the Ohio House on February 24, 2016 was 94-0.

Ohio legislators in recent years have been very supportive of asset protection.  The Ohio Legacy Trust Statute is a clear example.  Senate Bill 181 – – passed unanimously in both the Ohio House and Senate – – is yet another indication of a strong public policy in favor of asset protection for both businesses and individuals.

Ohio LLC Statute Now Provides More Protection For Members, Managers and Officers

Posted in Limited Liability Company, Ohio law

As I noted in a recent post, significant changes to Ohio’s LLC statute (contained in Senate Bill 181) became effective on July 6.  Among these changes are provisions making it harder to impose personal liability on members, managers or officers for the debts of the company.

The new law specifically states that the failure of an LLC to observe formalities relating to the LLC’s management is not a ground for imposing personal liability on a member, manager or officer.  The new statute also specifically adds officers to the list of persons not personally liable for the obligations of the company (in addition to members and managers).

These changes (and others in the new statute) further insulate the members, managers and officers from personal liability for liabilities of the LLC.

Living in One State and Setting Up a Trust in Another

Posted in Asset Protection Strategies/Alternatives, Domestic Asset Protection Trusts, Ohio law

Map of Ohio, Indiana, West Virginia, Kentucky and Illinois States in USA. Detail from the World Map.

Can you set up a trust in a state that you do not reside in?  The answer is yes.  You can set up a trust in a country you do not live in.  As a resident of Ohio, I can establish a trust in Delaware or Alaska or the Cook Islands or almost anywhere else.  There are of course a number of factors to consider in deciding whether or not that makes sense.  And when you do set up a trust in a state other that the state you reside in, there can be issues as to which state law applies to the trust.  Attorneys refer to this as a “conflict of laws” issue.  This issue frequently arises when a creditor tries to reach assets in a trust.

Section 273(b) of the Restatement (Second) of Conflicts of Laws says that the applicable state law should be the law of the state that the settlor has manifested an intention to apply. Comments to this Section says that naming as trustee a trust company of a particular state would indicate that state law should apply.  Other “contacts” with a particular state would also be evidence of which law applies.

There can also be “public policy” issues.  If your state has a strong public policy (for example, in favor of certain creditor or debtor rights), that can become relevant in a conflict of laws dispute.

For Ohio residents interested in asset protection, all of this is now much less of a concern than it used to be.  We used to recommend that our clients consider setting up trusts and limited liability companies in Delaware and other states for asset protection purposes.  But Ohio now has an excellent asset protection trust statute; an excellent LLC statute; and numerous statutory provisions that are debtor-friendly.  So in most cases there is currently no need for an Ohio resident to set up a trust (or an LLC) in another state for asset protection purposes.


Significant Changes to Ohio’s LLC Statute Become Effective on July 6, 2016

Posted in Limited Liability Company, Ohio law

Ohio Senate Bill 181– which becomes effective on July 6, 2016 — will make some important asset protection improvements to Ohio’s limited liability company statute. Ohio’s LLC law is already an excellent one from an asset protection standpoint. The new changes will make it even better.

The new changes include:

  • More specific charging order protection for single member LLCs
  • Reducing the risk of “piercing” the protections offered by the LLC statute by requiring fewer formalities
  • Fewer restrictions on what an Operating Agreement can and cannot provide with regard to duties of members, managers and officers

I will be making some additional posts about this new law in the coming months. The main point of this post is that Ohio’s LLC statute is already very favorable from an asset protection standpoint — and the new changes make it even better.

Physicians Face Heavy Burdens From Malpractice Suits

Posted in Physician Asset Protection

A recent article by Laura Landro in the May 10, 2016 Wall Street Journal had some interesting observations about the burdens many physicians face from malpractice suits. According to a 2013 study in the Journal of Health Affairs, the average doctor spends over 50 months — or about 11% of a 40 year career — with an unresolved, open malpractice case. While a majority of cases do not even result in payments to the plaintiff (and most do not exceed insurance coverage limits), malpractice actions are nevertheless extremely stressful for physicians. And it is always possible that a malpractice judgment could exceed insurance policy limits, thus exposing the physician’s individual assets to a judgment.

My personal observation is that doctors are under increasing pressure to see more patients per day, and they are faced with increasingly complex issues, particularly with elderly patients. This can significantly increase the chance for errors.

Physicians employed by a large hospital system are of course less at risk than doctors in a private medical practice. But all physicians should consider available asset protection alternatives.

Ohio currently has some excellent ways for physicians and others to better protect their assets, including:

  • A favorable LLC statute
  • An Ohio Legacy Trust
  • Favorable IRA protection
  • Various “exemptions” from creditors under Ohio Revised Code 2329.66

This post is simply another reminder that physicians have some particular reasons to focus on asset protection planning. Ohio (and many other states) offer a number of alternatives that are clearly worth considering.