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BarJournal ESTATE PLANNING

JU LY /A UGUST 20 15
feATUre Protecting Premarital Assets

Is an Ohio Legacy Trust the Answer?

BY REBECCA YINGST PRICE

ew people get married with the A valid and enforceable prenup requires full to remove and appoint a new trustee. A Settlor
intention of divorcing, however, and complete disclosure of each of the parties’ cannot, however, serve as their own Trustee.
protecting current assets from a financial assets and liabilities prior to their One cannot shield all of their assets in a
future ex-spouse might be one of the marriage. Both spouses must actively participate Legacy Trust, as R.C. 5816.06 requires a Settlor
F most important legal and financial in the process, and each should be represented to sign a qualified affidavit certifying that they
decisions that one ever makes. The question is by separate and independent counsel to create a will not be rendered insolvent after the transfer
what is the best way to do it? sound and enforceable prenuptial agreement. If of property to the Trust. In addition, they must
Let’s start with Ohio’s mandate that upon this is not done, then there is a high probability also certify that the property transferred was
a divorce the division of marital property that the prenup will be overturned during a not derived from unlawful activities; that they
shall be governed by the principle of equitable divorce since it would be a conflict of interest for have full right, title, and authority to transfer the
distribution. Marital property is defined by R.C. a single attorney to represent both parties. property; that the transfer is not being made to
3105.171 as any property that is not separate Getting a prenup in place can create defraud creditors; that there are no pending or
property. Separate property is then defined significant stress, especially if one party is threatened court actions that are not disclosed
by R.C. 3105.171(A)(6)(a) as all real and resistant to the idea. If the prenup is signed therein; and that they don’t contemplate filing for
personal property that is: (i) an inheritance by on the eve of the wedding, it may be easily bankruptcy.
one spouse during the marriage; (ii) property overturned on the basis of duress. Also, if one An initial reading of the Ohio Legacy Trust
acquired by one spouse prior to marriage; (iii) party refuses to sign the agreement, then the Act would seem to preclude its use in premarital
passive income and appreciation from separate other fiancé must either call off the wedding planning since spouses and former spouses
property; (iv) property acquired by one spouse or cave in and rely on state law alone. This are excepted creditors under R.C. 5816.03(c)
after a decree of legal separation; (v) property common conundrum can be solved by setting (1). However, the key is in the definition of
excluded by a valid antenuptial agreement; (vi) up an Ohio Legacy Trust (Legacy Trust). “spouse or former spouse.” R.C. 5816.02(U)
compensation for a personal injury; or (vii) any On March 27, 2013, Ohio passed the Ohio defines a spouse only as “the person to whom a
gift that is made after the date of the marriage Legacy Trust Act, R.C. Chapter 5816, which transferor was married on or before a qualified
and that is clearly given to only one spouse. gives a fiancé the option of creating a self-settled disposition was made.” Therefore, if the Legacy
Ohio law, therefore, offers basic protections Domestic Asset Protection Trust (DAPT). This Trust was established AND funded prior to
to fiancés with separate property. However, if is a viable alternative to a traditional prenup the marriage, the transferor’s fiancé cannot be
one wants to protect separate assets they must because: (1) there is no requirement for full defined as a spouse or former spouse since they
ensure that they do not transmute into marital disclosure of financial assets and liabilities; (2) were not married at the time of the trust funding.
property. Additionally, if a party gets married they can be created by one party alone without However, if the Settlor waits to create or fund the
in Ohio and relies on R.C. 3105.171 to protect the knowledge and consent of the other party; Legacy Trust until after the marriage, the fiancé
their separate assets upon divorce, they must and (3) the trust assets are protected from other will qualify as a “spouse or former spouse” and
also divorce in Ohio or the laws addressing creditors, not just a future ex-spouse. will be a creditor able to gain access to the trust.
separate property of the state in which they A Legacy Trust is defined in R.C 5816.02(K) Timing is everything!
divorce will apply. Those are variables that as written trust to which all of the following If the fiancé cannot ultimately qualify as an
cannot easily be controlled, and therefore apply: (a) there is a qualified trustee (i.e. an Ohio excepted creditor, do they have any other recourse
should not be relied upon as cornerstone of a resident or a bank or trust company subject to to access the trust assets for property division or
solid premarital plan. Ohio law); (b) the trust is governed by Ohio law; spousal support upon divorce? They do, but it
For those who do not want to rely on Ohio law (c) it is irrevocable; and (d) there is a spendthrift would be a long-shot. They would have to prove
alone, an antenuptial or prenuptial agreement provision. When a Settlor transfers assets to that the transfer to the trust was a fraudulent
(“prenup”) has been the long-standing method a Legacy Trust, they may retain the following transfer (i.e. voidable transaction) under R.C.
of protecting premarital assets. A prenup is a entitlements under R.C. 5816.05: the right to 5816.07(A). How does one demonstrate actual
contract that the engaged couple enters into mandatory payment of principal and income; intent to defraud a future ex-spouse? It would
prior to marriage that dictates how some of the power to veto a distribution from the trust; “seemingly require the future former spouse to
their assets will be handled in the event of a power of appointment to any party, as long as, prove not only that the settlor had a concern
death and/or divorce. A very romantic wedding that party is not a creditor; the right to remove an that the marriage would end in divorce, but also
planning topic! advisor and appoint a new advisor; and the right that the settlor actually entered into the marriage
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