Those looking to aggressively protect their assets while still benefitting from them have a new, realistic option under the Ohio Legacy Trust Act, Ohio Revised Code Chapter 5816 (the “OLTA”), which became effective March 27, 2013. The OLTA permits an individual to create and fund an asset protection trust (a “Legacy Trust”) that will protect his or her assets from the claims of his or her own creditors.
Under the OLTA:
- Creditors have a shortened period of time to make claims against the Legacy Trust
- The person setting up the Legacy Trust can be beneficiary of it
- While the person setting up the Legacy Trust can’t be the trustee he or she does other significant rights
- The burden of proof on anyone trying to attack assets in a Legacy Trust is on the creditors
- Assets in a Legacy Trust aren’t protected from child support or alimony from marriages established prior to the trust
The most attractive aspect of the OLTA is the strict time frames placed on creditors to file claims. In other trusts creditors can make claims against the trust during the life of the person setting up the trust, but with a Legacy Trust they have a short window to file. First, a creditor must prove that the trust was established to defraud creditors. Creditors who were acting as creditor before the trust was established have either 18 months after the establishment or 6 months after the trust could have reasonably been discovered by the creditor if they file a suit within 3 years after the trust was established. If they were not a creditor before the trust, they have 18 months.
Although the person who creates trust (the “transferor”) cannot serve as trustee, they are granted other significant rights under the OLTA. As a transferor, one can:
- change the trustee,
- veto distributions from the trust,
- withdraw up to 5% of assets annually,
- direct that Trust assets be distributed to anyone other than the transferor or the transferor’s creditors, estate, or creditors of the transferor’s estate,
- live in residences given to the trust, and
- advise on investments of the trust’s assets.
There are some stipulations, however, as to the establishment of a Legacy Trust. Since the OLTA is designed to protect assets more so than a regular trust, the transferor has to sign an affidavit, which must state the following: (1) the assets are not the product of illegal activity, (2) the transferor has the full right to transfer the assets, (3) the transferor will not be insolvent after transferring the assets, (4) there is no intention to defraud creditors, (5) there are no pending court actions against the transferor, (6) the transferor is not involved in any administrative proceeding (other than opinions on investments), and (7) the transferor does not foresee filing for bankruptcy.
Once a Legacy Trust has been properly established and funded, most of the transferor’s creditors are precluded from seizing assets in the Trust. Persons concerned about exposure to claims of creditors should consider using this technique when planning their estates. Please contact the attorneys at Dahman Law to set up a time to discuss a Legacy Trust.
If you’re considering creating a trust, you have several options. One is whether the trust should be revocable or not. There are advantages and disadvantages to both, but revocable trusts offer some distinct benefits that many people prefer. Here is one reason to think about a revocable trust:
Asset management for ill and minors: With a revocable trust, the assets allocated to loved ones who are elderly, disabled, or minors can be administered via the trust without guardianship of the estate. This means the assets are not directly given to these individuals or their guardians immediately after your passing, but rather parceled out as you choose and can be set aside for specific purposes (education, long-term health care, etc.).This is different from a will which would give a lump sum of money to incapacitated people or their guardians upon death of the settlor. With a trust you can assure that minors don’t get their benefits until they reach an age you determine to be suitable. Also beneficiaries or their guardians don’t have to be responsible for large amounts of money.
Obviously there is much more to consider when setting up a trust and each individual’s situation may differ. These general benefits are a good starting point to understanding the complex nature of estate planning. Please contact the attorneys at Dahman Law to set up a time to discuss any questions you have about your estate plan.
Along with other small business ambassadors, I met with officials from the Small Business Association at the Vice President’s Ceremonial Office last week in D.C. Given the wealth of untapped resources that the SBA provides, Dahman Law will begin a series of posts about how we can help your small business get loans and other assistance from them in the future.
Dahman Law founder Samir Dahman was recently profiled in Columbus Business First’s “People on the Move” section. Read about it here.
Dahman Law’s robust website has drawn the attention of Google. Among other things, Dahman Law credits its website for:
- Communicating the firm’s creed of exceptional client-focused legal services via pre-determined fixed-fee arrangements.
- Highlighting the firm’s seasoned litigators and insightful business lawyers.
- Serving as a professional, informative primary point of contact for new clients.
In recognition of this, Google has designated Dahman Law as a Google Ambassador and invited it to attend the national Google Ambassador Summit in Washington, D.C. this week.
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law. The Act contains the following estate, gift and generation skipping tax provisions:
- The maximum rate for the estate, gift and generation-skipping transfer taxes is 40 percent. This represents an increase from the rate in 2012 (35 percent) but is less than the pre-2001 rate (55 percent).
- The gift and estate tax exemption amounts remain unified with one another and are indexed for inflation from 2011. Although the Internal Revenue Service has not made an official announcement, it appears the unified exemption amount for lifetime gifts and decedents’ estates in 2013 is $5.25 million.
- The exemption amount for the generation-skipping transfer tax remains the same and is indexed for inflation from 2011 as well. Accordingly, despite no official announcement from the Internal Revenue Service, the exemption amount in 2013 for generation-skipping transfers appears to be $5.25 million also.
- The unused unified exemption amount of a predeceased spouse may continue to be used by the surviving spouse for gift tax purposes and by the surviving spouse’s personal representative for estate tax purposes, provided a proper portability election was made at the death of the predeceased spouse.
- The Act did not, however, address previous proposals to limit the advantages of grantor trusts, make 10 years the minimum term of grantor retained annuity trusts and narrow the availability of valuation discounts. Although there has been no meaningful discussion about if or when these proposals will be considered by Congress, they should be borne in mind as a possibility and may be reason to consider estate planning in 2013. Nonetheless, the Act, with its certainty, provides a welcome change from the last few years.
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law. The Act extends a number of business and investment incentives. Significant items include:
- Two-year extension of the research tax credit (through 2013).
- Two-year extension of the new markets tax credit program (through 2013). Unused new markets tax credits may be carried over until 2018.
- Two-year extension of the empowerment zone tax incentives for certain economically depressed census tracts and the tax incentives for issuing New York Liberty Zone bonds (through 2013).
- Two-year extension of the 15-year straight-line amortization for qualified leasehold improvements, qualified restaurant property and qualified retail improvements (through 2013), to apply to property placed in service on or before December 31, 2013.
- One-year extension of 50 percent bonus depreciation for new qualified property placed in service before January 1, 2014 (and before January 1, 2015 for certain long-lived and transportation property), and a one-year extension to allow taxpayers to elect to accelerate some alternative minimum tax credits in lieu of bonus depreciation (through 2013).
- Two-year extension of the 2011 Section 179 expense amount and phase-out limitations so that for tax years 2012 and 2013, the Section 179 expense amount is increased to $500,000, reduced on a dollar-for-dollar basis to the extent that the cost of qualifying property exceeds $2 million. For taxable years beginning in 2014 and later, the maximum expensing amount is $25,000 and the phase-out limitation is $200,000.
- Two-year extension of temporary 100 percent capital gains exclusion for individuals who sell “qualified small business stock” (through 2013).
- Two-year extension of the five-year holding period for S corporation built-in gains tax for sales of S corporation stock occurring in 2012 and 2013.
- Two-year extension of the work opportunity tax credit (through 2013).
- Two-year extension of the Section 956(c)(6) look-through rule for dividends, rental and royalties received by a controlled foreign corporation from a related controlled foreign corporation for two years (through 2013).
- Two-year extension of Subpart F exemption for active-financing income (through 2013).
- Two-year extension of the inclusion of a regulated investment company within the definition of a “qualified investment entity” for purposes of the FIRPTA rules (through 2013).
- Two-year extension of enhanced charitable deductions for contributions of food inventories to designated institutions (through 2013).
- Two-year extension of the exception to unrelated business taxable income regarding payments of rent, royalties, annuities or interest income by a controlled organization to its tax-exempt controlling parent pursuant to a binding written contract in effect on August 17, 2006 (through 2013).
- Two-year extension of rules relating to “interest-related dividends” and “short-term capital gain dividends” received by regulated investment companies (through 2013).
- The Act also extends certain energy-related provisions, including:
- One-year extension of the renewable electricity property wind production tax credit to apply to a facility placed in service, or for which construction begins, before January 1, 2014. Further modifies Section 45 to allow renewable energy facilities for which construction begins by December 31, 2013 to qualify for the production tax credit. Extends taxpayer’s right to elect the 30 percent investment tax credit in lieu of the production tax credit for renewable energy facilities for which construction begins by December 31, 2013.
- Two-year extension of the $1 per gallon tax credit for biodiesel, the 10 cents per gallon small agri-biodiesel producer tax credit and the $1 per gallon tax credit for diesel fuel created from biomass (through 2013).
- Two-year extension of the tax credit for certain energy-efficient improvements to residential homes (through 2013).
- Two-year extension of the new energy-efficient home credit to qualifying homes purchased before January 1, 2014, and of the tax credit for energy efficient dishwashers, clothes washers and refrigerators (through 2013).
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama recently signed into law. The Act extends a number of Bush-era income tax provisions and reinstates a number of Clinton-era income tax provisions with certain modifications. Significant items include:
- Permanent extension of the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent individual income tax rates.
- Beginning in 2013, reinstatement of the 39.6 percent individual income tax rate for taxable income of more than $450,000 for married filing jointly filers (more than $225,000 for married filing single taxpayers), more than $425,000 for head of household filers or more than $400,000 for single filers.
- Beginning in 2013, the rate for certain long-term capital gains and qualifying dividends for taxpayers in the new 39.6 percent income tax bracket is increased to 20 percent, not including the new 3.8 percent Medicare tax on net investment income. Furthermore, there is a permanent extension of the favorable current capital gain rates (e.g., 0 percent/15 percent) for certain long-term capital gains and qualifying dividends for all taxpayers except those whose taxable income puts them in the new 39.6 percent income tax bracket.
- Beginning in 2013, reinstatement of the personal exemption phase-out (PEP) for taxpayers with adjusted gross income of more than $300,000 for married filing jointly filers (more than $150,000 for married filing single filers), more than $275,000 for head of household filers and more than $250,000 for single filers.
- Beginning in 2013, reinstatement of the repeal of the phase-out of up to 80 percent of itemized deductions for taxpayers with adjusted gross income of more than $300,000 for married filing jointly filers (more than $150,000 for married filing single filers), more than $275,000 for head of household filers and more than $250,000 for single filers.
- Permanent extension of the “marriage penalty” relief standard deduction, the 15 percent rate bracket for married filers and the earned income tax credit provisions.
- Permanent extension of the $1,000 child tax credit and a five-year extension (through 2017) of the 2009 modification that provided that earnings above $3,000 would count toward refundability.
- Permanent expansion of the student loan interest deduction and the dependent care credit.
- Permanent extension of the adoption credit and the employer-provided child care tax credit.
- Permanent patch of the alternative minimum tax (AMT) by (i) increasing the exemption amounts for 2012 to $50,600 for single filers and $78,750 for married filing jointly filers, (ii) indexing the exemption and phase-out amounts for inflation and (iii) allowing nonrefundable personal credits against the AMT.
- Five-year extension of the “third-child” earned income tax credit rules included in the American Recovery and Reinvestment Act of 2009 (ARRA) (through 2017).
- Two-year extension of the deduction for certain expenses of elementary and secondary school teachers (through 2013).
- Two-year extension of the election to deduct state and local sales tax in lieu of state and local income taxes (through 2013).
- Two-year extension of the special rule regarding contributions of capital gain real property by individuals for conservation purposes and the exclusion from gross income for distributions from an IRA that are “qualified charitable distributions” (through 2013).
- Two-year extension of the qualified tuition deduction (through 2013).
- Two-year extension of the deduction for mortgage insurance premiums (through 2013) and a one-year extension of the mortgage debt relief provisions (through 2013).
- Two-year extension of the increase in the monthly exclusion for employer-provided van pool and transit pass benefits (through 2013).
- Beginning in 2013, the employee Social Security tax rate will revert to 6.2 percent (from the stimulus level of 4.2 percent) for wages up to $113,700.
On January 1, 2013, the minimum wage in Ohio will increase by 15 cents, from $7.70 per hour to $7.85 per hour. The Ohio minimum wage for “tipped employees” will increase 8 cents from $3.85 per hour to $3.93 per hour, plus tips.
Employers in Ohio with annual gross receipts of more than $288,000 must pay Ohio’s minimum wage. Ohio employers with annual gross receipts of $288,000 or less must pay the federal minimum wage of $7.25 per hour.
These increases are the result of an amendment to Ohio’s Constitution passed by Ohio voters in 2006, which tied Ohio’s minimum wage to the rate of inflation as measured by the Consumer Price Index.
You can view the Ohio Department of Commerce’s new minimum wage poster for 2013 here.