Asset Protection Beyond The Grave: Claims Against A Deceased Person’s Assets

by Zach Haris

In 2017 there have been a variety of discussions among leading estate planning attorneys about the extent to which Ohio law now protects a deceased person’s assets from the claims of a creditor.  For many years it has been clear that a creditor could make claims against the probate assets (assets passing under a will) of the deceased person, at least so long as the claim is made timely (i.e., within six months of death) and presented appropriately (e.g., to an executor appointed by the probate court).  Ohio’s procedures are friendlier to estates and more hostile to creditors than some other states, but the general ideas are similar.

Until recently, however, it appeared that assets owned by the trust of a deceased person were generally protected from the deceased person’s creditors.  This situation was different from the situation in most states, which generally subject trust-owned assets to the claims of creditors.  Recent developments have made Ohio law far less clear on this point.

Now, at least until Ohio law is clarified, a patchwork of obscure laws apply for the following “uneven” results when someone dies:

  • If the asset was owned by the deceased person alone (probate asset, passing under a will), then a creditor can make a claim against that asset, as long as the creditor carefully follows a set procedure;
  • If the asset was owned by the deceased person’s trust, or passed to the trust at death, then the law is unclear as to whether a creditor can make a claim against that asset, how the claim is properly made, or how the creditor can even find out about the asset or, for that matter, about the trust;
  • If the asset was owned solely or jointly by the deceased person, but passes by “contract” to someone else (e.g., jointly owned bank accounts; life insurance; retirement assets; assets passing by transfer on death or payable on death designations), then a still more complicated patchwork of state and/or federal laws applies on a case-by-case basis to determine whether a creditor can make a claim against that asset, and how.

If you think all of this sounds very confusing and that it does not make sense, you are right on both scores!  Stay tuned over the next few years to find out whether either the courts or the Ohio legislature provide more clarity.

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