I am not a lawyer, I am a judgment broker. This article is my opinion, based on my experience in California, and laws vary in each state. If you ever need legal advice or a strategy to use, please contact a lawyer.
A Trust is a document that (at least temporarily) separates the ownership of assets from people. Instead of a person owning an asset, the trust owns it. There are many kinds of trusts. Trusts are almost never separate legal entities from the people that created them.
Trusts are often an alternate way to own assets. Trusts can be thought of as containers for potential or conditional assets.
Trusts can be used to solve many problems, including avoiding probate, or to try to solve the problem of leaving assets available to satisfy judgment debts.
Trusts usually have four categories of people or entities:
1) The grantor (sometimes called a settlor or trustor), that creates and usually funds the trust.
2) Assets, which are transferred in and out of the trust.
3) Beneficiaries (sometimes called settlees), that receive assets or benefits from the trust.
4) The trustee, who manages the trust’s assets, and distributes them according to the terms of the trust, or if legal action unravels the trust.
The grantor can also be the beneficiary, and the trustee too, at least while they are still alive. Most of the time the trust is an asset of the grantor.
When the same person is the grantor, trustee, and also the beneficiary, it is called a self-settled trust. Self-settled trusts are not legal in most states, and are a foolish way to try to hide assets from creditors.
Putting assets into a properly formed trust can make those assets less available to creditors. Even when the trust itself is the defendant and judgment debtor in a lawsuit, it can be difficult to recover the judgment. There are many ways a trust may be hidden or depleted, in private ways to stymie judgment creditors. Clever debtors may include spendthrift provisions in trusts, that can frustrate creditors.
There are two kinds of trusts: revocable, and irrevocable. Revocable trusts can be changed, undone, or dissolved. Assets in revocable trusts are reachable by judgment creditors as per probate code. Probate code 18200 states:
If the settlor retains the power to revoke the trust in whole or in part, the trust property is subject to the claims of creditors of the settlor to the extent of the power of revocation during the lifetime of the settlor.
When a trust is irrevocable, it is off-limits to changes by the judgment debtor, and usually not available to judgment creditors either.
To avoid the expenses and disclosures required in the probate process, many people with assets, set up a revocable living trust. Then, they transfer ownership of everything they own into that trust.
A revocable living trust can be changed at any time, prior to the death of one or both of the grantors/settlors – the person(s) who set up the trust. See Probate court law 18200, a revocable trust is a DBA of the debtor.
A judgment creditor, looking at the recorder’s office for deeds on a judgment debtor’s home, might expect to see “Barney and Pam Jones”. In the past, the couple owned their house as husband and wife. However, later they transferred title to “Barney and Pam Jones, Trustees of the Jones Family Trust dated April 1, 2011”. This means the house was transferred to a trust, most often a living revocable trust.
A revocable living trust is not a separate legal entity, separate from the trustee. Like a DBA, this means the debtor, who has moved their assets to a revocable living trust still owns the assets in the trust.
Note that whether a trust is a separate entity or not, you cannot have legal papers served on a trust, you must serve an actual person who is a party to, or a representative of the trust.
If one or more of the settlors of a revocable trust is your judgment debtor, that can be important, especially when the settlors are married to each another.
When you are trying to recover a judgment against a debtor with a trust, you can subpoena the debtor, and with a document request, to get a copy of the trust.
If you suspect the trust was set up only to prevent your judgment from being recovered, you might be able to persuade a judge to undo the transfer of assets into the trust, especially if the transfer was done without consideration.
What if your judgment debtor is living in a property that is owned by their parent’s trust? You could do a third-party ORAP (examination) on each parent. You state the property specifically on the back of the EJ-125 form. This places a lien on that property, if it is clearly defined [CCP 708.120(c)]. Have the parent served with the ORAP and SDT asking for:
1) Copies of the parent’s trust and will.
2) Copies of the parent’s beneficiary designations for any and all life insurance.
3) Copies of the parent’s 709 form filed with his Federal Income taxes. Form 709 is the Gift Tax form, so you can ask to see that without seeing any of the parent’s other tax documents.
4) Copies of any and all checks written to the judgment debtor.
5) Copies of any and all checks received from the judgment debtor.
Someone must be paying rent, or if not, the value of the rent must be claimed as a gift on the 709 form and if not the IRS will not be happy.
6) Copies of any bank account statements upon which the judgment debtor is a signatory with the parent.
You can ask the parent anything that relates to potential assets of the judgment debtor. Then, 60 days later, do the same for the other parent. To keep the pressure up, rinse, lather, repeat. There is no 120-day law for third-parties (CCP 708.120) as there is for a judgment debtor [CCP 708.110(b)]. However, to avoid the opposing party’s lawyer challenge, or a court ruling that the repetitive exams are duplicative or harassing, it is best to not examine third parties more often than every 120 days.
As each parent is examined, you can serve the other parent to appear as a witness at the examination (CCPs 708.120 and 708.130) at the other’s ORAP. There is no 120 day rule for witnesses. Always have a check for mileage serve with third party ORAPs [CCP 708.120(f)].
Some sneaky judgment debtors create two trusts simultaneously, a revocable and an irrevocable trust. This can be done by simply changing the cover pages on the trusts.
These kinds of shenanigans, and most anything else done that is fraudulent (forming an irrevocable trust simply to keep assets out of reach from a creditor) has a very good chance (if the creditor has the time and money) of being unraveled, so the judgment creditor gets paid.