{"id":3099,"date":"2021-12-14T23:02:00","date_gmt":"2021-12-14T23:02:00","guid":{"rendered":"https:\/\/socal.law\/?p=3099"},"modified":"2022-06-21T20:35:46","modified_gmt":"2022-06-21T20:35:46","slug":"in-trusts-we-trust-applying-the-alter-ego-doctrine-to-trusts","status":"publish","type":"post","link":"https:\/\/socal.law\/in-trusts-we-trust-applying-the-alter-ego-doctrine-to-trusts\/","title":{"rendered":"In Trusts We Trust?: Applying the Alter Ego Doctrine to Trusts"},"content":{"rendered":"\n
Most attorneys are familiar with the rigamarole that comes with attempting to reach assets held by the principals of a business entity as a part of analyzing whether a judgment will be collectible\u2014that is, whether the alter ego doctrine will apply such that the creditor may \u201cpierce the corporate veil.\u201d However, the rules for whether a judgment creditor may \u201cpierce the veil\u201d of a trust<\/em> to reach the settlor behind that trust are a bit quirkier. <\/p>\n\n\n\n Indeed, most of the time when trusts are involved, the creditor is interest in proceeding the opposite direction\u2014that is, reaching the assets held in trust for the benefit of a judgment debtor. Regardless of which direction the creditor may be going, this article discusses the rules of the road for collecting from individual via trust, and trust via individual. <\/p>\n\n\n\n First, it should be noted that the alter ego doctrine doesn\u2019t even come into play where a judgment debtor transfers assets into a revocable trust. In that scenario, the judgment creditor can attach and collect upon the assets in the trust because they are treated as assets of the judgment debtor regardless of their placement into a revocable trust. See <\/em>Bank One Texas v. Pollack<\/em>, 24 Cal. App. 4th 973, 980 (1994)<\/a>; Gagan v. Gouyd<\/em>, 73 Cal. App. 4th 835, 842 (1999)<\/a>, disapproved on other grounds in\u202f<\/em>Mejia v. Reed<\/em>,\u202f31 Cal. 4th\u202f657, 669 (2003)<\/a>; see also <\/em>Prob. Code \u00a7 18200<\/a> (\u201cProperty in a revocable trust is subject to creditor claims to the extent of the debtor\u2019s power of revocation.\u201d). <\/p>\n\n\n\n Second, although the alter ego doctrine has been analyzed in the context of trusts rather than business entities, the California Court of Appeal has been careful to note that trusts are in fact not legal entities at all: \u201c\u2018[A] trust is not a legal person which can own property or enter into contracts . . . It is the trustee or trustees who hold title to the assets that make up the trust estate . . . . [Therefore,] legal proceedings are properly directed at the trustee.\u2019\u201d Greenspan v. LADT LLC<\/em>, 191 Cal. App. 4th 486, 521 (2010)<\/a> (quoting Neno & Sullivan, Planning and Defending Domestic Asset-Protection Trusts<\/em>, Planning Techniques for Large Estates (Apr. 26-30, 2010) SRO34 ALI-ABA 1825, 1869-70)). Moreover, \u201c[b]ecause a trust is not an entity, it is impossible for a trust to be anybody\u2019s alter ego.\u2019\u201d Id. <\/em>at 522. However, the Court of Appeal did find that \u201capplying the [alter ego] doctrine to trustees<\/em>\u201d was acceptable because \u201cit\u2019s entirely reasonable to ask whether a trustee is the alter ego of a defendant who made a transfer into the trust.\u201d Id.<\/em> The court in Greenspan<\/em> concluded that alter ego doctrine could be applied to a third-party trustee of an irrevocable trust as the potential alter ego of the debtor settlor. Id. <\/em> <\/p>\n\n\n\n