Self-Settling Trusts Do Not Work

I am not an attorney, I am a Judgment and Collection Agency Broker. This article is my opinion, based on my experience in California, and laws vary in every state. If you need a strategy to use or legal advice, please contact an attorney.

Trusts are documents which (at least temporarily) separate the ownership of assets from people. Instead of a person owning an asset, the trust owns it.

There are several types of trusts. Trusts are hardly never separate legal entities from the people that created them, or are named in them.

Trusts are often an alternate way to possess assets. Trusts may be viewed as receptacles for conditional or potential assets.

Trusts can solve many problems, including avoiding probate, or to try to resolve the problem of leaving assets available to satisfy judgment debts.

Usually trusts have 4 types of entities or people:

1) A grantor (sometimes known as a settlor), that creates and usually puts assets into the trust.

2) Assets, which are moved into and out of the trust.

3) Beneficiaries (sometimes called settlees), that get benefits or assets from the trust.

4) The trustee, that administer the assets of the trust, and allocates them according to the terms of the trust, or if there is legal action to unravel the trust.

The grantor can also be the beneficiary, and also the trustee, at least while they are still living.

If the same individual is the grantor, trustee, and also the beneficiary, is called a self settled trust. Self settled trusts are not legal in most of the US, and are a foolish way to attempt to hide assets from judgment creditors.

Placing assets into a properly-formed trust can make those assets harder for creditors to reach. Even when the trust itself is the defendant and judgment debtor in a lawsuit, it can be difficult to recover the judgment. There are several ways trusts may be hidden or depleted, in private ways to stymie judgment creditors.

There are two kinds of trusts: irrevocable, and revocable. Revocable trusts can be undone, changed, or dissolved. Revocable trust assets are available to judgment creditors. When trusts are irrevocable, they are off-limits to changes by the judgment debtor, and are usually not reachable for judgment creditors either.

To avoid the disclosures and expenses required in the probate process, many people having assets, set up a revocable living trust. Then, they transfer ownership of all their assets into the trust.

Revocable living trusts can be modified at any time, before the demise of one or both of the settlors/grantors - the person(s) who set-up the trust.

A judgment creditor, at the recorder's office looking for deeds on a debtor's home, may expect to see "Barney and Pam Jones". Previously, the couple owned their home as husband and wife. However, later they transferred title to "Barney and Pam Jones, Trustees of the Jones Family Trust dated May 12, 2010". This shows the house was transferred to a trust, most often a living revocable trust.

A revocable living trust is not a separate legal entity, apart from the trustee. Like a DBA, this means the judgment debtor, that has moved their assets to a revocable living trust still owns the assets in the trust.

Remember that even if a trust is a separate legal entity, one cannot have legal paperwork served on a trust, one must serve an actual person that is a representative of, or a party to the trust.

If one or more of the settlors of a revocable trust is your judgment debtor, that can be important, especially if the settlors are a married couple.

If you try to recover a judgment against a judgment debtor with a trust, you may subpoena the debtor, and using a document request, request a copy of the trust.

If you suspect the trust was formed simply to prevent your judgment from being recovered, you may be able to persuade a court to unravel the transfer of assets into the trust, especially if the transfer happened with no consideration.

Some sneaky judgment debtors create 2 trusts simultaneously, an irrevocable and a revocable trust. This can be done by merely changing the trust's cover pages.

These kinds of shenanigans, and most other things that are done that are fraudulent (starting an irrevocable trust simply to keep assets out of reach from a creditor) has a very good chance of getting unraveled, so the judgment creditor gets paid.


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