subject: Judgment Debtors And Living Trusts [print this page] I am not a lawyer, I am a Judgment and Collection Agency Broker. This article is my opinion, from my California experiences, and laws are different in every state. If you need legal advice or a strategy to use, you should contact a lawyer.
A Trust is a document that (at least temporarily) separates people's ownership from their assets. Replacing the person owning assets, the trust owns them.
There are several types of trusts. Trusts are almost never separate legal entities from the individuals that created them, or are named in them.
A trust is often alternative ways to possess assets. Trusts may be thought of as receptacles for conditional or potential assets.
Trusts can be used to solve several problems, including avoiding probate, or to attempt to solve the problem of exposing assets to judgment creditors.
Almost all trusts have 4 categories of people or entities:
1) A grantor (sometimes known as a settlor), that creates and usually puts assets into the trust.
2) Assets, that get transferred into and out of the trust.
3) Beneficiaries (sometimes called settlees), that get benefits or assets from the trust.
4) A trustee, that administer the assets of the trust, and distributes 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 the trustee too, at least while they are still living.
If the same person is the grantor, trustee, and the beneficiary, it's called a self settled trust. Self settled trusts are illegal in most states, and are a foolish way to try to protect assets from judgment creditors.
Placing assets in a properly formed trust often makes the assets less available to creditors. Even when the trust itself is the defendant and judgment debtor in a lawsuit, it may be difficult to recover the judgment. There are several ways a trust may be hidden or depleted, in a private way to stymie creditors.
There are two kinds of trusts: irrevocable, and revocable. Revocable trusts can be undone, changed, or dissolved. Assets in revocable trusts are reachable by creditors. When a trust is irrevocable, it is off-limits to changes by the judgment debtor, and is usually not reachable for creditors either.
To avoid the disclosures and expenses needed in the court probate process, many people having assets, start a revocable living trust. Then, they transfer ownership of all their assets into the trust.
Revocable living trusts may be modified at any time, prior to the demise of one or both of the grantors/settlors - the person(s) who set up the trust.
A judgment creditor, at the recorder's office looking for deeds on a judgment 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 April 1, 2010". This shows their home was transferred to a trust, most often a living revocable trust.
Revocable living trusts isn't a separate legal entity, apart from the trustee. Similar to a DBA, this means the debtor, that has moved their assets into 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 paperwork served on a trust, one must serve an actual person who is a representative of, or a party to the trust.
When one or more of the settlors of a revocable trust is your judgment debtor, that may be important, especially when the settlors are a married couple.
When you try to enforce a judgment against a debtor with a trust, you may subpoena the debtor, and with a document request, get a copy of the trust.
If you think the trust was set up only to stop your judgment from being enforced, you may be able to persuade a court to undo the movement of assets into the trust, especially if the transfer happened with no consideration.
Some sneaky judgment debtors create two trusts simultaneously, a revocable and an irrevocable trust. This may be accomplished by merely changing the cover pages on the trusts.
These types of shenanigans, and most anything else done that is fraudulent (forming an irrevocable trust only to keep assets out of reach from a creditor) has a very good chance of getting unraveled, so the judgment creditor gets paid.
