Even as each state has specific laws around asset protection through trusts, clients in some states have relied on more taxpayer-friendly trust laws that apply in other states to accomplish those goals.

That said, there are limits to how effective a trust structure can be in shielding assets from creditors. A recently decided court case, United States v. Huckaby, underscores the importance of understanding those limitations — and of considering all angles in structuring a trust to avoid future surprises.

While details matter in determining whether a trust will be effective, courts generally decline to respect the trust structure when the individual behind it retains complete control over the assets.

U.S. v. Huckaby: The Facts and Trust Structure

The defendant in Huckaby had acquired real property in South Lake Tahoe, California, with his partner, as joint tenants. Six years later, in 2011, they created a Nevada domestic asset protection trust, titled the Circle H Bar Trust, and designated it as a Nevada Spendthrift Trust. The defendant and his partner were the trust's settlors, beneficiaries and trustees, making it a self-settled trust.

The defendant and his partner then transferred the California real property from their individual names and into the trust.

In 2018, the Internal Revenue Service obtained a judgment against the defendant. By 2025, the defendant had failed to satisfy that judgment and owed the IRS about $88,000. The agency filed a civil lawsuit seeking the following relief: (1) allowing the IRS to enforce its lien against the California property, (2) a finding that the defendant and his partner were the true owners of the property (as joint tenants), (3) a finding that the IRS' lien encumbered the defendant's one-half interest in the property and (4) allowing the IRS to foreclose on the property.

The key issue was whether the Circle H Bar Trust structure could prevent a creditor from enforcing alien against the real property held by the trust.

The Court's Reasoning

The U.S. District Court for the Eastern District of California initially found for the defendant in ruling that the trust should be construed under Nevada law. However, the court went further and found that trust interpretation itself wasn't the issue in this case. Rather, it was whether the real property could be reached by the defendant's creditors.

On this issue, the court held that the law that applied where the land was located should control. California law, then, would be used to determine whether the IRS could foreclose on the land to satisfy the defendant's debt.

California law, though, doesn't recognize the type of self-settled trust that the defendant and his partner created. In California, the settlor of a spendthrift trust cannot also be the trust beneficiary, preventing individuals from placing assets beyond creditors' reach while benefiting from those assets. California law voids these trusts entirely.

The court also found that the defendant had both legal and equitable interests in the real property. That was sufficient to allow the IRS to attach a lien to the property. Equitable interests were present because the defendant was a trust beneficiary, while legal interests were present because the defendant was also a trustee.

The IRS was therefore able to foreclose on the defendant's one-half interest in the property.

Takeaways From the Decision

The court's reasoning highlights the risks associated with using a domestic asset protection trust to shield real property. The Nevada trust was entirely valid under Nevada law — it was simply ineffective in protecting real property assets located outside Nevada.

The "same person" problem also rendered the trust ineffective. Asset protection trusts are not effective when the same person is the settlor, trustee and beneficiary.

The identity of the plaintiff in this case was important. Asset protection trusts are not effective in shielding assets from IRS tax liens. Courts can ignore a trust structure and allow the IRS to satisfy judgments by reaching trust assets. Even a trust that would be effective with respect to private creditors will likely be ineffective when it comes to the IRS.

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