Court Finds Nevada APT Ineffective in Shielding Property from IRS Foreclosure

A recently decided court case underscores the importance of understanding state-level limitations on the use of asset protection trusts (APTs) for creditor protection. In U.S. v. Huckaby, a taxpayer and their partner established a Nevada APT in which they were the trust's settlors, beneficiaries and trustees, making the trust a self-settled trust (a permissible structure in Nevada). They then transferred a piece of California real property out of their individual names and into the trust. The issue at hand was whether the IRS could reach the defendant's interest in the California real property to satisfy a lien. The court held that the law that applied where the land itself was located was controlling--and California does not recognize this type of self-settled trust. In allowing the IRS to foreclose, the court found the defendant had both legal and equitable interests in the real property. Equitable interests were present because the defendant was a trust beneficiary. Legal interests were present because the defendant was also a trustee. For more information on the rules governing domestic APTs, visit Tax Facts Online. Read More: Link to Q9076. Note: Q is updated.