A recent Ninth Circuit decision allows the Federal Trade Commission to collect a judgment directly from a house held in the debtors’ own trust. The ruling does not change state trust law. It does show how little protection a trust offers when the people who owe the debt also control it and benefit from it.
The Case Behind the Ruling
According to a California Lawyers Association summary, the FTC obtained judgments of more than $130 million against Benjamin Hoskins and about $1.5 million against his wife, Leanne Rodgers, over a telemarketing scheme. Their Las Vegas home was held in a trust that named them as both trustees and beneficiaries. The FTC sought a writ of execution to levy on the house.
The district court blocked that effort. It ruled that the FTC first had to file a separate lawsuit proving the trust was Rodgers’ alter ego under Nevada law.
What the Ninth Circuit Decided
In its August 4 opinion, the Ninth Circuit reversed. The court held that the Federal Debt Collection Procedures Act lets the government levy on any property, however it is held, in which a debtor has a substantial nonexempt interest. Hoskins and Rodgers had that interest because they were trustees and beneficiaries of the trust.
The court also found that the federal statute sets no time limit on collection through a writ of execution and that it overrides conflicting state limits on enforcing judgments. A separate alter ego case was not required.
Why the Structure Failed
The trust held title to the house. That distinction did not matter.
- The debtors served as their own trustees and kept control of the property.
- The debtors were also the beneficiaries, so the trust existed for their benefit.
- The creditor was the federal government, which has collection tools that private creditors lack.
- Nevada’s time limit on enforcing judgments gave way to federal law.
Self-Settled Trusts and Their Limits
Some states allow domestic asset protection trusts, which can shield assets a person places in trust for their own benefit. These trusts generally depend on an independent trustee and strict compliance with state requirements. A trust where the settlors act as their own trustees does not meet that standard.
Even a well-drafted plan can fail. When an asset protection trust is created after a claim arises or is managed loosely, courts are often willing to look past it.
Spendthrift Provisions
Spendthrift provisions generally protect a beneficiary’s interest from that beneficiary’s creditors when someone else created and funded the trust. They offer much less when the person who funded the trust is also its beneficiary.
Building a Plan That Holds Up
Effective planning usually combines several tools and starts well before any claim exists.
Business owners often hold operating assets in a limited liability company, which separates business risk from personal property.
State homestead exemptions may protect a primary residence from certain creditors, though their scope varies by state. The Hoskins ruling turned on whether the debtors held a nonexempt interest, which is why exemptions deserve careful review.
Sound trust planning for creditor protection also requires choosing the right trustee and governing state from the start.
Working With an Asset Protection Lawyer
An asset protection lawyer can review how your property is titled, identify gaps before a claim arises, and coordinate protection with your broader estate plan.
If you hold property in a trust or are considering one for creditor protection, contact us to speak with an asset protection lawyer at Estate Planning Pros.