California case blocks trustees from using trust to avoid payment

California case blocks trustees from using trust to avoid payment

| Apr 30, 2021 | Collections

Often times, real property is held in the name of trusts for estate planning purposes. And many people further believes that taking title in this manner protects the real property asset from potential creditors as well. Well, the court in Boshernitsan v. Bach, 61 Cal.App.5th 883 (2021), made it clear this is simply not the case.

One eviction case pinballing through the California court system clarified how creditors can pursue payment when property is managed by a trust. A San Francisco couple that owns an apartment near Golden Gate Park lived in one unit and rented out the other unit to a family of four.

In 2019, the owners served the tenants an eviction notice under the city’s rent control ordinance that lets proprietors evict renters to make room for a close relative – in this case, the female owner’s mother. The tenants sued to block the eviction. They convinced a trial judge that because the couple’s revocable living trust owns the building — and not real people — the family move-in provision could not be enforced.

However, the couple successfully appealed. The state Court of Appeals ruled that only trustees, not trusts, can hold legal title to the property, clearing the way for the couple to evict their tenants and move in the woman’s mother.

The ruling blocks trustees from using the entity of a trust to cloak their real property obligations. Creditors can sue the trustees to collect payment or pursue assets held in the debtor’s personal trusts in order to satisfy judgments. The court made it clear that assets in trusts really belong to the debtors themselves and therefore are subject to seizure – whether real property assets, bank accounts, investment accounts, or otherwise.

When a debtor is attempting to hide behind a trust to avoid their legal obligations, it is best to discuss the matter with a judgment enforcement expert.