An Orange County, California, Superior Court has held that an engineer’s asset transfer into a trust was fraudulent because he intended to defraud future creditors. Kilker, et al v. Stillman and Arriaga.
In 2000, Stillman and Arriaga, homeowners, hired a general contractor to put in a swimming pool. In turn, the general contractor hired an engineer, Terence Kilker, to test the soil.
In 2004, Kilker formed, then transferred most of his assets into, three Nevada trusts for asset protection of which Kilker and others were trustees. One of the assets was a valuable office building. Kilker was also the “managing director” of the trust and directly controlled all the trust bank accounts, traded stocks, dealt with tenants, and paid his personal bills. Kilker ‘s brother was the beneficiary of the trust.
When the pool began to crack in 2008, the homeowners sued everyone involved in building the swimming pool, including Kilker. Thereafter, Kilker settled with the homeowners for $92,500. However, when he did not pay the settlement amount, the homeowners levied the office building. Before the Sheriff’s sale, one of the other trustees filed a third-party claim on behalf of the trust that owned the office building. The third-party claim stated that Kilker had no saleable equity in the office building, so the Sheriff’s sale was canceled.
The homeowners then filed a petition to invalidate the trust’s third-party claim alleging that the transfer of the office building to the trust was fraudulent under the California Uniform Fraudulent Transfers Act (CUFTA). The trial court determined the trusts were alter egos of Kilker. “Further, though there was no existing “claim” at the time our Engineer made his transfers, the transfer was fraudulent because the Engineer made the transfers for the stated purpose of defeating the collection rights of unknown future claimants who might come along later.” Kilker and the trust have appealed.
This decision reminds us of the need to do planning well before a problem occurs; to prefer transfers for value over gifts; and to not use the phrase `creditor protection’ or `asset protection’ in the planning.
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