Trustee of Alleged “Sham Trust” Slated to Defend Its Operation At Trial

Frequently people facing particular legal problems will establish trusts for the benefit of their children or grandchildren when they fear that, if assets are not set aside for their beneficiaries, there will not be sufficient funds to maintain support of their children throughout the balance of their kids’ or grandkids’ childhoods. A notorious example many Americans may remember involves O.J. Simpson. After Nicole Brown Simpson was murdered, he placed certain financial assets in a trust for his children fearing that the balance of his assets could be subject to civil claims for wrongful death. The law permits the creation of these trusts but strictly scrutinize such instruments if it appears they are being used for some other purpose beyond holding investments for the benefit of the children or any other beneficiaries the trust purports to support.

If a creditor has reason to believe that the person(s) controlling the trust are using it for improper purposes, that party can seek to pierce the veil of the trust if it is shown that (1) subservient [entity] was operated not in a legitimate fashion to serve the valid goals and purposes of that [entity] but functioned instead under the domination and control and for the purposes of some dominant party; (2) the trust was, in fact, operated for an improper purpose; and (3) that the complaining party  show some knowing or cooperative effort between the related parties which results in unjust injury to the plaintiff.   In the case of Acheff v. Lazare, Civil Action No. 1:12-cv-00100-JCH-RHS (US Dist. Ct. D. N.M. 2013), a particular individual creditor, as well as the IRS, brought claims against the trustee of the Edelman Trust alleging that such was a sham which was being used to pay certain debts and expenses of Jon Edelman.

The trust was set up by the grandmother of certain children whose father, Jon Edelman, was facing pending incarceration. The plaintiffs in the case took issue with several aspects of how the trust was operated. First, they allege that property conveyed from a separate trust to the Edelman trust was being hidden from creditors and taxing authorities. Second, they claim personal expenses of Mr. Edelman were improperly paid by the trust. Third, the trust was used to pay the expenses to maintain a yacht under Edelman’s control and avoid taxes on the yacht.

The trustee filed a motion for summary judgment to have the claims dismissed without trial. In order to prevail on such a motion, the trustee needed to show that there are no genuine issues of material fact related to any of these claims. The United States District Court found that the plaintiffs, at least, showed the possibility that each of these elements of their claim are supported by the evidence adduced in the case. Accordingly, the Court denied the motion. This means the case will go to trial and a battle over the property placed in to the trust and that paid by the trust will ensue at that time provided no settlement is reached in the interim.

In Albuquerque, Giddens & Gatton Law, PC has attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases as well as receiverships and other remedies available to creditors. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, PC at (505) 633-6298 to set up an appointment or visit the firm’s website at Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.