Article: (Reverse) Piercing the Trust Veil

Emergent doctrine deems trusts legal entities distinct from their trustees and beneficiaries. Venerable doctrine empowers creditors to “pierce the veil” separating entities’ and their owners’ property to avoid inequitable treatment. This article weaves together the new and old to craft a legal roadmap for reversing the ongoing race to the bottom among the states authorizing indefensible self-settled asset protection trusts (SSAPTs) designed solely for the purpose of swindling creditors. As a matter of both policy and doctrine, piercing (more precisely, reverse piercing) an entity’s veil is ideally suited to empower the creditor of a SSAPT beneficiary to get paid from assets that in substance if not form belong to the debtor. Courts in states licensing SSAPTs almost surely will imply that their enabling legislation does not permit reverse piercing into SSAPTs. In states that have resisted the temptations to authorize SSAPTs, however, creditors can make a strong case for piercing such trusts created under the laws of other jurisdictions: choice of law, personal jurisdiction, and full faith and credit doctrine should not stand in the way. Still, there is room for improvement and this article concludes by suggesting both state and federal legislation to facilitate reverse piercing by creditors of foreign SSAPT beneficiaries.