Years ago you deeded a rental and a brokerage account into a trust for the kids, and page one says “irrevocable.” Now there is a judgment against you and Chapter 7 is on the table. Will a bankruptcy trustee call that trust yours?
The label matters less than whether you kept a route back to the money and how you treated the property afterward. A July 2026 Arizona bankruptcy ruling, from inside our own Ninth Circuit, pulled a children’s trust into the parents’ estate. California’s Probate Code adds tools of its own.
What happened in Kittrell, and why does it matter here?
In October 2014 the Kittrells, as settlors and trustees, moved their LLC interests into a children’s trust while more than $1.5 million in judgments sat unpaid and another suit was pending. Their son could, acting outside any fiduciary duty, add beneficiaries or revoke in favor of descendants of the grantor’s parents, a class the parents understood included them.
The trust never had a bank account or filed a return, and in 2017 its assets secured a personal loan. After filing Chapter 7 on February 25, 2022, they scheduled the trust as “No value to debtors,” which cost them their discharge under 11 U.S.C. § 727(a)(4)(A) in a September 2025 decision. On July 24, 2026, in Linscott v. Kittrell, Adv. No. 4:22-ap-00206-BMW (Bankr. D. Ariz. July 24, 2026), the court ruled for the Chapter 7 trustee on both theories. The parents were contingent beneficiaries, and the transfer was avoidable under § 548(e) because they admitted forming the trust partly to evade creditors. Even without avoidance, the assets were estate property under § 541, since the couple had “retained absolute control.” The court valued the trust at no less than $15 million as of the petition date and entered the $6.5 million judgment the trustee had requested, enough to pay every claim in full with interest.
Which California rules decide whether a family trust belongs to the settlor?
Bankruptcy borrows state law. 11 U.S.C. § 541(a)(1) brings in “all legal or equitable interests of the debtor in property,” and § 541(c)(2) honors a transfer restriction only if it is “enforceable under applicable nonbankruptcy law.” (When the debtor is the trustee instead, § 541(d) controls, as our Fantasia v. Diodato post explains.)
California’s default surprises people. Under Probate Code § 15400, a trust is revocable unless expressly made irrevocable, and § 18200 exposes revocable trust property to the settlor’s creditors during life. Section 19001 extends that past death when the probate estate falls short.
Spendthrift clauses shield a beneficiary until paid under §§ 15300 and 15301, subject to the 25 percent reach in § 15306.5. None of it helps a settlor-beneficiary. Section 15304(a) voids the restraint, and § 15304(b) lets creditors reach “the maximum amount that the trustee could pay” the settlor, capped at the settlor’s contribution.
The Ninth Circuit applied that rule through § 541(c)(2) in In re Moses, 167 F.3d 470 (9th Cir. 1999). In Cutter v. Seror (In re Cutter), 398 B.R. 6 (9th Cir. BAP 2008), a debtor-trustee who could pay himself support lost the entire corpus to his estate.
Can a creditor argue the trust is the settlor’s alter ego?
Yes. In In re Schwarzkopf, 626 F.3d 1032 (9th Cir. 2010), where the assets included a Temecula house, one trust bought a home the debtor occupied rent-free and paid him at least $105,000 in unexplained fees while its trustee wrote checks on demand. That trust was his alter ego, because “equitable ownership in a trust is sufficient” under California law.
A second trust, formed to defeat creditors, was invalid, so the property sat on a resulting trust and limitations ran only from the trustee’s repudiation. Torrey Pines Bank v. Hoffman, 231 Cal.App.3d 308 (1991), treated settlor-trustee-beneficiaries as the real obligors on their trust’s loan. Greenspan v. LADT, LLC, 191 Cal.App.4th 486 (2010), adds that a trust is not an entity, so the question is whether the trustee is the debtor’s alter ego.
How far back can a trustee or creditor reach the transfer into the trust?
Keep two theories apart. “The trust is estate property” under § 541 has no lookback. “The transfer was avoidable” runs on a clock. California’s Uniform Voidable Transactions Act reaches actual-intent transfers under Civil Code § 3439.04(a)(1), whose listed badges include a transfer to an insider and retained control. Section 3439.05 covers gifts made while insolvent.
Section 3439.09 allows four years from the transfer, or one year from discovery for intent claims, and extinguishes every claim after seven years. A bankruptcy trustee borrows a live claim through § 544(b) and gets two years after the order for relief under § 546(a).
Then comes § 548(e): ten years for a transfer “to a self-settled trust or similar device” where the debtor is a beneficiary and acted “with actual intent to hinder, delay, or defraud.” Kittrell’s October 2014 transfer was more than seven years old at filing. California’s seven-year cap would have killed a UVTA claim; § 548(e) did not.
Is a creditor or bankruptcy trustee questioning your family’s trust, or are you trying to reach one? The seven-year UVTA cap and the ten-year § 548(e) window turn on exact dates, which an attorney and CPA can rebuild from deeds and bank records.
What do the trust’s tax returns and bank records prove?
A swap power under IRC § 675(4)(C), the kind Mr. Kittrell held, makes a trust a grantor trust for income tax. Treas. Reg. § 1.671-4 then lets a wholly owned grantor trust skip Form 1041, and the FTB’s Form 541 instructions accept those methods.
As a CPA, I read the paper trail as evidence of control. Does the trust have its own EIN and account, and do the rents land there or in the account paying the parents’ mortgage? Then I look for a Form 709 for the funding year; a gift in trust is often a future interest, which requires a 709 at any amount. A signed 709 says the parents treated the gift as complete. A missing one, plus a loan application listing the building as theirs, says otherwise. The Kittrells never filed one.
How would this play out for a Redlands couple facing a judgment?
Assume a Redlands couple put a $920,000 fourplex and a $360,000 brokerage account into a children’s trust on June 14, 2019. The husband is trustee, and the trust lets him pay the settlors for “health and support.” A supplier had sued them on a guaranty that March; a $610,000 judgment followed in April 2026. The $5,800 monthly rents still go to their joint account. All figures are illustrative.
The UVTA claims are dead: four years ran in June 2023, and despite a May 2026 discovery, the seven-year bar fell June 14, 2026, leaving § 544(b) nothing to borrow. But the support clause makes this self-settled, so § 15304(b) lets the creditor reach up to everything the couple contributed, by petition under Code of Civil Procedure § 709.010.
If they file Chapter 7 in the Central District’s Riverside Division before June 14, 2029, expect a complaint pleading estate property under § 541 and Cutter, turnover under § 542, § 548(e) avoidance, and alter ego of the trustee. The 2019 fix was an independent trustee, no settlor distribution clause, a filed 709, and a trust bank account. Today they should stop taking the rents and schedule the trust completely.
How should a California irrevocable trust be set up and run so it holds up?
An independent trustee, not the settlor or a child who takes direction, avoids the Schwarzkopf problem. Draft out every path back to the settlor, including any power that could add the settlor as a beneficiary. Then run it as someone else’s property, because it is: its own account and books, and market rent if the family uses trust property.
One limit no drafting fixes: if the settlor is a beneficiary, § 15304 lets creditors reach what the trustee could pay the settlor.
| Theory | Test | Time limit | Key evidence |
|---|---|---|---|
| Estate property (11 U.S.C. § 541) | Debtor holds an equitable interest | None; petition date | Trust terms, actual control |
| Self-settled trust (Prob. Code § 15304) | Settlor is a beneficiary | None | Payment standards naming the settlor |
| Revocable trust (Prob. Code §§ 15400, 18200) | Not expressly irrevocable | Lifetime; § 19001 after death | The instrument’s text |
| Alter ego of trustee | Unity of interest plus inequitable result | No fixed period | Rent-free use, commingling |
| UVTA actual intent (Civ. Code § 3439.04(a)(1)) | Intent to hinder, delay, or defraud | 4 years or 1 from discovery; 7-year cap | Badges such as retained control |
| UVTA constructive (Civ. Code § 3439.05) | No equivalent value while insolvent | 4 years; 7-year cap | Transfer-date balance sheet |
| Self-settled transfer (11 U.S.C. § 548(e)) | Debtor-beneficiary plus actual intent | 10 years before petition | Trust terms, intent |
Frequently Asked Questions
Can a bankruptcy trustee take assets in my irrevocable trust in California?
It can if you kept a beneficial interest or real control. Under 11 U.S.C. section 541, a spendthrift clause protects you only if California law enforces it. Probate Code section 15304 will not enforce it for a settlor who is also a beneficiary. Rent-free use of trust property invites alter ego claims too.
Is a trust for my children self-settled if I am not named as a beneficiary?
Not automatically. In the 2026 Kittrell ruling, parents became contingent beneficiaries because their son could add beneficiaries from a class that included them. Discretion to pay your support has the same effect. Discretion to reimburse your income tax on trust income does not, under section 15304(c).
How long does a creditor have to undo a transfer into a trust in California?
Under Civil Code section 3439.09, an actual-intent claim must be brought within four years of the transfer or one year after it was or reasonably could have been discovered. Every claim dies seven years after the transfer. In bankruptcy, section 548(e) reaches back ten years for transfers to self-settled trusts made with actual intent.
Does reporting a trust as a grantor trust mean it is not really separate?
No. Grantor trust status is an income tax rule, often created on purpose. Treasury Regulation section 1.671-4 lets many grantor trusts report under the grantor’s number without a Form 1041. Courts look instead at control evidence, such as whether the trust had its own account and whether a gift tax return reported the funding.
Can a revocable living trust protect me from creditors in California?
No. Probate Code section 18200 makes revocable trust property subject to the settlor’s creditors during life, and section 19001 keeps it available after death if the probate estate cannot cover the debts. Section 15400 treats a California trust as revocable unless the document expressly makes it irrevocable, so silence leaves the property reachable.
What should we do now if our family trust may be challenged?
Stop any personal use of trust income, make no new transfers, and gather the records showing how the trust was run. If bankruptcy is likely, disclose your roles and interests in the trust completely. The Kittrell debtors lost their discharge because their schedules described the trust as having no value to them.
How North Star Law Firm Can Help
North Star Law Firm represents families, trustees, and creditors across the Inland Empire and the Sacramento area when a trust’s independence is disputed, from trust administration to Chapter 7 adversary proceedings, and we reconstruct the trust and gift tax returns that become the evidence. Phillip Zagotti is a California attorney and a CPA admitted to the U.S. Bankruptcy Court for the Central District of California.
If a creditor or bankruptcy trustee is questioning your family’s trust, or you are trying to reach one, contact North Star Law Firm or schedule a consultation.