One of our clients asked us whether he could protect his investment in a newly purchased luxury car by taking title to the car in a “car trust.” The client had found an online article written by an attorney stating that a car trust would protect from judgment creditors vehicles titled in the name of the trust.
The trust agreement the client wanted to use for his car trust provided, among other things, that the client would serve as trustee and that the client would retain throughout his lifetime priority use of the car. The client said that he, as trustee, would store the trust’s car in his personal garage at his residence. Upon the client’s death, the trust transferred ownership of the car to another person named in the trust agreement as the future beneficiary. The future beneficiary resided in another state so he could not practically use the car on an ongoing basis.
This type of car trust will not protect the client’s luxury car from the client’s judgment creditors. The client’s right under the trust agreement for priority use during his lifetime is a property right that a judgment creditor could attack. The trust, too, would be treated as a self-settled trust because the client would have been both the grantor and the lifetime beneficiary. Making the trust irrevocable would not protect the car.
A court probably would treat the transfer of car title to the irrevocable car trust as an incomplete gift; the title transfer not complete because the client retained personally an interest in the car in the form of his rights for lifetime use of the vehicle. The trust’s other beneficiary would have received only a future interest in the car that would become effective upon the client’s death. The client’s incomplete gift his car leaves equitable title in the client’s personal name where it is vulnerable to a judgment creditor’s collection.