Opinion ID: 179769
Heading Depth: 3
Heading Rank: 1

Heading: The Apartment Trust

Text: Goodrich argues that the district court erred in holding that the Apartment Trust is not Michaels's alter ego, while the Debtors, on cross-appeal, contend that it erred in holding that the Apartment Trust is invalid. We agree with the district court's conclusion that the Apartment Trust is invalid, and we further hold that Goodrich's claim to invalidate it is not time-barred. [1] Because we hold that the Apartment Trust is invalid and may therefore be disregarded, we need not address whether it is Michaels's alter ego. It is well-settled that a trust created for the purpose of defrauding creditors or other persons is illegal and may be disregarded. In re Marriage of Dick, 15 Cal.App.4th 144, 18 Cal.Rptr.2d 743, 752 (1993); see also Cal. Prob.Code § 15203 (A trust may be created for any purpose that is not illegal or against public policy). Properly designating a minor child as a beneficiary does not validate a trust that was created with an improper purpose. See 1A Scott on Trusts § 63(4th ed. 2001) (Although the terms of the trust in themselves are perfectly lawful, the trust is illegal where the motive of the settlor for creating the trust is to defraud creditors or other persons). Here, the bankruptcy court found that Michaels transferred the Kokee Woods stock simultaneously with the creation of the Apartment Trust and that the transfer was made for the fraudulent purpose of avoiding the Debtors' creditors. Those findings are sufficient to establish that Michaels's purpose in creating the trust was to defraud creditors. The Apartment Trust is therefore an invalid trust. Moreover, even to the extent it alleges fraudulent transfer, Goodrich's claim is not time-barred by the seven-year statute of limitations set forth in California Civil Code § 3439.09(c). [2] If an express trust failsif, for instance, it was formed for a fraudulent purposethe trustee holds legal title to the property on a resulting trust for the trustor and his or her heirs. See Bainbridge v. Stoner, 16 Cal.2d 423, 106 P.2d 423, 429 (1940) (In Bank). [T]he trustee of a resulting trust is considered a voluntary trustee and ... the statute of limitations does not begin to run in favor of a voluntary trustee until he repudiates the trust. Davenport v. Davenport Found., 36 Cal.2d 67, 222 P.2d 11, 16 (1950). Because the Apartment Trust is invalid, Briones is a voluntary trustee on a resulting trust for Michaels and his heirs. The statute of limitations did not begin to run until Briones repudiated the trust, that is, until he answered Goodrich's complaint and denied that the Apartment Trust's assets are property of the bankruptcy estate. We therefore conclude that Goodrich's claim is not time-barred, and we affirm the district court's judgment that the Apartment Trust is invalid.