Domestic Asset Protection Trust Fails to Block $88K IRS Seizure

A domestic asset protection trust just collapsed in federal court, and the ruling should rattle anyone counting on a home-state shield. In United States v. Huckaby, a federal judge let the IRS foreclose on a California property its owner had tucked inside a Nevada spendthrift trust years earlier. The trust did nothing.

SACRAMENTO, United States – 13 September 2026

The decision, handed down this year in the Eastern District of California, is the clearest warning yet about a structure sold to thousands of Americans as bulletproof. The taxpayer owed the IRS roughly $88,000. He’d moved a South Lake Tahoe property into a self-settled Nevada trust in 2011, named himself settlor, trustee and beneficiary, and assumed the wall was up. It wasn’t.

What actually happened in the Huckaby ruling

The court held that a self-settled Nevada trust gave its creator both legal and equitable title, so he kept a property interest the IRS lien could attach to and foreclose. Because the real estate sat in California, California law governed the creditor’s rights, and California rejects the idea that you can shelter assets from your own creditors while staying a beneficiary.

Here’s the chain of events. The taxpayer and his partner bought the Tahoe property as joint tenants, then in 2011 created the Circle H Bar Trust, a Nevada spendthrift trust, and transferred the property in. They were settlors, trustees and beneficiaries all at once. In 2018 the IRS won a judgment. By 2025 the debt sat unpaid at around $88,000, and the government moved to foreclose.

Nevada law would ordinarily protect a properly structured spendthrift trust. But the asset never left California soil, and that’s the trap. Keep control, keep the benefit, park the asset in a state that won’t recognise a self-settled shield, and the trust is a paper wall. I’ve watched this play out before with clients who bought a template trust online and assumed the marketing was law.

This is where people get burned. A domestic asset protection trust leans entirely on the goodwill of American courts, and those courts talk to each other. If you’re weighing real asset protection trusts, the state that holds the asset matters as much as the one that drafts the deed.

Why does a domestic asset protection trust fail against the IRS?

A domestic asset protection trust fails against the IRS because federal tax liens reach any property interest the taxpayer retains, and a settlor who is also trustee and beneficiary retains a clear one. State spendthrift protections don’t bind the federal government the way they bind private creditors, so the shield the marketing promises never fully forms.

The American Bar Association’s Real Property, Trust and Estate Law section has said plainly that the effectiveness of self-settled trusts against federal creditors, and in states that don’t recognise them, remains an open question. Huckaby answers part of that question, and the answer is grim.

Roughly twenty US states now authorise some form of self-settled asset protection trust, Nevada, Delaware, South Dakota and Alaska among them. On paper they look strong. In practice, a creditor only needs a court in a non-recognising state, or a federal hook like a tax lien, to walk straight through. That gap is the whole ballgame.

Domestic vs offshore: where the real protection lives

Offshore trusts in the Cook Islands and Nevis differ from a US structure in the one way that counts: they don’t recognise foreign court judgments at all. A US creditor who wins at home has to start over in the offshore jurisdiction, prove fraudulent transfer beyond a reasonable doubt, and beat a short statute of limitations. Most give up long before that. The table shows why Huckaby would land differently offshore.

One client came to us certain he needed a Nevada trust because a neighbour had one. What he actually needed was a Cook Islands trust structures layered over a foreign holding company, so no single US court could reach the assets. The cost was higher, and so was the payoff if a lawsuit ever landed.

Who should worry about this ruling?

Anyone relying on a self-settled trust to shield US real estate, business equity, or accounts from a future creditor should treat Huckaby as a direct warning. The most exposed are physicians, business owners and landlords who set up a domestic structure and assumed the job was done.

The Tahoe case involved a tax debt, and tax authorities are the toughest test any structure faces. Governments have spent years tightening the screws on wealth, from exit taxes that hit you on the way out to seizure powers that reach across borders. Layering a US company through an offshore holding company is often the difference between a creditor giving up and collecting, which is where serious offshore company formation earns its keep.

Let’s be blunt. A structure that folds the moment a federal creditor knocks gives you a false sense of security with a legal bill attached. Broader asset protection strategies start with putting the asset somewhere a home-court judgment can’t follow it.

The lesson is simple and expensive to ignore. A domestic asset protection trust is a speed bump, and a determined creditor with a federal hook drives right over it. Put the asset where a home-court win means nothing. Read next: our guide to the Cook Islands trust and how it holds where a US structure folds.