Three courts. Three states. Sixty days. Same verdict each time: if you skip your formalities, you lose your shield.
Between April and May 2026, a Michigan business court, the Virginia Court of Appeals, and a New York appellate division each issued rulings that should make every trustee in the country stop and check their record-keeping. None of these cases involved exotic legal theories. All three turned on the same basic question: did the people running these entities actually treat them like separate entities, or were they just wearing the label when it was convenient?
The answer, in all three cases, was the same. And the consequences were real.
The Michigan Case: When All Your Entities Become One Liability
In May 2026, the Michigan Business Court affirmed a decision imposing joint and several liability on a group of related entities that had been operating as alter egos of each other. The case is Case No. 17-2023-06401-CBB.
The entities were used to “obstruct collection efforts and perpetrate fraud upon creditors by concealing and redirecting assets.” The court was blunt: “Equity would not elevate form over substance when the corporate form is abused.”
What triggered the alter-ego finding? The court listed the factors clearly:
- Disregard of formalities. No minutes. No separate governance documentation. No evidence that the entities were being run as independent organizations.
- Failure to maintain adequate records. The entities couldn’t produce records showing they had been operated as separate businesses.
- Commingling of funds. Money moved between entities without documentation or business justification.
- Complete domination by a single person. One individual controlled all entities and made all decisions without any process.
Joint and several liability means every entity is on the hook for the full amount. The creditor doesn’t have to chase them one at a time. The trust that owned interests in these entities just watched its asset protection evaporate because nobody kept the books.
Source: Michigan Business Court Opinion (May 19, 2026)
The Virginia Case: Your LLC Is Protected — If You Can Prove You’ve Been Running It
In April 2026, the Virginia Court of Appeals decided Vaughn v. Farhat. A judgment creditor with a $6.35 million judgment tried to foreclose on a charging order against single-member LLC interests. The court said no — Virginia Code § 13.1-1041.1 makes the charging order the exclusive remedy. Foreclosure isn’t allowed.
That sounds like a win for asset protection. But read the footnote.
The court explicitly noted that reverse-piercing remains a potential path for creditors. Translation: we’re protecting your LLC interest through the charging order statute today, but if a creditor can show you’ve been treating the LLC as your personal piggy bank, they can come back and argue reverse piercing.
And here’s the part that should worry every trustee who owns single-member LLCs: single-member LLCs automatically have the “unities” required for alter-ego analysis. Unity of ownership and unity of control are built in. That’s two of the three prongs handed to you on a silver platter. The only thing standing between the creditor and your assets is the third prong — and that third prong is whether you’ve been treating the LLC like a real, separate entity.
Which means the entire defense comes down to your records. Your meeting minutes. Your documentation that you observed the formalities. If you can’t produce that, the court just gave creditors a roadmap.
Source: Forbes analysis of Vaughn v. Farhat (May 25, 2026)
The New York Case: Even When Piercing Fails, There’s Another Path
Parabit Realty, LLC v. Levine came down from the New York Appellate Division, Second Department, on April 29, 2026. The court refused to pierce the corporate veil. That’s the good news.
The bad news: the court still set aside preferential transfers to a corporate insider.
The standard for veil-piercing in New York remains what it’s always been: piercing is available where “legal formalities are not followed and the entity’s separate existence is disregarded to effectuate fraud or wrongdoing.”
But here’s the lesson trustees need to absorb: even when piercing fails, courts find other paths to reach assets. The formalities defense is your strongest move, but it’s not your only concern. If you’ve been transferring money out of a trust or entity without proper documentation, those transfers can be unwound as preferential — regardless of whether the veil gets pierced.
This means two things for trustees:
- Your formalities records protect you from veil-piercing. Keep them. They matter.
- Your transaction records protect you from preferential transfer claims. Every distribution needs documentation showing it was made in the ordinary course, for proper purposes, with proper authority.
Source: NY Fraud Claims analysis of Parabit Realty v. Levine
What These Three Cases Have in Common
Strip away the jurisdictional differences and the procedural details, and you’re left with a pattern that’s impossible to ignore:
- Formalities are your shield. Every court that addressed the issue said the same thing. The entities and individuals who lost their protection were the ones who couldn’t show they’d been following the rules.
- Records are the evidence of formalities. You don’t prove you observed formalities by testifying that you remember doing it. You prove it by producing meeting minutes, transaction records, bank statements, and governance documentation.
- Commingling is the fastest way to lose. Michigan made it a primary factor. Virginia’s single-member LLC structure makes it harder to avoid. New York showed that even separate-entity treatment doesn’t save you from other claims if the money trail is messy.
- One person controlling everything is a red flag. Courts are not impressed by the argument that you were the only one making decisions because you were the only one who needed to. That’s exactly the structure that triggers alter-ego analysis.
The Institutional Side Agrees
It’s not just courts. Greenleaf Trust, a corporate trustee managing billions in assets, published a piece in early 2026 titled “Alter Ego: An Asset Protection Trust’s Achilles’ Heel.” Their warning? Courts may apply alter-ego and reverse-piercing analysis to negate irrevocable trusts when the settlor continues to use trust assets as personal property, when trust formalities are ignored, and when assets are commingled.
When the institutional trustees — the people who do this for a living, with armies of compliance staff — are publicly warning about alter-ego risk, you should pay attention. They’re not publishing that content for fun. They’ve seen the claims. They know what triggers them.
Source: Greenleaf Trust — Alter Ego: An Asset Protection Trust’s Achilles’ Heel
What You Should Do Right Now
If you’re a trustee — whether you’re a professional, a family member who got handed the role, or a successor trustee stepping into an existing trust — these three cases tell you exactly what the courts will look for when someone comes after the assets you’re managing:
Audit your record-keeping. Can you produce meeting minutes for every significant trust decision? Can you show that distributions were documented and authorized? Can you demonstrate that trust assets were kept separate from personal assets? If the answer to any of these is no, you have a gap that three courts in three states just told you is dangerous.
Separate everything. Trust bank accounts, trust records, trust decisions — all documented and all separate. The moment you mix personal and trust finances, you’ve handed a creditor the argument they need.
Document decisions before they age. Memory is not a record. If you made a distribution decision six months ago and didn’t write it down at the time, documenting it now looks like reconstruction, not record-keeping. Courts notice the difference.
Get a system. This isn’t about working harder. It’s about having a structure that makes compliance automatic instead of something you have to remember to do. Every attorney writing about trustee liability in 2026 is telling trustees to use electronic record-keeping systems. Aaron Hall, a trust and estate attorney, put it directly: “Electronic systems automate manual processes, reduce administrative burden, and allow trustees to locate and retrieve specific documents quickly during audits.”
The legal community is building the case for you. Three courts just proved why it matters.
Stop hoping your records are good enough. Start knowing they are.
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