The asset protection trust, both for individuals and creditors, is a useful vehicle subject to strict rules that should not be mistaken for an all-weather off-road vehicle.
Some individuals and organizations are looking for a legal vehicle to protect their assets from third parties. The trust can, in certain cases, fulfill this desire.
Thus, a company borrows from an institution and grants it a mortgage on all of its present and future furniture. With the agreement of the institution, this company obtains additional financing under an "immigrant investors" program. Under the loan agreement, the company acquires commercial notes and transfers ownership to a trust. In turn, the trustee mortgages the said notes in favor of the immigrant investors. Following the company's default, the institution orders the trustee to hand over the notes. In the face of the latter's refusal, the institution turns to the court.
The Court of Appeal* confirms that the trust is constituted "by a designated asset that is completely autonomous from the respective personal assets of the settlor (company), the trustee, and the beneficiary (immigrant investors)", that there has indeed been a transfer of ownership of the said notes in favor of the trust's asset and that thus the institution's mortgage rights have been extinguished due to a failure to register a notice in the personal property registry within fifteen days of becoming aware of the transfer of commercial notes to the trust.
The asset protection trust, for both individuals and creditors, is a utility vehicle subject to strict rules that should not be likened to an all-terrain vehicle capable of withstanding any weather conditions.
*CA200-09-001311-973
