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Legal blog > Asset protection > Some confuse asset protection trusts with fortresses

Some confuse asset protection trusts with fortresses

Some confuse asset protection trusts with impregnable fortresses and believe they can stash all their belongings there, safe from any harm.

«He who thought he was taking is the one who is taken»
La Fontaine

In recent years, as part of the reorganization of their assets, business people want to obtain not only tax planning, but also protection of their assets against potential lawsuits from their creditors.

Thus, Monsieur, a successful businessman, acquires the shares of a company owned by Madame. The agreement provides for the repayment of the sale price over a period of three years.

In the year following the acquisition of the company, Monsieur sets up two trusts. He is the sole designated beneficiary of the first trust, while the second trust designates his spouse, children, and himself as beneficiaries. Upon the establishment of the trusts, Monsieur transfers some of his assets to them without becoming insolvent.

No payment of the amounts due from the sale of his company's shares having been made, Madame initiates recovery proceedings against the trusts, certain companies, and Monsieur. Before the arbitration award orders Monsieur to pay over $300,000 to Madame, Monsieur sells his residence to the trust of which he is the sole beneficiary at a price equivalent to half of the commercially reasonable price.

The Court of Appeal, first of all, cancels the sale of the residence since Monsieur, by transferring his equity in this way, was rendering himself insolvent. Secondly, the court orders the trustees of both trusts, "even if the beneficiary of a trust has no real right to the trust assets," to mandatory notify Madame "before making any monetary payment" to Monsieur.

Some confuse asset protection trusts with impregnable fortresses and believe they can store all their assets there, sheltered from inclement weather. Why not remind them, like Cervantes, that: "ill-gotten gains are lost, and so is their master."

*CA 200-09-007128-108

François Forget, notary and legal advisor as well as the entire Notaire-Direct team, are at your service to ensure the preparation of your legal documents and answer all your legal questions.
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