Acknowledgement of Debt

The transfer of your home (and/or other property) to the Trust essentially involves you personally providing the Trust with funds to purchase that property. This is not the provision of actual cash funds, but rather is done by way of you entering into an Acknowledgement of Debt with the Trustees of the Trust.

With the Acknowledgement of Debt the Trustees acknowledge that they owe a debt to you personally. These debts are either owed on demand so that you can personally demand repayment by the Trust at such time as you wish to do so, or they can be entrenched with a set date for repayment.

While such debts are outstanding they do form part of your personal asset base and are therefore not protected for asset protection purposes. In order to provide you with some protection any Acknowledgment of Debt which is for an on-demand loan should include a clause that converts it to an entrenched debt if you are adjudicated bankrupt or have judgment entered against you. This means that if such an event occurs the debts owed to you by the Trust are no longer on demand and you must wait for a period of time to be able to call on them for repayment. This adds protection to the structure because it means that a personal creditor should not be able to force you to demand repayment of the debts owed to you from the Trust because it is not within your power to do so.

Your Acknowledgment of Debt should also include what is known as a Marshall Clause. A Marshall Clause works in such a way that it gives you the ability to demand interest on the money you have advanced to the Trust at an agreed rate. In order to receive this interest you must demand, in writing, payment of that interest by a set date each year, otherwise the ability to request interest lapses for that year. The Marshall Clause is a necessity to provide a mechanism to reduce the impact of the tax accrual rules on your Gifting Programme.