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Newsletter | Articles ASSET PROTECTIVE QUALITIES OF TRUSTS Most jurisdictions that have English common law as the source of their own Trust law will have the Statute of Elizabeth, 1571 or very similar incorporated into that law. In essence, the statute has the intention of voiding any trust that has been established with the intent of defrauding a future creditor. The application of Elizabeth has of course resulted in an enormous raft of case law but depending on the exact statutes and interpretations made in each jurisdiction, the asset protective qualities of the trust can be variable. As is well known, a number of jurisdictions have attempted to bolster the asset protective qualities of their trust law by enacting specific asset protection trust statutes. Much of this legislation remains untested by the courts and where case law does exist, the results have been variable. In the Cook Islands we have seen the courts take a robust attitude towards the upholding of the statutes, but in at least one case this having resulted in the jailing of the settlors of the trust, it is unclear in whose best interests the courts were intending to work! In other jurisdictions, recent cases have shown that there is great difficulty balancing, on the one hand, the demands of ancient Equity law, which is of course the basis of all trust law and, on the other, the demands of recently enacted statute law that appear to have been designed specifically to prevent the application of equity. The Isle of Man has developed a unique position in this field. The body of opinion in the Isle of Man has been that the Statute of Elizabeth does NOT apply as the Island was not at the time of enactment, nor since, a part of the United Kingdom. Recent case law has confirmed this view (Re: Heginbotham 1999) and in conjunction with previous case law, established the supremacy and interpretation of the Isle of Man's own Fraudulent Transfers Act 1736. This act has a much more defined application and can be easily summarised in two key areas. Intent Judgements have now concluded that the title of the Act itself must impute intent by a debtor to assign or transfer his goods fraudulently, in the context of a Debtor/Creditor relationship. Present/future Creditors The Courts of the Isle of Man have now held that the act can only apply to existing debts, i.e. those subsisting "at the time of the deed of transaction". In order for a transfer to be fraudulent, the debt must be known and ascertainable at the time of the transfer and will NOT be fraudulent if it is a mere possible or contingent liability. Put simply and as described by leading counsel on the Isle of Man, if the debt is on this side of the horizon and known and ascertainable, then the transfer is fraudulent. If it is on the other side of the horizon, then it is not. Given that the Isle of Man has one of the longest established and most robust judiciaries and parliamentary systems in the World, we believe that the Island has unique strengths as a base for trust planning. The client is relying upon ancient and well-established trust law for his and his family's protection and not recently introduced statute of occasionally dubious intent and effect. Please contact David Ashton for further details.