What if the court garnish the shares or properties held by trustee on trust?


(Jason Tian) #1

It may sound silly to you to ask such question, but a lawyer from China where trusts are something difficult to understand, that captioned question keeps popping up in mind when I study trust.

Here is the question in details.

I believe in your trust practice, there are private trusts that are not known to others but the trust properties such as corporate shares or real estates shall have to be registered in the name of the trustee. So to the outside world, the trust properties are prima facie the legal assets of the trustee. This false representation can cause problem as to whose interests, those of the beneficiaries of the trust, or the those of the third party relying on the false representation when dealing with the trustee, shall be protected in the first place.

I know in the case of unauthorized transfer of the trust properties by the trustee, the good faith purchase for value without notice rule will apply or otherwise the following and tracing rule will apply.

But in the case of trustee being a judgment debtor for other reasons, the judgment creditor may ask court to garnish the trust assets in the name of the trustee, what can the beneficiaries do in this case? Will the disclosure of the trust remove the garnishing easily?

For example, in China, if you give me money to buy a piece of real estate and hold it for you, you will run the risk that my creditor who doesn’t know the arrangement will be able to garnish the property to meet my debt owed to him. You cannot preserve the property by proving that I hold the property for you. Yes, you can sue me for damages but you cannot keep the property from garnishing.

Please educate me on this. thanks.

Jason Tian
Dentons Shanghai