Answer to Question #302719 in Finance for Andrick Angel

Question

Explain a quistclose trust and how it arises. 5marks

Answer 1

Explain a quistclose trust and how it arises. 

A Quistclose trust is a way for a creditor to hold a security interest in a loan by including a clause in the contract that restricts the borrower's use of the funds. If the funds are utilized for something else, a trust is formed around the money for the moneylender's benefit. This permits the moneylender to track any monies that have been improperly spent and, in the event of the borrower's bankruptcy, protects creditors from claiming the cash.

How it arises. 

A Quistclose trust arises when the transferor makes a transfer to a receiver for a specified reason and no other. The Quistclose trust is significant in that the monies transferred remain the transferor's property until the receiver uses them for the designated purpose.