Which of the following is not one of the conditions that must be met to qualify as extinguishment of debt by in-substance defeasance?
A)Trust must own monetary assets that are essentially risk free.
B)There is a reasonable possibility that the debtor will be called on to make additional payments on the debt.
C)Cash inflows into the trust must approximately coincide with required cash outflows.
D)The qualifying assets must not be used for trustee fees.

Question

Quizplus · Accepted Answer

In-substance defeasance occurs when debt is considered extinguished even though the legal release has not been obtained. For this to happen, the debtor places assets in a trust to pay all principal and interest on the debt, ensuring the debtor has no further obligations. The condition that there is a reasonable possibility the debtor will be called on to make additional payments contradicts the concept of in-substance defeasance, as the goal is to remove any further payment obligations from the debtor.

Which of the Following Is Not One of the Conditions