In-substance defeasance means that a debtor irrevocably places cash or other monetary assets in a trust fund to pay interest on an outstanding debt.In such situations, the debt is always recorded as paid when the trust fund is set up (i.e.removed from the books).

Question

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In-substance defeasance does involve placing assets in a trust to pay off debt, but the debt is not considered paid or removed from the books immediately when the trust is set up. Instead, both the assets placed in trust and the debt remain on the balance sheet until the debt is actually paid off.

In-Substance Defeasance Means That a Debtor Irrevocably Places Cash or Other