Trust (law)

In the legal sense, a trust is a legal relationship created by a person living or in the event of death if assets have been segregated for the benefit of a beneficiary or for a specific purpose and have been placed under the bound administration of a trustee.

The trust law regulates the rights and obligations of the persons acting in the trust. The definition of what constitutes a trust is naturally difficult, “ Like an elephant, a trust is difficult to describe but easy to recognize. "(German:" Like an elephant , a trust is difficult to describe, but easy to recognize. ")

The Trust is as of courts of equity rights ( equity ) in the countries of the common law has been developed and adopted with some changes in other countries, a unique legal institution .

history

The trust law and the trust itself emerged in England during the 12th and 13th centuries at the time of the Crusades . The origin is said to be in the feudal period .

The feudal landowner who took part in a crusade needed a suitable and reliable administrator of the property during his absence, who also had sufficient power of representation and disposal. This was regulated within the framework of a legal relationship in which the feudal landowner transferred his property to a trustee with the binding condition that this property be transferred back to the former owner on his return. The previous owner of the goods who participated in the crusade thus became the beneficiary of the agreement. A good friend of the feudal lord was the preferred trustee.

At that time, however, English law (Common Law) had no legally enforceable right ( writs ) for the return of property based on such a legal relationship . If the trustee therefore refused to transfer the property back, the previous owner (beneficiary) could not sue for this. With a petition to the Lord Chancellor ( Court of Chancery ), the former owner was able to ensure that a decision was made in accordance with the law and equity . This was the origin of the equity case law in English law.

The original purpose of the trust has broken away from the principles of family law over the centuries and the trust can now be found in many forms.

Peculiarities of the trust

The trust's assets are separate assets and are not part of the trustee's personal assets;
The rights with respect to the assets of the trust are in the name of the trustee or that of another person on behalf of the trustee.

The trust is a legally independent asset without acquiring legal personality (see also the independent trust company in Liechtenstein ).

The trustee can sue or be sued in his capacity as trustee. The qualification of the trust as a separate fund from the trustee also results in:

that the trustee's personal creditors cannot access the trust's assets;
that the assets of the trust are not part of the assets of the trustee in the event of the insolvency or bankruptcy of the trustee;
that the assets of the trust are neither part of the marital property nor the estate of the trustee ;
that the assets of the trust can be reclaimed if the trustee, in violation of the obligations arising from the trust, has mixed assets of the trust with his personal assets or has improperly sold assets of the trust. However, the rights and obligations of a third party who has the property of the trust remain subject to the law determined by the conflict of laws rules of the state of the court seised.

Similar legal figures in other legal systems

Similar to the trust, such exclusive legal relationships have also been found in other legal systems. So z. B .:

in Germanic law : the Salfränkische Affatomie , the southern German feudal supporters as well as the Salmannschaft and
in Roman law
- in private law : the Familienfideikommiss and the Fiduzia ,
- in public and canon law : the utilitas publica (also utilitas populi ) as well as utilitas ecclesiae and
in Islamic law : the Waqf and
the advantages and: in inheritance law remaindermen for the estate, the non-exempt provisional heir (ff §§ 2100 of the Civil Code, Civil Code, 488 et seq.) has gained.

purpose

The purpose of the trust can be general or involve the benefit of specific persons.

Acting persons in the trust

Designation (english)	Correspondence (German)	properties
Settlor	founder	makes assets available for the trust.
Trustee	Trustee / trust owner / trust manager	Owner and (bound) administrator of the trust assets.
Beneficiary	beneficiary	Receives the benefits from the trust in accordance with the trust deed.
Protector	Protector, supervisory body	Monitors compliance with the trustee's obligations.

Task of those involved in the trust

Settlor

The settlor (also English trustor , grantor , donor or creator , in other national jurisdictions also founder ) is the person who enables a trust by making assets available.

The settlor can an irrevocable ( irrevocable justified) Trust or a revocable ( revocable justified) Trust. In the case of a revocable trust, the settlor still has access to the trust assets.

Depending on the legal system according to which the trust is established and the regulation in the trust deed, the settlor may or may not continue to have a right to management after the trust has been established. According to the Anglo-Saxon concept of a trust, the settlor generally has no administrative or control rights after it is founded.

Trustee

The trustee has the authority and the obligation to administer, use or dispose of the trust assets in accordance with the trust provisions and the special obligations imposed on him by law. With the acceptance of the obligation from the trust deed, the trustee becomes the owner ( legal ownership or title ) of the trust assets.

The trustee's obligation to manage the trust assets in accordance with the trust provisions is its primary obligation. The actions of the trustee are to be aligned and measured against this obligation. The trustee must therefore give a comprehensive account of his activities. If the trust assets go under or if the trustee loses them, the beneficiary may, under certain circumstances, demand the return of the corresponding assets to the trust. In some jurisdictions, the trustee can also be a legal entity (see e.g. Private Trust Company ).

The fact that the founder reserves certain rights and powers or that the trustee himself has rights as a beneficiary does not necessarily preclude the existence of a trust.

After the establishment of the trust, the trustee is primarily obliged to the beneficiaries and, in principle, does not have to protect those of the settlor.

With the loss of all trustees, the trust does not go under, unless the settlor has expressly determined in the trust deed that only a very specific trustee can be appointed.

Beneficiaries (beneficiaries)

The beneficiary is the person benefiting from the trust. The preferential treatment can take place when the property is transferred or only when the settlor dies.

The settlor can appoint himself or any other natural or legal person as beneficiary.

The beneficiary's claim ( beneficiary title ) is based both on the benefits to which he is entitled from the trust assets and on the dutiful management of the trust by the trustee (s ). In principle, all beneficiaries have the right to information about the situation in the trust vis-à-vis the trustee. An exclusion of information or accounting obligations is generally not permitted. However, there may be a time limit if the beneficiaries have not yet been individualized ( black hole trust ).

With the claim from the trust deed or recognition of the claim by the trustee, the beneficiary becomes the material owner of the corresponding trust assets.

Protector

The protector is appointed by the settlor to monitor compliance with the trustee's obligations in accordance with the trust deed. The protector's powers must be detailed in the trust deed.

Trust deed

The trust deed is signed by the settlor. The transfer of assets is recorded in it, as well as the basic provisions regarding the management and maintenance of the value of the trust assets for the benefit of the beneficiaries employed.

The trust documents, which are to be disclosed to the beneficiaries on request, generally include all documents that are required to enable the beneficiaries to control the trustee.

The "Letter of Wishes" are to be distinguished from the trust deed.

Letter of Wishes

The settlor can write down his intentions regarding the establishment of the trust, the exercise of the trustee's mandate, the behavior of the beneficiaries, etc. in his own deed. This letter of wishes are not legally binding but serve the Trustee to the Trust Deed in line with the wishes of the settlor interpreted .

Like the trust deeds, letters of wishes must also be disclosed to the beneficiaries, provided they are legally relevant. However, it is sometimes considered permissible if the settlor expressly excludes this disclosure.

Rule against perpetuities

The rule against perpetuities is intended to prevent long-term accumulations of assets in trusts, which means that these assets are largely withdrawn from the economic cycle or in the longer term (similar to the Fideikommissen ). The rule against perpetuities thus limits the possibility of establishing a trust for a longer period of time. According to this, the trust's assets must be divided among the beneficiaries (certain non-profit trusts are excluded from the rule against perpetuities).

However, the rule against perpetuities does not apply in Liechtenstein law. From this it is partly deduced in the teaching that a trust established under Liechtenstein law cannot (may) not be legally established in the Anglo-Saxon area, since an essential prerequisite for the effectiveness of the trust in the Anglo-Saxon area is ignored.

Law Applicable to the Trust

National law

In principle, the trust is subject to the (national) law chosen by the founder. In order for the choice of law to be effective, it must be express or result from the provisions of the deed of establishment. If necessary, an unclear choice of law is to be interpreted according to the circumstances of the case.

The applicable national law regulates the validity of the trust, the effective transfer of the trust's assets to the trust, the interpretation of the trust deed, the effects and administration of the trust. In particular:

the appointment, resignation and removal of trustees, the ability to act as a trustee, and the delegation of the duties of a trustee;
the rights and duties of trustees among one another;
the right of trustees to delegate the performance of their duties or the exercise of their powers in whole or in part;
the power of trustees to manage the assets of the trust, to establish security interests in them or to acquire new assets;
the powers of trustees to make investments;
Restrictions on the duration of the trust and on the power to reserve funds from the trust's income;
the relationships between the Trustees and the beneficiaries, including the personal liability of the Trustees to the beneficiaries;
the change or termination of the trust;
the distribution of the trust's assets;
the obligation of trustees to account for their administration.

If the applicable (national) law cannot be determined by interpretation either, the trust is subject to the law of the national state with which it has the closest connections. When researching the law with which the trust has the closest ties, one can consider:

the place of administration of the trust, as it was designated by the founder;
the location of the property of the trust;
the place of habitual residence or domicile of the trustee;
the purposes of the trust and the places in which they are to be fulfilled.

A state or its courts and authorities can basically make the trust or provisions of a trust out of consideration when the application of these provisions, the public order ( ordre public conflicts). How a trust is treated for tax purposes always depends on the respective national regulations.

European law

According to the case law of the Court of Justice of the European Union (ECJ) in the P-Panyi case, trusts can fall under the freedom of establishment of the TFEU if they actually pursue an economic gain. Trusts then fall under the term “other legal persons” under public or private law within the meaning of Article 54 (2) TFEU. This is when the trust is a unit which, under national law, has rights and obligations that allow it to act as such in legal transactions regardless of the lack of a special legal form, and to pursue the profit-making purpose and the activities of the trustees in relation to the ownership and management of the trust's property is inextricably linked to the trust itself and consequently forms an indivisible whole with the trust. In these circumstances, such a trust can be regarded as a unit which, under national law, has rights and obligations that allow it to act as such in legal dealings when an economic activity is actually carried out.

The EFTA Court of Justice also came to the conclusion in the so-called ptarmigan case (also the Olsen decision) that trusts can in principle invoke the freedom of establishment under the EEA Agreement .

Requirements for the legally valid establishment of the Express Trust

For the legally valid establishment of the Express Trust, three requirements must be met:

The will (intention) of the trust founder must be clearly expressed (certainty of intention),
Precise definition of which objects should belong to the trust assets (certainty of subject matter),
Exact definition of the beneficiaries or comprehensible restriction to a certain group of people (Certainty of Beneficiaries).

Forms of the trust (examples)

In the Anglo-Saxon area there are a large number of forms of trust, which have been further supplemented by the adoption in other legal systems. In addition, different names are sometimes used for very similar trusts without differentiating further. The manifestations of the trust also overlap in many ways. Austin W. Scott stated: " the number of purposes for which trusts can be created is as unlimited as the imagination of the lawyers ".

Asset protection trust (the asset protection trust should protect the assets from creditors and preserve the beneficiaries previously employed).

Blind trust (With a blind trust , the beneficiaries are not known at the beginning, new ones can be added later).

Complex trust The trustee can distribute the existing or newly added assets in the complex trust or collect them in the trust beyond a tax year. The complex trust can also exist for charitable purposes. The tax deduction for charitable gifts is usually permitted (see Simple trust ).

Constructive trust (arises when a person has a claim to property or takes possession of it under certain circumstances and it becomes apparent to the outside that this person is holding the property for others. The constructive trust is usually created without a trust deed or last will, but in fact The fact that the assets are held for other people result in the trustee's special obligations).

Discretionary trusts (The group of beneficiaries is only circumscribed in the trust deed and not precisely defined. The trustee may have considerable influence to narrow down or expand the group of beneficiaries more precisely).

Dynasty trust or generation-skipping trust (family trust , arises as a normal express trust, but the beneficiaries are not the children of the settlor, but the grandchildren).

Express trust (The express trust arises from the transfer of assets by the settlor and the takeover of the assets by the trustee. The most important sub-forms of the express trust: Testamentary Trust, Inter Vivos Trust, Unit Trust and Purpose Trust. In contrast to the Express Trust , the Resulting Trust or the Constructive Trust ).

Fixed trust (the group of beneficiaries is precisely defined; the trustee cannot or only slightly expand or limit this defined group of beneficiaries; also known as a fixed interest trust ).

Freezer trust (only surpluses are distributed from the trust to the beneficiaries).

Grantor trust The Grantor trust mainly serves the interests of one or more beneficiaries, partly the Grantor / Settlor himself. Often the Grantor / Settlor has a partial or complete right of revocation and / or change at any time for the legal basis of the Trust, in particular with regard to the beneficiary from the Trust. In terms of tax law, the grantor trust is generally not a legal entity (not subject to tax itself). The term grantor trust is used ambiguously (see also below Revocable trust ).

Hybrid trust (The hybrid trust combines elements of the fixed trust and the discretionary trust ).

Inventive trust

Inter vivos trust or living trust (trust established during the settlor's lifetime).

Irrevocable trust (with a few exceptions to revocation, the trust is irrevocably established).

Investments trust (investors buy shares in an asset and receive transferable share certificates and thus a claim to benefits from the trust assets. In contrast to the normal trust, the trust assets are provided by a large number of investors.).

Offshore trust (The offshore trust in the narrow sense of the word is any trust that is established under a different legal system than that to which the settlor is subject. In the broader sense of the word, an offshore trust is one that is set up in an offshore financial center ) .

Private trust (beneficiaries of the trust are precisely individualized persons or a group of persons. In contrast: public trust ).

Protective trust (The protective trust is intended to prevent the beneficiary's or the beneficiary's creditors from accessing the benefits or claims of the trust to which they are entitled).

Public trust or charitable trust (beneficiaries of the trust are an indefinite group of people. The trust has a public / charitable purpose. Only when selected by the trustee is an actionable claim of the beneficiary against the trust established. Opposite: private trust ).

Resulting trust (The Resulting Trust arises when the transfer of assets to the trustee has been legally effective, but the trust itself cannot be established or the trust purpose can no longer be achieved).

Revocable trust (Trust that can be revoked at any time by the settlor / grantor - therefore also referred to as a grantor trust for simplicity ).

Simple trust or bare trust (USA only: the only task of the trustee is to convey the claims of the beneficiaries from the trust within a tax year. The trustee therefore only manages the trust passively. Contrast: special trusts . The simple trust cannot only be used for The fulfillment of charitable purposes exists (see Complex trust above ) and is generally not allowed to make any tax deduction in this regard).

Special trust (USA only: the trustee's task is to actively manage the trust. Contrast: simple trust ).

Donation thrift trust (the donation thrift trust replaces the performance from the trust to the beneficiary if a beneficiary is unable to manage his or her assets (e.g. in the case of a spendthrift)).

Standby trust or pourover trust (the trust has no function during the lifetime of the settlor and the assets are only transferred to the trust when the settlor dies).

Statutory trust (The Statutory Trust is created by law. Example: Standby trust or Pourover trust ).

Testamentary trust or Will trust (trust that arises on the death of the settlor based on the arrangement in his will or on the basis of his last will).

Unit trust (collective investment, the settlors are also beneficiaries).

Voting trusts (joint exercise of shareholders' voting rights by a trustee in their favor. Voting rights are transferred to the trustee).

Taxation of trusts

How the establishment of the trust, the current income and expenses of the trust and the payments to the beneficiaries are treated for tax purposes is not internationally standardized. Rather, it depends on the type of trust and the tax situation of the settlor and beneficiaries.

Taxation in Switzerland

The trust itself is not subject to taxation (taxable person). The tax consequences are borne by the settlor and the beneficiaries. Since trusts can be designed very differently, the following overview only provides an initial overview of the tax consequences.

Type of trust	Establishment	Distributions	liquidation
Revocable Trust	no impact	Donation to beneficiaries, gift tax depending on the settlor <> beneficiaries ratio	like distribution
Irrevocable Fixed Trust	Gift tax (depending on the settlor <> beneficiaries ratio)	Income and wealth taxation at the beneficiary; Share of capital gains tax-free	Only income taxation at the beneficiary as far as untaxed investment income
Irrevocable Discretionary Trust	Donation of trust assets to beneficiaries, gift tax depending on the settlor <> beneficiaries ratio	Income tax at the beneficiary, disbursement of trust assets tax-free	Income tax at the beneficiary, repayment of trust assets tax-free

Differentiation from similar legal relationships

The trust is not a legal transaction between the settlor and the trustee or with the beneficiaries (benficiaries). Delimitation:

to the contract

there is no contractual relationship for the transfer of assets between the settlor and the trustee,
The trust can also be established by the settlor solely through the segregation of assets through the trust deed, since no contractual relationship with the trustee is necessary to establish the trust. Therefore, the transfer of assets is not a gift.

for donation

The beneficiaries derive their rights and entitlement directly from the trust assets in accordance with the instructions in the trust deed.
The trustee is formally owner but not enriched by the trust assets allocated. The grant forms a special fund, the distributions of which are materially due to the beneficiaries.
No trustee has to accept the assets to establish the trust.

to order

A contractor is not the owner of the property as the trustee is.

to the deposit

The deposit is not agreed in favor of third parties,
The pledgee remains the owner of the pledge, the custodian or pledgee only has possession .

for usufruct / fruit consumption / usufruct

The owner has no independent right to manage the property.

to society

The trust has no legal personality ( legal person ),
The shareholders have rights against each other. The beneficiaries of the trust have no legal relationship with one another from the claim in the trust itself.

to the foundation

The trust has no legal personality,
the foundation is directed towards one purpose (fulfillment of the foundation purpose), the trust towards the benefit of certain persons,
Some beneficiaries have no actionable claim,
The foundation does not necessarily have to have individualizable beneficiaries.

to an institution under private law
(Liechtenstein)
- An establishment under private law has legal personality, can be members, partners or shareholders and can have capital divided into shares.
- The founder has a much weaker function at the establishment under private law than the trustee in the trust (at the establishment, for example, continuous instructions from the founder to the management are possible, as well as arbitrary dissolution).

Criticism of trusts

The legal institution of the trust is partly assumed

to be a means of obscuring actual ownership,
to be used as a tool for tax evasion ,
that this promotes money laundering , and also
Violation of compulsory portion rights are facilitated,
Etc.

Web links

Hague Trust Convention (German; PDF; 282 kB).
Hague Trust Convention (original in English; PDF; 50 kB).
Swiss Tax Conference, Circular No. 30 of August 22, 2007 (German; PDF; 179 kB).
Federal Tax Administration (FTA), circular no.20 of March 27, 2008 (German; PDF; 373 kB).

literature

Hein Kötz : Trust and Treuhand. A comparative legal representation of the Anglo-American trust and functionally related institutes of German law. 1st edition. Vandenhoeck & Ruprecht , Göttingen 1963.
Schiemann, Christoph: The US American trust presented as a will substitute business and instrument of estate planning with special consideration of the law of the state of Florida . 1st edition. Grin Verlag, Munich 2003, ISBN 3-640-18378-9 .
Raimund Behnes: The Trust in Chinese Law. A presentation of the Chinese trust law from 2001 against the background of English trust law and the law of fiduciary trust in Germany. 1st edition. de Gruyter , Berlin, New York 2009, ISBN 978-3-89949-636-9 .
Mike Wienbracke: Trusts in Germany. Civil Law - Tax Law . 1st edition. Springer Gabler , Wiesbaden 2012, ISBN 978-3-8349-3401-7 .

Individual evidence

↑ Inter vivos . The trust can in principle be established orally or in writing. Many national legal systems stipulate that if the object of the property is real estate or land , the trust must be set up in writing. For example in Liechtenstein according to Art 899 PGR .

↑ De mortis causa . The establishment of a trust by means of a last will (for example by a will) must generally be carried out in accordance with the national provisions on the validity of wills.

↑ Under certain circumstances, a trust can also be set up by a court decision, provided this is provided for in the law of a national state. See also Article 20 (1) of the Convention on the Law Applicable to Trusts and their Recognition . Completed in The Hague on July 1, 1985. Hereafter referred to as the Hague Trust Convention for short .

↑ See Art. 2 Para. 1 Hague Trust Convention.

↑ Hayton in Hayton / Kortmann / Verhagen, Principles of European Trust Law, in: Law of Business and Finance, Volume 1, The Hague 1999, p. XIII.

↑ See preamble to the Hague Trust Convention.

↑ Correct: "position similar to owner" or "right similar to owner": estate in fee simple. See also: Landlord and tenant law (England and Wales)

↑ Hayton / Kortmann / Verhagen, Principles of European Trust Law, in: Law of Business and Finance, Volume 1, The Hague 1999, p. 13.

↑ The trust itself can not be sued for lack of legal personality .

↑ See also Art 11 Hague Trust Convention.

↑ The separation of trust assets and trustee assets with regard to enforcement is an essential element for national recognition and the function of the trust.

↑ In the USA .

↑ This is also divided into so-called Irrevocable Discretionary Trusts (the group of beneficiaries is only described in the trust deed) and Irrevocable Fixed Interest Trusts (beneficiaries are precisely individualized in the trust deed ).

↑ Revocable trusts become irrevocable trusts with the death of the settlor, provided that the right of revocation does not belong to another person or is transferred to them with the death of the settlor.

↑ In many national legal systems, the binding transfer of property rights is decisive for the transfer of the tax burden associated with this property. The transfer of ownership must take place properly on the basis of the property law provisions of the relevant legal system.

↑ See, however, right of tracking .

^ Art. 2, last paragraph, Hague Trust Convention.

↑ See for many: Underbill and Hayton in Law Relating to Trust and Trustees ¹⁶ , 2003, p. 677; and, Oakley in Trends in Contemporary Trust Law , Oxford 1996, p. 52.

↑ Under Bill and Hayton in: How Law Relating to Trust and Trustees ¹⁶ f, 2003, p 681st

↑ See also §§ 2044, 2109 BGB.

↑ For England see for example: Law of Property Act (1925).

↑ Klaus Biedermann, Die Treuhänderschaft des Liechtensteinischen Rechts, presented using its model, the Common Law Trust: taking into account the law relating to the trust company , Verlag Stämpfli & Cie, 1981, pp. 143, 159 ff

↑ See also Art 6 Hague Trust Convention.

↑ List according to Art 8 Hague Trust Convention.

↑ A part of the trust, in particular its administration, may under certain circumstances be subject to a different law than the trust itself. See also Art. 9 and 10 of the Hague Trust Convention.

↑ See also Art 7 Hague Trust Convention.

↑ See also Art 18 Hague Trust Convention.

↑ See also Art 19 Hague Trust Convention.

↑ C-646/15 of September 14, 2017.

↑ Trusts are profitable if they have no charitable or social purpose and were set up so that the profits from the assets of these trusts benefit the beneficiaries.

↑ Joined Case E-3/13 and E-20/13.

↑ The scope of the trust is only limited by the creativity of the lawyers . Original English quote from: Rainer Becker: The fiducie of Québec and the trust: a comparison with different models of fiduciary legal figures in civil law , Mohr Siebeck, Tübingen 2007, ISBN 978-3-16-149138-2 , p. 46.

↑ Also known as Protective Trust in the USA .

↑ The constructive trust is therefore often referred to as a legal fiction or a fictitious trust and serves as a catch-all act . In some cases similar to the way civil law society is used for relationships similar to company law .

↑ You can find out more in: Swiss Tax Conference, Circular No. 30 of August 22, 2007 and Federal Tax Administration (FTA), Circular No. 20 of March 27, 2008

↑ If the settlor is tax resident in Switzerland, they are treated like 'revocable trusts', cf. Swiss Tax Conference, Circular No. 30, Section 5.1.1.2

↑ See, for example, from different perspectives: NZZ, " Covering your tracks with offshore trusts ", online edition of March 8, 2009, Schweizerischer Tagesanzeiger, " Trusts as compensation for cracked banking secrecy? “Online edition of March 12, 2009.

[1] Inter vivos . The trust can in principle be established orally or in writing. Many national legal systems stipulate that if the object of the property is real estate or land , the trust must be set up in writing. For example in Liechtenstein according to Art 899 PGR .

[2] De mortis causa . The establishment of a trust by means of a last will (for example by a will) must generally be carried out in accordance with the national provisions on the validity of wills.