Journal of International Trust and Cor****ate Planning
[2007] JTCP 1
1 March 2007
The Future of the Trust Part II
Donovan WM Waters1
QC, FRSC
Horne Coupar, Barristers and Solicitors 300-612 View Street Victoria,
BC Canada V8W 1J5
Business and commercial trusts
There can be no doubt, so far as the size of trust funds is concerned,
that internationally the future will continue to lie with the trusts
that are found in the business and commercial world. The growth of
trust usage for investment, and in particular securitisation, for the
provision of security for lenders, and as a holding vehicle for such
items as insurance funds and settlement funds following class actions,
has been phenomenal during the last 30 years. Press attention was
recently given in Canada for the holding of cor****ate assets in trust
in the course of a surge of merger and takeover transactions.
Except for the totally unique development in Italy, the trust has made
relatively little impact within European jurisdictions. The
explanation for this is that on the continental mainland since the
early nineteenth century its recognition has been consistently
associated with family wealth management, and that association reaches
into succession law and family law which in all legal systems are most
closely reflective of local custom and cultural values. The trust in
England at that time had for centuries been employed by English landed
families and then by urban middle income people, as the vehicle for
what we would now call estate planning. Indeed, until the mid-
twentieth century few common law lawyers would have thought of the
trust other than in connection with testamentary and inter vivos
personal or family trusts. Many entertain that impression still. So
why should the European civilian do otherwise? The civilian usually
meets England's trust in the conflict of laws connection, and there it
is the foreign trust that is seeking recognition. It does so, again,
as a modus of property management and distribution for the individual
and the family.
The trust has principally been of interest for legal practitioners in
Switzerland and Luxembourg. Both countries for many years have been
more heavily involved than the rest of mainland Europe in
international estate planning practice, and Switzerland traditionally,
like Monaco, has as residents expatriates from England and the USA
whose wills, settlements and dispositive wishes reflect common law
doctrines and practice, with which they are familiar. However,
Switzerland has now legislated the ratification of the Hague
Convention on the Law applicable to Trusts and their Recognition of
1986 (the Trusts Convention),2 and the effect this may ultimately have
upon the Swiss Civil Code is considerable. Among the ratifying
jurisdictions to date, Italy stands apart as having developed since
the 1990s a vibrant 'internal trust' that has become in effect a quasi-
domestic concept. It has been employed both for the protection and
distribution of family wealth, and for smaller-scale commercial
purposes associated with individuals and families.3
The appearance of trusts in the USA for financial and commercial
purposes started in the 1930s, and today in the USA their use for
these purposes is probably more extensive and varied than in any other
jurisdiction in the world.4
In most Central and South American states the fideicomiso has meant
from the beginning, in some instances before 1939, a banking, loan or
insurance cor****ation acting as a trustee of investment and security
provision trusts, mostly for individuals or small cor****ations. Today,
commercial and cor****ate-employed trusts, for foreign national and
multinational cor****ations, are familiar in all international
(offshore) jurisdictions that have a developed financial
infrastructure. Nevertheless, it is among the Asian jurisdictions that
economic growth has been spectacular, and the trust has been employed
to aid that growth. When it employs its trust of 2001 as an investment
tool, mainland China is merely following the precedent set first by
Japan after 1946, then South Korea, followed by Taiwan. The aim of the
Asian jurisdictions in using the trust is the encouragement and
facilitation of foreign investment, but they also are seeking a
widespread domestic involvement in the raising of capital for public
and commercial development. The Asian jurisdictions, each with its
civil law tradition, have largely ignored the conceptual problems
involved with the trust's use in family property law and succession
law. In practice the trust has made no impact with regard to family
wealth management and distribution. There the Civil Code or other
private law prevails. The enthusiasm encouraged by the trust has been
for a flexible, tax efficient and less costly way in which investment,
and also provision of property security for commercial loans, can be
had without the insertion of a legal persona between the beneficiary
of management and the investment manager.
=46rom the trust's 1922 inception the Japanese focus has been on the
trust's investment potential.5 An individual may pool his assets in a
personal investment ****tfolio, or he may put his resources into an
existing trust set up by promoters as a vehicle for pooled investment
for members of the public at large. But more im****tant financially are
cor****ate organisations of all sizes, public and private, which have
assets for investment in the national economy.6 The cor****ation will
be advised as to return available; the professional fund manager is
the adviser as to risk. The trust confers significant advantages for
commercial trading and cor****ate transactions. It means protection
from the insolvency of the trustee, cor****ate or individual (and in
the property model from the creditors of the stranger wrongfully in
possession of trust assets), and the highest required standards of
management conduct because of the conflict of interest and duty rule.
It also provides many options in structuring the modus of management,7
and there are options in constructing trustee and beneficiary
liability, the one to the other and to third parties dealing with the
trustee. Mandatory rules are few. The trust means ease and flexibility
in creating, varying and prematurely terminating beneficial interests.
Finally, for the purposes of taxation it offers, where an interposed
legal person cannot, a conduit function.8
Defining a trust internationally so as to embrace any trust model, it
has been the writer's suggestion,9 that a trust means a segregated
fund under administration by A, other than as agent or recipient of a
mandate, for the benefit of B or the furtherance of a purpose. Trusts
in finance and commerce easily qualify as falling within that
description. Though in terms of the constituent elements of the trust
fund they can be sophisticated, structurally they nearly always
constitute the simplest mode of trust formation. An individual or a
cor****ation, A, puts power over his or its assets into the hands of T
which with a segregated fund is enabled by the particular fiduciary
instrument, and statute or code, to act vis-=E0-vis third parties as if
it owned the assets. However, T's task with A's assets is to act (in
the Asian setting, invest) for the benefit of A.
Japan's 60 years of experience is the world upon which the People's
Republic of China (PRC) is now entering. The mainland Chinese are at
the beginning still in their perception of what can be done with the
trust. But the direction of their thinking is very evident. The loose
cover of Professor Ho's Trust Law in China, published in 2003,10 has
this to say:
'The purpose of the new Trust Law is to provide a legal instrument for
the professional management of assets. The implications for China's
fast-expanding financial sector are bound to be far reaching. The new
Law has already been applied in sophisticated financial transactions
such as asset securitisation and the capital trust.'
This book 'explores the extent and ways in which the new Trust Law
will achieve the intended purpose of facilitating the expansion of
China's financial sector'. Trust Law in China substantiates these
claims.
A trust may be drawn for the benefit of the settlor, of successive
beneficiaries, or of a class of persons.11 An elderly person as trust
creator may require a trust cor****ation to invest and manage his
assets for the transferor, or a cor****ation may move debt off its
books by way of a trust in favour of itself. Successive persons are
likely to be different generations of a family, intended to enjoy the
trust fund over successive lifetimes,12 and a class of persons may be
family members, including the as yet unborn. But successive
beneficiaries and cl***** of family members, including in each case
the unborn, are associated with family wealth management. What is more
relevant in the commercial context is that the class will be made up
of adult ascertained persons -- and they are likely to be many --
whose only knowledge of each other is that they have all invested in a
particular trust object with the hope of deriving benefit from the
professional management of a pooled fund that is being applied towards
the attainment of a described trust investment object. The persons
within this latter meaning of a class are in a constant process of
change; it is a revolving class, where X as beneficiary is able to
sell his interest (or rights) and Y is able to buy.
The trust settled by the individual with his own assets for his own
benefit is of course frequently drafted in common law jurisdictions,
but the trust may be of pooled assets for the class of person whose
members have contributed to the pool. Pension trusts, so familiar in
the West, can certainly be expected in China during the coming
decades. The retention of skilled workers by manufacturing and
industrial cor****ations in an expanding economy makes this inevitable.
Sickness trusts for employees, providing access to medical drugs and
facilities, including hospitalisation, will likely follow. Beyond
employee benefit trusts, investment will take other forms. The trust
may be concerned at one end of the scale with raising funds from the
cor****ate or large institutional investor which has considerable
blocks of capital for investment, and at the other end with the
private person who has limited assets and is investing in unit trusts.
The large, probably institutional, Asian investor is likely investing
on major public development projects involving governments; and large
investors appreciate the security that governments expressly or
implicitly provide. Private investment in public authority sponsored
projects has proved very attractive to Asian institutions, as has
investment in the major projects of private sector cor****ate
developers. These developers are seeking substantial loans for large
commercial, sometimes residential, development that is either being
planned, or is already underway and further funds are being sought.
Traditionally, such capital is obtained by individual placement
arrangements, the significant investors being foreign or domestic, but
very large projects require an amount of capital investment that calls
for pooled fund arrangements to which several substantial investors
will subscribe. The return sought in this trust is capital growth, and
the small number of investors in this closed-end fund will hardly call
for unitisation.13 These trusts are structurally the same as mortgage
syndication trusts, though this syndication trust is aimed at the
investor who seeks a steady income return. The attraction is that the
trust offers investment usually at a lower cost than other fund
management vehicles would involve, and a flexibility that cor****ate
law does not permit to the investment cor****ation. These funds the PRC
Trust Law of 2001 refers to as 'capital trusts'.
The introduction of unit trusts14 for the private investor has
revolutionised investment throughout the Western world, and a similar
rapid proliferation of such trusts is expected in mainland China.
These trusts are distinguished by the fact that subscribers to the
fund are issued unit certificates. Rather like cor****ate shares, unit
certificates represent amounts of value that the subscriber acquires
based on the amount of his investment in the trust. The aim is that
certificates, like shares, can be bought and sold by the investor at
any time. An open-ended fund, which is the form of most unit trusts,
will generate relatively low cost units, and this has allowed trust
sponsors, operating as fee-paid investment managers, to enter the
retail investment market. The units of these trusts can not only be
bought and sold between investors, but tendered for redemption by the
trustee sponsor, over the trust (or fiduciary) cor****ation's counter.
15 Foreign unit trusts (or mutual funds) that attract the retail
investment market in their own jurisdictions will also invest in
burgeoning Chinese stock or trusts.
Unitised funds may invest in growth assets with low annual return, or
in a higher income-producing section of the market. But op****tunities
have expanded for the investor. Small investors can now diversify
across the span of the market with different unit trusts, each trust
concentrated in one part of the market. They can thus lower both cost
and the risk that earlier would have been the deterrent to investing
by way of the acquisition of individual stocks. Many a unit trust is
now itself a diversified investment trust, and the manner of
diversification and the 'mix' of fixed interest and equity securities
will differ from one unit trust to another, so that the investor does
not need diversification expertise. Government and cor****ate bonds and
the savings bonds of financial cor****ations, their interest rates
often low for a protracted period of time, are now no longer the
conservative small investors' only low-risk option.16
The trust is the eminent choice as the appropriate vehicle when the
cor****ate employer is putting in place an all-employees pension plan
or a 'top hat' (ie senior executives) plan.17 Investment is conducted
on a defined benefit or defined contribution basis for the described
class of employees. The employees themselves, previously mentioned,
are beneficiaries of the trust as a 'rolling' class of qualified
persons, and that is why the trust is usually found so much preferable
to the cor****ate vehicle. The events of being hired, retirement (or
previous resignation), and death are the customary factors moving the
individual into and out of the status of beneficiary. Pension plan
trusts are an essential part of the economic structure throughout the
countries of the common law world, and there is little doubt with the
growth of the economy in China, and the significance to middle and
large size cor****ations engaged in the ex****t trade of acquiring and
holding skilled employees that pension arrangements could become as
much a part of Chinese life as they are in the common law Western
world.18
As a property management instrument the trust fund can consist of
every kind of property. It may be cash, land or equipment, fixed
interest shares, 'equities', derivatives as a hedge against volatile
securities and currency values, realisable debts purchased as assets
and held for income-seeking investors in a securitisation fund, or any
intangible such as promissory notes, whether or not carrying interest.
Intellectual property rights are increasingly being held in a pool for
the benefit of those cor****ations or individuals with title to these
rights. In this manner protection of the property right from violation
is provided by a trustee, and also, if that is wished, income arising
from those rights can be claimed by the trustee for the benefit of the
rights holder. One is reminded of the trustee of cor****ate provided
security protecting all the cor****ate bondholders' interests. In
Japan, whose Trust Business Law until 2004 prevented intellectual
property rights being held on trust, content rights, especially in
films and animated movies, are now being securitised by the
cor****ations owning them and brought on to the Japanese market.19
Indeed, in all jurisdictions having a trust model there is no
conceptual problem with the character of the trust property. It is
simply that in some jurisdictions there may be a definitive list of
property items that may be subject to a trust, and in others there are
local public policy prohibitions on certain types of assets being held
on trust.20
It was noted previously that charitable trusts are introduced by each
of the Asian trust laws, and, as European civilians have observed, the
holding by professionals -- lawyers and accountants in particular --
of clients' funds is made both conceptually possible and readily
available with use of the trust. Within a short time trusts of client
funds can be expected to establish themselves firmly in all civil law
jurisdictions having a domestic trust.
The 1922 Trust Law in Japan led to the introduction and subsequent
considerable strength of trust banks, so that the trust in that
country is associated with fiduciary banking. With the new Trust
Business Law of November 26, 2004, trust work in Japan is permitted to
fiduciary institutions other than trust banks, and now general and
specialised investment fiduciary cor****ations are appearing. With its
already well-established and experienced trust sector, Japan in the
coming decades, following this statutory expansion of permitted
commercial trust activity, looks to be a jurisdiction to watch. China,
which is also maintaining the distinction between fiduciary
institutions and banks, appears likely with its trust and investment
companies to experience a similar expansion of trust activity carried
on by its financial institutions.
In the writer's opinion there is every expectation that in Asian
countries the next 50 years will see a significant expansion in the
use of the trust for investment, especially in mainland China with its
already considerable and expanding economy.21 The drive to bring
Chinese nationals to invest in their country's private cor****ate
sector, rather than that China frequently look to foreign lenders,
will have increasing appeal as the average level of income within the
country rises. For the domestic investor in the retail sector the
success of the economy to date fans that appeal. What will be of
particular interest is how the PRC authorities will perceive and then
control abuse of the trust concept, how taxation will be employed to
channel the use of the trust, and whether regulation will restrict the
use of the trust, particularly investment, when larger concerns occur,
such as the overheating of the economy.
Offshore estate planning trusts
There is no doubt that in the family wealth management area the common
law offshore jurisdictions will continue to adapt the property model
of the trust to what they discern as the needs of the private person
or private cor****ation carrying through estate planning in a foreign
(offshore) situs where the trust creator does not reside. And it is
here, not on the mainland, that future far-reaching uses of the trust
can continue to be expected.
Within recent years the STAR trust of the Cayman Islands22 has taken
its place in the lexicon of estate planning instruments. It
significantly departs from the traditional fiduciary relation****p of
trustee and beneficiary. The enforcement of the trustee's obligations
is placed instead in the hands of a specially appointed 'enforcer',
and it is not necessary within a STAR trust that the beneficiary
receive from the trustee an accounting or even any information about
the trust. Information and accounting can be supplied to a
disinterested third party or to one who will 'enforce' performance by
the trustees. Both these departures from mainland trust theory have
apparently been popular, especially with those settlors who see no
advantage in their offspring knowing ahead of time what wealth will be
theirs when the life tenant (the trust creator) dies.23
The conferment upon trust creators by a number of offshore
jurisdictions, including most recently Jersey,24 of statutory powers,
whereby creators can control the administration of trust assets and
the manner of exercise by trustees of their discretions, has certainly
brought to a head the debate in mainland jurisdictions as to how far
the trust instrument can go in reserving control powers to the
creator. But in the writer's opinion this offshore statutory move also
brings the trust within a hair's breath of agency. This is because,
though title to trust assets is transferred to the trustee, powers,
traditionally associated with title owner****p, are then reserved to
the creator or granted to a 'protector' (the third party), a practice
which in effect deprives the title holder of the control that the
transfer would have conveyed. However, the statutory clauses again
have apparently been well received by trust creators looking for
retained control.
The VISTA trust of the British Virgin Islands (BVI)25 also provides a
useful statutory solution for a recognised problem in mainland
jurisdictions. Trustees may be required to hold on trust the shares
issued by a private investment or trading cor****ation which has been
and remains the source of the family wealth. The trust is the vehicle
for determining among the family members the interests each shall have
in the family wealth, or it is a voting trust, but in either case the
family does not wish the trustees of the cor****ate shares to intervene
in the management of the cor****ation. The trustees argue that as
shareholders they are obligated to monitor the affairs of the
cor****ation; as controlling shareholders they point out that in law
they also have the power effectively to rectify what they discern as
wrong turns in the management. The terms of a trust of the shares may
attempt to neutralise this responsibility of the trustees by providing
expressly that in no cir***stances are they obligated or required to
intervene in cor****ate management. Nevertheless, trustees are
fiduciaries vis-=E0-vis the beneficiaries of the trust. That legal
status is mandatory so far as the trust creator is concerned. Can the
trustees turn a blind eye when they become aware, or reasonably ought
to have been aware, of a decision being taken that reasonable business
persons would expect to have deleterious effects on the family
business? Only statute can free the trustees from the bite of this
question.26 The VISTA trust provides that statutory freedom. This
introduces a new element into the law's balance between the
obligations of the trustee, who because of title holding and
involvement with trust affairs is in a commanding position, and the
rights of the beneficiary who looks for efficient management from a
position of exposure. Hitherto Commonwealth legislatures have only
been prepared to empower the court to excuse the trustee who in the
particular cir***stances ought to be excused wholly or partially from
liability to make good the trust fund's losses. The case-law requiring
the trustee to act as an upholder of 'fiduciary conduct' has
everywhere been left mandatory, both in its meaning and the scope of
its application. The 'fiduciary' guards those in its care. In the BVI,
wisely or otherwise, but certainly in response to a pragmatic demand,
the legislature has permitted the trust creator to limit the scope of
the responsibility the 'fiduciary' assumes.
Non-charitable purpose trusts, going beyond non-profit purposes into
usage for private purposes by commercial interests, are likely
ultimately to be permitted by mainland common law jurisdictions, but
the pace of adoption will be slow.27 Once a generally acceptable
mechanism for their supervision and 'enforcement' is worked out, they
should start appearing more widely; there is no persuasive conceptual
objection to them. But these trusts are frequently understood in
mainland jurisdictions as more than a mere licence to the trust
creator to put its assets to one side in a trustee's name as an
undisclosed deposit arrangement for the creator's benefit. There is an
apparently widespread apprehension that this type of trust lends
itself to the hiding of assets, and to date few mainland jurisdictions
are evidently persuaded that the social, commercial, or business need
of these trusts is such that spending time and resources on devising
an abuse control, such as public registration or public monitoring, is
justified.
The call for the public registration of trusts,28 as cor****ations are
registered, will likely become more strident as non-common law
jurisdictions consider the introduction of domestic trusts. In common
law jurisdictions, as one can see in investor magazines and newspaper
business columns, the perception grows that the trust and the
cor****ation are very much look-alike modes of property management. Why
should rules for the protection of third parties dealing with
directors be in existence for cor****ations, but not for those dealing
with trustees? Civil law jurisdictions also entertain the idea that
the common law's property trust model over-protects the beneficiary.
This hostility to remedy in the form of in rem relief is probably not
unrelated to the numerus clausus principle which controls what in rem
rights may exist,29 and the absence of a tracing claim in the civil
law. In addition to giving the beneficiary a remedy for breach of
trust against the trustee's personal assets, the common law allows the
beneficiary to recover trust property from the misappropriating
trustee and the trustee's personal creditors. It also permits such
recovery of trust property from the third party who acquired in bad
faith, and gives priority over that third party's creditors. Civilians
are taken aback by the presence of such extensive remedies, while at
the same time no mandatory public registration is imposed. There is no
registration under the common law property model that will protect
either the third party stranger doing business with a trustee, or the
creditors whether of the trustee himself or of the wrongful recipient
of trust property.30
United States 'statutory business trusts'
As for the perception in common law jurisdictions that trust and
cor****ation are look-alikes, those who entertain this view are likely
to consider that limited liability of the beneficiary should be a
statutory feature of trustee legislation. In five Canadian provinces
legislation is already in force conferring upon unit trust
beneficiaries a statutory freedom from personal liability for loss or
damage caused to third parties by the assets in which the trustees are
invested.31 And what about the trustee? Should there not be a
mandatory rule, it is asked, making the trust fund available to the
trust creditor? This would relieve the trustee who has acted properly
in the discharge of his duties and the exercise of his powers. When
trust events nevertheless go wrong,32 it would protect that trustee.
It is probable that in years to come pressure will mount in many
jurisdictions for this limitation on trustee liability. By contrast
trustee limited liability already exists in Quebec, and it is expected
within months in Japan.33
It is admittedly a weakness of the existing case-law trust in many
common law jurisdictions that the creditor of the trust has access to
the trust assets only when the otherwise insolvent or bankrupt trustee
is entitled to indemnification by the trust fund. It is likely that
the statutory reform introducing limited liability for trustees will
lead to the third party acquiring access to the trust fund, as
suggested above.34
Since the 1920s in the USA investment business trusts35 have operated
alongside investment cor****ations, and since that time federal and
state legislation has created cor****ations, trusts and unincor****ated
associations as vehicles for investment by the public. Both trusts and
unincor****ated associations are designed to function in a quasi-
cor****ate manner, and the attraction of each of cor****ation, trust and
unincor****ated association is the slight advantage each may have from
time to time in terms of tax or avoidance of state regulation or
restrictions. Real estate investment trusts have been popular with
small investors since the 1960s, and federal tax advantages have led
several states to legislate further, extending the cor****ate character
of these trusts. 'Statutory business trusts' are share-issuing or
certificate-issuing quasi-incor****ated bodies, effectively formed and
operated as legal personae, though declared statutorily to be
'entities' and as such short of legal personality.36 This is a direct
development from the early twentieth century Massachusetts business
trust, a form of trust which throughout the USA has since gone through
several legislative phases. The statutory business trust is a
structure that is capable of legislative extension to any unit trust,
and it could be a development that ultimately leads in the USA within
the next 50 years to the personification, or at least the
entification, of trusts in general drawn in the USA. Some would say
that that opinion is an over-reaction; the business trust is a
particular phenomenon in the USA, associated with cor****ate law and
with a statutory development that has made it totally distinct from
donative (or estate planning) trusts. Others point to the recognised
ease which law practice has with personification or entification as
opposed to the uncertainties that practice finds inherent in the
relation****p of trustee, beneficiary and third party. They see this
leading in state legislatures to trust entification.37
The Uniform Trust Code (2000) marked on adoption a milestone in the
history of the property model trust in the USA. Having many
interesting features, it identified38 for the first time those rules
that in the USA are not subject to override by the trust instrument.39
For a concept that throughout the common law world is so made up of
mere default rules, this is revealing. It is evident that, in place of
a number of these default rules, mainland jurisdictions may well
experience in coming years a preference for mandatory rules. What
level of information about the trust terms and the current state of
the accounts should a beneficiary reasonably expect to receive? Is a
contingent beneficiary to share the same rights? Should a trustee be
liable only for fraud, trustee negligence being a risk that
beneficiaries assume if the trust fund is not to bear the cost of
trustee 'oversights and error' insurance? Should a trustee as a
fiduciary be entitled on its retirement to a discharge from all
subsequent claims for breach of trust, save for proof of its past
intentional wrongdoing? Should an injured third party be entitled to
compensation from the trust fund if the trustee, who caused the
injury, has no right of reimbursement from the fund? Should a third
party contracting with the trustee be entitled to know, when that is
so, that the other party is contracting as a trustee and has the power
to act as it is acting, or should the third party be entitled to
assume that the other party, if nothing is said, is an absolute owner,
and that a declared trustee has the power to act that it pur****ts to
have? It is a question of whether the third party or the trust
beneficiaries should carry the risk.
Within mainland jurisdictions that hitherto have done nothing, these
are issues that are likely to call for legislative action within the
decade. As trust and cor****ation vie for adoption by the powers that
be within business and commerce, the more attractive elements of one
concept will statutorily find their way into the legal structure of
the other. The questions posed above will be responded to in the
course of that process.
The Future -- the different models of trust
The ingenuity and study are considerable that have been demonstrated
to date in the 'mixed' jurisdictions, and slowly and cautiously the
trust has made its way into the 'pure' civil law jurisdictions of
Europe, Central and South America and Asia. The volume of writing
about the nature of the trust idea, and how to fit that idea within
classical Roman-law-inspired codes of law or, as in South Africa,
within uncodified Roman law and customary law, has left us all in the
writers' debt. But what of the future? Is the obligation model going
to become established as a worldwide mode of property holding and
administration for the benefit of persons or purposes other than the
property manager?
First, what about the 'mixed' jurisdictions? It regretfully has to be
said that, however fascinating may be the conceptual character of its
particular trust, each 'mixed' jurisdiction, in coming to terms with
its singular legacy from the past, is an historical anomaly. The
occurrence of more of these jurisdictions in the future, each with its
own particular history and manner of the reception of civil law and
common law, is very unlikely. Though the trust in these instances has
been employed in the estate planning context, experience with it in
each instance is largely a local story, both of the manner in which
the trust came and what has been done with it. Indeed, when we
consider the obligation model, there are not two cases of 'mixed'
jurisdictions in the world, where the obligation trust model is
exactly the same in each jurisdiction. And the same is true of the
trusts of the 'pure' civil law jurisdictions. It is difficult to see
what impact this model is going to have in an increasingly
international scene of private assets and family members located in a
number of jurisdictions. Unless it is a jurisdiction like Luxembourg
that is itself a hub of international activity, the utility of any
particular obligation model trust is likely to exist only within the
borders of that particular jurisdiction. Moreover, the trans-national
business and commercial scene is usually seeking something different;
business people want the legal structure that is as uniform as
possible across the jurisdictions. Apart from the sheer inconvenience
and cost of having to cope with the singularities of each local law,
who is it that wishes to be caught in a web of conflict of law
disputes where the property management vehicle in state A differs from
state B, both of which differ from state C? It has been said many
times that the Trusts Convention, welcome as it is, constitutes a
uniform set of rules, but for dealing only with conflict of law
disputes. It does not provide a uniform definition of a trust, nor
therefore does it give its imprimatur to any model of trust. That is
for others.
Among the 'pure' civil law jurisdictions it is still too early to say
whether, as a domestic property holding and management vehicle, the
trust (fiducie, fideicomiso, treuh=E4nderschaft) is going to become so
established that it will effectively challenge the cor****ation as a
property management vehicle. The Luxembourg 'fiduciary contract' will
be the obligation model to watch, and now that Switzerland is about to
ratify the Trust Convention, it will be interesting to see whether a
similar or more generalised domestic contract emerges in that country.
40 Both countries are international financial centres, and it would
make very good sense for Switzerland to move in that direction if
Luxembourg's 'financial contract', as amended in 2003, is a success.
Nothing that is occurring in The Netherlands or France suggests that
anything domestic will be seen for some considerable time. Opinion is
too divided. Governmental authorities, as recently demonstrated in
France, seem more concerned that any domestic fiducie not lead to tax
avoidance, if not actual evasion, and throughout European
jurisdictions there appears to be limited agreement as to what are the
necessary elements of a trust. How to fit the trust, perceived as an
innominate contract, into the obligation model is an evident puzzle,
and conversations with French law practitioners have suggested to the
present writer that in France recognition of common law trusts under
the Trusts Convention would be much the preferred course of events.41
The obligation model of the trust in the 'pure' civil law
jurisdictions is still at a fairly early stage. The absolute or
indivisible owner****p, numerus clausus and actio Pauliana doctrinal
objections are raised at once in any discussion, and jurisdictions are
split between those that assert trust principles will not fit within
the domestic law, and those that go further to demonstrate that they
do not need it for estate planning or commerce. Little cross-border
unanimity seems to exist on what can be done or what is desirable. The
continuity of the office of trustee is a problem that has to be worked
out; the trustee is an indispensable element in the trust, and it is
evident that trustee****p cannot turn upon the capacity and length of
life of the party who as trustee signed an agreement with the trust
creator. In fact trustee appointment, resignation, removal, and the
court's role should problems nevertheless arise, are primary among
those trust elements that have to be in place if the relation****p of
ongoing management for beneficiaries, ascertained and unborn, is to
dominate. Existing provisions in Latin American codes and previous
French fiducie drafts, both of the obligation model, also leave a
number of issues open. The courts are then asked to fill the gaps, as
best they can.
It is by a process of interpretation within the particular civil code
-- a code whose thinking is foreign to the trust idea -- that gaps
have to be filled. That task can be formidable. A problem with the
successive French drafts, and the recently adopted legislation, of a
fiducie is that they declare in their opening articles that a trust is
simply an agreement. Le contrat de fiducie; la fiducie est un contrat.
This means the obligation trust model is read as ruling that the trust
idea cannot be distinguished from the modus of its creation.42
However, a contract creates obligations solely between living and
capacitated parties. And, if the trust is itself a contract, the need
is for statutory (or code) rules that perpetuate the machinery for the
management of the trust assets beyond the lives of the parties to the
contract. The trust has to continue until the required times and
occasions for asset distribution to occur, and for this purpose the
trust terms need to be independent of the contract creating the trust.
Otherwise, despite the existence of a segregated fund, the obligation
trust model is essentially a contract for the benefit of the promisee
or a third party. Another conceptual problem concerns what remedies
shall be available to any beneficiary for breach by the trustee, and
what is the basis of the remedies the trustee is to have wherewith to
protect the trust assets from third parties. Mere generalised trust
provisions in code or statute create a significant risk for the law
practitioner's client. And, when there are alternatives, few clients
will want to pursue a path whose route is not mapped and whose outcome
is speculative.
Among the 'mixed' jurisdictions the solution as to the locus for
owner****p,43 and the rationalisation for personal remedies alone being
available to trustee and beneficiary, is much more mature. Each has
realised that the project of drafting a trust must go beyond contract
or testament to give the trust a third dimension. And here one has
particularly in mind Scotland, Louisiana and Quebec. These are
in-depth obligation models of the trust.44 However, as previously
said, unfortunately each jurisdiction has a trust structure that is
distinct from structures elsewhere. Beyond each such trust or fiducie
being useful as a family wealth management tool within its own
borders, it is difficult to see the economies of any of these 'mixed'
jurisdictions being sufficiently powerful that it can influence the
legal form in which inter-jurisdictional, and especially trans-
national, business is conducted. Instead the future for the 'pure'
civil law jurisdictions looks like a continuation of the gradual move
among jurisdictions, sometimes glacial, towards ratification of the
Trusts Convention. It is of course possible that a prospective move
towards a domestic trust model in any of these jurisdictions will be
hastened as trade and commerce become more and more international, but
there is little evidence of this influence to date.
As to Central and South American fideicomisos, an emphasis upon the
obligation owed by the trustee to the trust creator has not prevented
several states from having a clearer conception of what the trust is
and how it might operate in a civil code environment. But each
codifying state has its own ideas about the creation, continuance and
termination of fideicomiso; the same is true of trustee duties and
powers, of remedies against wrongdoers and who may exercise such
remedies. Across these jurisdictions the actual place of the
beneficiary with regard to the operation of the trust is something of
an enigma.
The Uruguay fideicomiso may be evidence of new stirrings, but the
future appears to offer much the same differing pattern of 'trust and
confidence' ideas, and of legislative activity, as we have had in the
past. If Europe to this point seems attached to trust as classifiable
and operative within contract, Latin America's conception of
obligation, so far as one can generalise given the diversity, is that
it is agreement-based, but based only. Some states conceive of it as
contract, but, particularly with the commercial fideicomiso, which is
of such interest to these Latin states, there is a more rounded
acceptance of the trust as a working property management vehicle.
Where in the few Latin states it exists as a generalised management
vehicle,45 it has yet to be developed further, but, though the civil
law doctrinal problems continue to haunt the fideicomiso at every
turn, the second wave of Latin trust legislation is more developed
than the earlier, experimental measures of the pre-World War II
period. In these jurisdictions the trust is now more clearly shaped,
meeting that international conception of a trust discussed here, than
anything that has appeared on the mainland of Europe.46 Nevertheless,
though this may no longer be so true of Panama, which is an 'offshore'
international financial centre, the Latins are not pragmatists any
more than are mainland Europeans. They are very conscious of their
various codes, and the symmetry needed between code and fideicomiso
provision.
It is striking how different is the approach of each of Japan, South
Korea, Taiwan and mainland China. The private law of each of these
Asian jurisdictions is of the civil law tradition, including the
socialist PRC because of pre-1949 civilian influences, and each is
therefore concerned in its own way with the civil law doctrines of the
indivisibility of owner****p and the numerus clausus. Yet none adopts
the analysis that the trust is itself a contract or agreement, and
none has any problem with envisaging and legislatively drafting a
trust that endures, unless prematurely terminated, so long as the
dispositive terms of that trust have not been carried out. This is so
even of mainland China where the trust creator can not only monitor
the trustee administration and enforce the trust independently of what
the beneficiary chooses to do, but is able to terminate the trust and
cancel the beneficiary's interest if the beneficiary 'materially
infringes upon the rights of the settlor'.47 Japan, South Korea and
Taiwan all provide the trust creator with a mandatory right to an
accounting and to enforce the trust; the PRC carries that right to the
point of making the creator a central cog in the operation of the
trust. Yet, despite this absorption in mainland China with the trust
creator, there is a perception throughout the Asian jurisdictions of
the trust though essentially obligatory in character, as being
independent of the vehicle that creates it, whether the creation is by
contract, will, or other act. The route to this independence is by way
of legislation whose provisions overtly or in fact create different
rules for the 'trust' from those which would prevail under the local
civil law. The purist will obviously reject this approach; the
pragmatist seeing practical advantage is prepared to take the step of
putting in place a discrete 'trust' regime. The Asians leave the
reader of their legislation with the impression that, while doctrine
is an im****tant factor, ultimately the question is why a jurisdiction
wants a domestic trust. The Asian jurisdictions are quite clear why
they want it.
The hesitation one might have with regard to the trusts of these
powerful Asian economies is that they are not concerned with a
generalised trust. Asians are interested in the commercial; the
concern is essentially investment. As noted in this article, at least
some Latin American states have conceived of and introduced the
generalised trust, hazardous in a code environment of culture-inspired
laws of succession and of family that that development is. Venezuela
did so 50 years ago.48 Will Asia too come to this? The Italian trust
interno has shown it can be done, but in Asia, given the post-1946
experience in Japan, it is doubtful that either a sense of need or
perceived advantage will occur to suggest the trust be introduced in
individual or family wealth planning affairs.
Conclusion
This has been an inquiry into the usage of fiduciary property
management around the world, and the practicality of each of the
models of a 'trust'. It has examined the trust idea to be found in
common law jurisdictions, civil (or Roman) law jurisdictions, and
three of the major 'mixed' jurisdictions. Though in terms of a
classical Roman law analysis it may seem, as an admixture of
principles drawn from property law and the law of obligations, to be
but 'a jumble of ideas', the common law property model evidently can
achieve more just because it is both proprietary and obligatory in
character.49 It is both those elements that have made the common law
trust capable of being focused anywhere between quasi-personification
and quasi-agency. A generalised 'trust' that may have any property as
its trust assets, any legal person as trustee, and trust objects that
family law, succession law, commercial law, cor****ate law,
administrative law or tax law can accept, is simply not within the
doctrinal structure of Roman law systems. As others have observed,50
the civil law for this array of objects has a 'bouquet' of concepts.
This article has described a trust in international terms as a
segregated 'fund' under administration by a manager, who is more than
an agent, for the benefit of another, and remedy providing protection
of that fund from damage, depreciation and misappropriation, whether
by the manager or a stranger. If this description is accepted, both
the common law and the civil law jurisdictions present problems. The
common law has difficulties in distingui****ng an express trust from a
fiduciary relation****p,51 and the civil law jurisdictions in Europe,
Latin America, and Asia have between them so many formulations of the
elements of trust that any all-embracing description would be in such
general terms that it would be almost without practical utility. Some
fascinating trust structures are outgrowths of the obligation model,
especially the two patrimonies of Scots and Luxembourg law52 and the
'designated fund' trust of Quebec and Uruguay, but ultimately it is
difficult to conclude that for cross-border purposes the universality
of the traditional trust, ie that of the common law, is not still in
functional terms the more useful of the two models. While as a hybrid
it may fail the doctrinalist's test, it looks back to a gradual
development over the centuries, worked out in the environment of the
law practice of the time. Some might say that its history is a
pragmatism that is rationalised at each stage by the next generation.
Moreover, it is still this case-law that applies in all the common law
jurisdictions around the world, including the USA, England and Wales,
Canada, Australia and New Zealand. Trust treatises of each of those
countries are cited by courts in others of those countries. This gives
the property model an advantage that the obligation model, and its
variant, the 'unowned property' analysis, do not have. The property
model's adaptability to so many areas of private and public law, and
its structural versatility within each of those areas, give it a
distinct edge for cross-border purposes. The ease with which as a
consequence it can be used in any common law jurisdiction, together
with another property-holding device in the particular civil law or
shari'ah jurisdiction, is an invaluable gain for international estate
planning. The result is that the lawyer within his own jurisdiction is
working with a local concept he completely understands. Teamwork
creates the planning.
Of course, in making that last remark one is conceding that no model
of trust in existence successfully operates cross-border if the area
of law in question is private client estate planning, and that border
is other than two common law jurisdictions.53 Where two systems of law
are involved, such as between a civil law (or shari'ah law) state and
a common law state, internationally accepted conflict of law rules
seem likely to remain the nearest we shall get to trusts operating
internationally.54 Succession law and family law are always at the
heart of local cultural values.
The situation is very different with commercial trusts.55 When A
transfers assets to B that B is to manage for the benefit of A, or A
assigns powers over particular assets to B for this purpose, it does
not matter very much whether the trust employed is proprietary or
obligatory. Either model of trust can handle this situation with ease
because it is essentially contract.56 Remedies only will be more
limited or conjectural with the obligation model than with the
property model.
It is likely that for commercial property management and financial
transactions the model that is more of utility during the next 50
years will be the model that retains flexibility as to permitted
governance structure and the design of beneficial interests. Offshore
jurisdictions and expanding economies, like mainland China, will value
those attributes. The next 50 years promise a lot of development with
the commercially employed trust, and in terms of dollars this will
remain by far the most significant area of usage. And we will see much
of the Pacific Rim obligation model of the trust.
There is no doubt that national taxation policy in the European, North
American and Asian countries57 will continue to be the prime influence
in the use, and therefore the significance, of both models of trust
and all types of trusts. If the advantages of the trust in substantive
law include a tax 'flow through' to beneficiaries, and flexibility in
the creation of governance structure and beneficial interests, tax
laws can both duplicate and negate any of those advantages where the
taxing unit in question decides. Tax laws of high tax jurisdictions
are able to classify the trust as a person or ignore an established
quasi-incor****ation, they can at will impose double taxation upon or
withhold it from any cor****ation, trust or partner****p, and they are
in a position to raise or lower tax by stipulating the trust
characteristics or type of beneficial interests that will be
recognised for this purpose. If any national tax authority concludes
within coming years that trusts are essentially being used for tax
avoidance in that jurisdiction, tax legislation can withdraw the
trust's tax advantages at any time.58 The policy behind the Crown's
pressure upon the English Elizabethan legislators to sup****t the
enactment of the Statute of Uses 1535, and thus restore the Crown's
prerogative taxes that the passive use had eliminated, has not gone
away! In Canada the income trust's sudden demise on 31 October 2006,
is evidence enough of this.
Given the proximities created by globalisation, and the nature of
international tensions, the first decade of the twenty-first century
suggests a volatility that may endure. How in the coming decades this
is going to affect the property arrangements of families, and
international business and commerce, has to be very much a matter of
speculation. It does seem, however, that apprehension in the developed
world will increasingly lead to new calls for transparency in the
operation of property management concepts. Modern states are coming to
the point of refusing to accept transaction secrecy and the
unregulated transfer. Both of these traditional characteristics of the
property model of the trust will be under attack in the coming 50
years, and the growing insistence upon registration in obligation
model trust jurisdictions will encourage this attack. Lack of public
registration of express trusts, and of beneficial interests, is likely
to be an increasing concern of governmental authorities, whether the
professed trust objects are private or charitable. International money
laundering fears, and concern about possible disguised fund-raising
for the sup****t of militant radical movements, have already started
the process of legislation. Increase in the volume and character of
regulation may also cause the trust of either model gradually to lose
its flexibility as to the governance the settlor is now free to put in
place.
How far during the next 50 years internationalism and governmental
pressure for transparent transactions will compel trust jurisdictions
not only to stipulate direct disclosure and accountability to trust
beneficiaries, but to reduce the flexibility of governance, remains to
be seen. It is noticeable that those civil law jurisdictions that in
recent years have introduced a code or statutory trust are evidently
not enamoured of non-disclosure, non-accountability, and quasi-agency
structures59 where it is questionable whether the trustee has any
effective control of asset management. It is possible also, speaking
of estate planning, that, outside the common law jurisdictions,
private foundations, being better understood, will attract in the
future more attention. But that will depend upon the tax policies of
mainland states.
Nevertheless, on the positive side 'trust and confidence' is something
that men and women have always placed in those they respect and whose
assistance they seek. Fiduciary conduct when A pur****ts to act for the
benefit of B is likely to remain a standard that is highly valued, and
enforced. Rules, and even models, of the trust idea may themselves
change and possibly change radically. But reliance upon the integrity
and selflessness of the administrator is something else, and it is
this from which all legal systems see 'trust' arising.
1 Counsel, Horne Coupar, Barristers and Solicitors, Victoria,
British Columbia, Canada. Professor Emeritus, University of Victoria,
BC, Canada.
2 La loi f=E9d=E9rale du 18 d=E9cembre 1987 sur le droit international
priv=E9 (LDIP), adopted by the federal Assembly, December 20, 2006. No
date has yet been set by the federal Council for ratification to come
into effect.
3 The most recent account of the Italian trust, including its
reception by the Italian courts, is contained in Alexandra Braun,
'Italy' in John Glasson and Geraint Thomas (eds), The International
Trust (Jordan Publi****ng, 2nd edn, 2006).
4 See JH Langbein, 'The Secret Life of the Trust: The Trust as an
Instrument of Commerce' (1997) 107 Yale LR 165. The title reflects the
fact that since the trust's beginnings in the seventeenth century it
has been solely an estate planning tool. Little has been said of how
commercial and cor****ate legal professionals are increasingly
employing the trust for non-estate planning purposes. Academic writers
have almost ignored the subject.
5 Makoto Arai, 'The Law of Trusts and the Development of Trust
Business in Japan', in DJ Hayton (ed), Modern International
Developments in Trust Law (Kluwer, 1999), at p 102.
6 The cor****ation as the investor may put its sinking fund into a
trust with long-term growth aims.
7 Ie trustees (duties and powers -- joint and several, removal and
replacement, accountability), protector (powers and liability,
relation****p with trustees), beneficiaries (rights and powers vis-=E0-
vis the trustees and also trust property), settlor (reserved powers).
8 This accounted in large part for the success prior to October
2006, of income trusts in Canada.
9 Donovan Waters, 'The Future of the Trust -- Part I' [2006] JTCP
179.
10 Lusina Ho, Trust Law in China (Thomson: Sweet & Maxwell, 2003).
11 Instead of named or described persons a purpose or purposes may
be the object.
12 The 'fund' in common law England was historically the stately
family house, and 'estate' lands whose farmers' rental payments went
into the fund.
13 As a rule pension plan trusts are not unitised. The employees
are a revolving class, but a closed class where each member is
contractually associated with the employer.
14 'Unit trust' is the English term. In Canada they are known as
mutual fund trusts. In the USA mutual funds are frequently investment
cor****ations, but there is a considerable interest in the USA,
reflected in state legislation, in the so-called 'statutory business
trust'. The latter is 'a juridical entity' (ie short of legal person)
which can sue, be sued, or enter into property transactions in its own
name. Where the governing state statute is silent on any issue, either
trust law or cor****ate law applies, as the particular jurisdiction
provides.
15 In most jurisdictions the object is to have units quoted on the
Exchange.
16 Income trusts, expressly not permitted in the USA, UK or
Australia, were a spectacular success in Canada before the tax
advantage was withdrawn by government. A trading cor****ation, for
instance, reorganises itself as a trust, paying out the profit
produced by the cor****ation on a 'flow-through' basis to the investor
as the purchaser of units. There is consequently only one level of
tax. However, these trusts are 'equity' investments.
17 The English term is 'pension scheme'. A 'top hat' pension plan
trust fund is the recipient from the employer of a ****tion of the
executive's salary, which will be paid to the pensioner during
retirement when the retiree's applicable rate of tax is usually lower.
18 Employee stock purchase trusts, vacation savings trusts, and
other asset formation trusts can be expected in due course in mainland
China, as such employee trusts have been developed in Japan.
19 International Financial Law Review, Supplement: Guide to Japan
2006, 'Trusts', at p 57.
20 For example, resident fiduciaries may not be permitted to hold
title in waterfront land, or land near a military base, on trust for
the benefit of non-residents or foreign nationals.
21 Recently the GNP of mainland China overtook that of the UK.
22 Trusts Law (2001 Revision), Part VIII: Special Trusts --
Alternative Regime (ss 95-109).
23 For a comment on the nature of this trust, see John Glasson,
International Trust Laws (Jordan Publi****ng) Vol 2, B4.72 et seq,
especially at B4.82, 'Nature of a STAR trust'.
24 Trusts (Amendment No 4) (Jersey) Law, 2006, s 9A. For a
discussion of the legislation of the Cayman Islands (Trusts Law (2001
Revision), s 14(1)) and the Bahamas (Trustee Act, 1988, s 3(2)),
together with a listing of the other jurisdictions, see Donovan
Waters, 'Trusts: Settlor Reserved Powers' (2005) 25 ETPJ 234, at pp
243-246.
25 Virgin Islands Special Trusts Act 2003, in force 1 March 2004.
The legislation applies to BVI companies only. For an extended
discussion, see John Glasson, International Trust Laws (Jordan
Publi****ng), Vol 1, at A6.135-180.
26 Froese v Montreal Trust Co of Canada (1996), 137 DLR(4th) 725
(BCCA), leave to appeal to the Supreme Court of Canada was refused by
the Court. A custodian trustee of a pension plan trust was expressly
exempt from liability under the terms of the trust instrument except
for safekeeping of the fund securities and carrying out distribution
instructions of the pension plan trustee. The custodian trustee was
nevertheless liable when over a period of time a shortfall of
cor****ate employer contributions occurred. The defendant was described
in the custodial trust agreement as a 'trustee' towards the cor****ate
employees as its 'trust' beneficiaries. That language was crucial. It
could reasonably have foreseen the implications of a shortfall and
warned its 'trust' beneficiaries accordingly, ahead of the employer
bankruptcy, that a shortfall was taking place.
27 A mixed jurisdiction, Quebec, included such a trust in its 1994
Civil Code.
28 Registration is required under the new Trust Law: Act Nr 108,
109, 12 December 2006, promulgated 15 December 2006, to be proclaimed
by Cabinet within eighteen months of the date of promulgation.
29 These rights under the Quebec Civil Code, for example,
classified under 'Property' as 'dismember****p of the rights of
owner****p', are usufruct, use, servitudes and emphyteusis. A very
approximate translation into common law terms might be life interest,
user possession, easements and long lease.
30 It is to be recalled that all the Asian jurisdictions here
discussed require that trust assets which are capable of registration
must be registered. However, these jurisdictions do not introduce a
registration scheme for trusts themselves. Among the common law
jurisdictions Gibraltar maintains a general register in which any
settlor may require the trust to be registered. Asset protection
trusts must be registered, but the register is not open to the public.
31 For example, a real estate investment trust with faultily
constructed condominiums in its ****tfolio. Investors apparently remain
apprehensive of their liability, despite the case-law to the contrary.
Accustomed to protection in cor****ate law, they want their non-
liability when they are beneficiaries of trusts to be put beyond
question.
32 For example, a trust marketed product proves faulty, or, when
liability is strict, injury by a fall is sustained by an invitee on
properly maintained premises owned by the trustee as trustee.
33 See n 27 above.
34 Will limited liability, familiar with trading cor****ations,
lead to personification of the trust? We shall see. The analogy of
these business organisations with the statutory cor****ation is ever
more close as the years pass.
35 Ie trusts whose object or objects are one or more business
purposes.
36 See GG and GT Bogert, The Law of Trusts and Trustees (Thomson
West, 2nd rev edn), at para 247. This legislation gives the trust
itself (as distinct from the trustees) almost all the attributes or
characteristics of a cor****ation, but withholds legal personality.
Trustees become directors of a quasi-cor****ation, and shareholders or
certificate holders (ie the trust beneficiaries) will have majority
vote over the appointment of trustees and other quasi-cor****ate
matters, such as whether by way of a substantial borrowing an asset
like a cor****ation should be acquired by the decision of the directors
(trustees) without a sup****ting vote of a majority of shareholders,
when the loan lowers significantly the market value of the shares or
certificates
37 The draft Uniform Statutory Trust Entity Act, originated in
July 2006, seeks to promote across the USA 'statutory business trust'
legislation that produces uniformity in lieu of the varying state
legislation now in place, representing several phases of development.
The draft makes state trust law supplementary to the legislation
instead of cor****ate law. The latter is the law adopted in more than
nine states. The National Commissioners believed trust law to be the
preferred position among the states as a whole.
38 Section 105.
39 Cf DJ Hayton, 'The Irreducible Core Content of Trustee****p', in
OJ Oakley (ed), Trends in Contem****ary Trust Law (OUP, 1996), at p 47.
40 The existence of a professio iuris in Swiss law may slow the
progress so far as British and US expatriates' wills are concerned.
Since 1935 Monaco has recognised trusts of Mon=E9guasque assets, where
the trust is governed by common law, provided that such trusts are
created by Monaco residents who are nationals of a common law
jurisdiction.
41 A contrat de fiducie was adopted by the French Senate on 7
February 2007. However, the use of this fiducie for donative purposes
is expressly prohibited and severe tax penalties are imposed for any
violation of this prohibition.
Of course, once a jurisdiction without the basic elements of a trust,
as defined here, is led to ratify the Trusts Convention, the question
arises as to how that recognition for conflict of law purposes will
impact upon the civil code applied domestically. See the remarks
earlier on the effect of any Swiss ratification.
42 Reading the trust as an obligation to act in a certain way, and
therefore as an obligation created by the legal institution that gives
rise to it, is not confined to obligation model adherents. Common law
jurisdictions too may reach the conclusion that a trust is part of the
will in which the deceased has created the trust. See Jewish National
Home v Royal Trust Co [1965] SCR 784, 53 DLR(2d) 577 (Supreme Court of
Canada), where the court was divided on this subject.
43 The owner****p may be in the trustee whose owner****p is
fiduciary, the beneficiary as the transferee but without powers, the
settlor retaining owner****p but without powers, or in no one, the
trust fund being an entity.
44 The Quebec fiducie, including code provision for administration
of the property of others, is surely a much more comprehensive and
workable structure than that produced by any of the French drafts or
the more recent legislation.
45 Ie applicable not only to financial and business purposes, but
applicable also to individual and family wealth management and
distribution.
46 Again the singularity of the Italian trust, deriving its
validity in Italian courts from the Italian ratification of the Trusts
Convention, exempts Italy from that statement.
47 Article 51.1 of the PRC Trust Law 2001. The Law took effect on
1 October 2001. What exactly is the 'infringing' conduct of the
beneficiary, of which the PRC Trust law is apprehensive, it is
difficult to imagine.
48 Ley de fideicomisos, 1956.
49 Whether in terms of policy, ie tracing into the hands of
insolvent or bankrupt persons, it should be permitted to achieve more
is another matter.
50 A Dyer and H van Loon, Re****t on Trusts and Anagalous
Institutions, Preliminary Do***ents No 1, May 1982. Proceedings of the
Fifteenth Session of the Hague Conference on Private International
Law, Book II, 'Trusts.'
51 It is not having property under administration that
distinguishes the trustee from other fiduciaries. However, the
expressly appointed common law agent is a fiduciary administrator and
may hold title for the purposes of the agency.
52 Ie a personal patrimony and a fiduciary patrimony.
53 Two jurisdictions within one national country, such as England
and Scotland and in Canada Quebec and Ontario, will likely be more
amenable to accommodations in applying the other's concept.
54 The Swiss and Mon=E9gasque recognition of resident expatriates'
wills governed by common law is in each case a local conflict of laws
rule.
55 It is with regard to trust objects that commercial trusts
essentially differ from private client testamentary and inter vivos
trusts. So far as trust creation, and trust property, are concerned
there is no real distinction. With trust objects there has to be an
ascertained person (or a purpose), and it must be clear what quantum
each such beneficiary (or purpose) is to have. Commercial trust
objects are of two kinds. The beneficiaries are the transferor of
assets and/or other named or specific persons, and a set aside asset
or fund (or a charge) provides the beneficial interest. Alternatively,
the beneficiaries are multiple persons holding units of value in a
fund, usually for investment. Provision of set aside assets or funds
is rarely the private client's concern, and unitisation would not
often reflect family ideas of beneficial interest. Discretionary
trusts, powers of appointment, maintenance or advancement, and powers
to add or remove beneficiaries, do not lend themselves to unit design.
Nor do successive interests, or unborn lives.
56 The argument has been made that in any event all common law
trusts are 'deals' (or contracts) between settlor and trustee. Though
the common law also makes in rem remedies available to the
beneficiary, statute can provide this if trust is conceived of as a
contract. See JH Langbein, 'The Contractarian Basis of the Law of
Trusts' (1995) 105 Yale LJ 625.
57 Quaere Central and South America.
58 For example, if taxpaying residents are creating offshore
trusts, the state taxes the trust as if it is onshore. If offshore
trustees refuse to disclose the trust's return or to pay the tax, and
there is no branch of the trustee that is also a taxpaying resident,
the state can tax an arbitrary amount to resident trust beneficiaries
and leave them to obtain reimbursement from the offshore trustees. All
that is needed is adequate state machinery for the discovery of trust
creation.
59 Though approaching the issue as a conceptual problem, Professor
Ho op cit n 10, above, at paras 3.20-3.29, is very critical of the PRC
Trust Law 2001, which she interprets as likely to be almost the same
in operation as agency.
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