A Global Framework for Trusts: the Hague Trust Convention of 1985
The cross-border applicability of trusts has long been a legal challenge, particularly when trust provisions must be carried out in civil law jurisdictions. Issues become especially relevant when trust assets, beneficiaries, and trustees are located in countries without proper trust recognition.
Aiming at providing a solid framework for those who utilize trusts in their financial and estate planning, the Hague Trust Convention of 1985 has been upheld as a major international treaty. Ensuring legal certainty and stability, the convention creates uniform rules for the creation, validity, and recognition of trusts, irrespective of the jurisdiction. The ultimate objective of the treaty is to promote cross-border trust planning by facilitating the recognition and enforcement of trusts.
It provides a clear framework for cross-border trusts.
Improving Legal Certainty in Trust Law through the Hague Trust Convention
The Convention applies to all trusts, regardless of whether they are established for charitable or private purposes. It is designed to help simplify and streamline the process of creating and managing trusts across multiple jurisdictions. By providing a standardized set of rules, the convention reduces the need for complex legal arrangements that might otherwise be necessary to ensure the enforceability of trusts.
One of the key benefits of the Convention is the clear framework for cross-border trusts that it provides. This means that trustees, beneficiaries, and settlors can be confident that the trust will be recognized and enforced in other countries that are party to the Convention. Making it easier to use trusts as a tool for international estate planning while providing a greater protection to beneficiaries who may be located in different countries. Although, some commentators have argued that the Convention’s main objective is the protection of the Anglo-American trust with respect to transactions in civil law countries.
Signatories and Their Implementation Approaches
Originally concluded with the signatures of Italy, Luxembourg, and the Netherlands, there are now 14 signatories to the Hague Trust Convention of 1985.
The ratification of trusts has been heavily influenced by the domestic legal institutions of each State. The ratification by some countries even introduced the concept of separation of ownership in their domestic law. This adoption may have been fueled by the desire to create a legal environment attractive to foreign investors in a competitive landscape. While one of the original signatories, Italy, has embraced trusts in its civil code and fiscal law, provided that they abide by the Italian forced heirship regulations, other nations have taken a more cautious stance.
Despite being signatories, countries such as France have not ratified the Convention. Due to the absence of specific provisions concerning foreign trusts, French law does not have any regulations regarding the recognition of such trusts, which is left to the discretion of the domestic courts. Eventually, French law introduced the concept of fiducie, which is considered the closest legal concept to trusts in France. However, the fiducie remains fundamentally different from common law trusts.
Flexibility in Trust Recognition
The Hague Trust Convention remains of limited application, with some trusts falling outside of its scope. In such cases, the question of recognition arises, particularly in non-trust jurisdictions where there may not be any specific provisions in the national rules of conflicts regarding trusts. However, the Convention provides some flexibility. This is particularly the case under article 14, providing that contracting States have the option to apply their existing case law in such matters.
While the Hague Trust Convention does not provide a comprehensive solution to every problem and lacks a definitive scope of application, it does offers a significant benefit by introducing specific provisions that seeks to address the cross-border treatment of trusts within the private international laws of non-trust contracting states. This eliminates the need for these states to distort trusts and significantly improves legal certainty in the area of trust law.
For a more in-depth understanding, you can review The Recognition of Trusts and Their Use in Estate Planning under Continental Laws by Julien Perrin. The Hague Convention on Trusts and the Uniform Trust Code by Michael W. Galligan. An the full text of the Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition.
