Lexon Incorporations: Corporate, accounting, trust
Lexon Incorporations: Corporate, accounting, trust
Hague Convention of 1985 on the law applicable to trusts

There are a relatively large number of countries in the world whose legislation recognizes and regulates the concept of trust. Each of these countries has its own standards regarding the regulation of trust relationships.

The Hague Convention of 1985 on the Law Applicable to Trusts and their Recognition does not provide for harmonization of the rules regulating national trust legislation in the contracting states either. Each state whose legislation deals with the concept of trust continues to retain its own legislation, regardless of accession to the Convention.

The need for the Convention was due to the fact that trust, as a concept, did not exist in the legislation of many countries. Meanwhile, being one of the concepts that are used mainly in the common law countries, trust continues to extend also beyond these specific countries due to growing internationalization of property relations.

The purpose of this Convention is therefore to set forth the general procedure of how the signatory countries will, regardless of their own trust legislation, take into account or recognize trust instruments established in other states.

The United Kingdom was the first country to ratify the Convention on 17th November 1989.

The Convention took effect on 1st January 1992, and currently it is applied to relationships between the following states: Australia, Canada, Hong Kong, Italy, Luxembourg, Liechtenstein, Malta, the Netherlands, San Marino, Switzerland and the United Kingdom.

The Convention has been signed but not ratified yet by France, Cyprus, and the United States of America.

Article 2 of the Convention defines characteristics of the trust. For the legal structure established under foreign law to be recognized as a trust, as a minimum the trust assets shall be separated from the trustee’s own property, and the right to the trust assets shall stand in the trustee’s name.

Therefore, this Convention will not be applicable to any concept that does not meet the criteria of Article 2, although it may be called a trust under the national law of a country of creation.

Article 3 of the Convention determines the evidence of existence of the trust. Whilst the legislation of most countries does not contain a strict definition that the act of intention must be expressed in writing, it is specified in Article 3 of the Convention that written evidence shall be established to confirm the existence of the trust as such.

Article 12 of the Convention provides that the signatory state will accept the trustee’s application filed for registration of movable or immovable property or other assets in his name in the public registers of this country in the capacity of a trustee, or in any other way that makes it possible to conform the existence of the trust property.

In countries that have not acceded to the Convention, local institutions, such as for example, arbitration or state courts, do not rely on regulations governing the trust relationship with respect to property registered under the laws of this country. Usually, judicial decisions are based on local legislation existing in this country instead on the laws of trust.

Example 1

A Russian businessman has transferred his property located in Russia to a foreign trust and instructed that after his death the trust should act in the interests of a particular person not being his heir at law. Will the Russian court take the position established under the foreign trust, or the position of the local Russian law on inheritance?

Since there is no concept of trust in the Russian legislation, the foreign trust deed is treated as an “agreement” in Russia. In its turn, the Civil Code of the Russian Federation stipulates that Russian law shall be applicable to the agreement in respect of property physically located in territory of Russia. Consequently, the court is likely to decide in favour of heirs at law and not the regulations of the trust.

Example 2

The transfer of property to a trust is in fact a disposal of property. According to the Russian law, where property acquired during the marriage is disposed of the disposing spouse needs the consent of the other spouse.

Accordingly, the spouse whose notarized consent to the transfer of property to the trust has not been received is entitled to seek in court that the trust deed should be invalidated.

The above examples illustrate the difference between the situation in respect of the trust in the countries that have acceded to the Hague Convention of 1985 on the Law Applicable to Trusts and on their Recognition and in the other countries.

http://lexcorp.com/en/trust/hague_convention/ - Hague Convention of 1985 on the law applicable to trusts