1. law, govt and politics

Trusts and Fiduciary
arrangements in Luxembourg
Carine Feipel
December 2nd ,2009
Luxembourg in a nutshell
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Located in the heart of Europe
Founding member of the EU, as such submitted to EU legislation
One of the most important international financial centers in the EU
One of the smallest countries in the EU but one of the highest
incomes per capita in the world
Multicultural and multilingual population
Great political stability, high level of security
Well connected to the outside world with over 50 double tax
treaties
Money laundering: GAFI rules
Cooperation between foreign authorities even in tax matters
OCDE compliant - Luxembourg on no black/grey OCDE list
Agenda
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Recognition of foreign trusts
Luxembourg fiduciary agreements
Family wealth management company as an alternative
Specialized Investment Fund as an alternative
Recognition of foreign trusts
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Recognition of foreign trusts
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Judgment of the Luxembourg Court of Appeal of 22 May 1996
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Facts:
 A settlor grants a guarantee to a bank on assets (cash) allocated to a
Jersey trust without any intervention of the 2 trustees
 The bank exercises its guarantee on the assets of the trust
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Issue
 The trustees ask the Luxembourg court to force the reimbursement of
the guarantee by the settlor  the settlor is not entitled to grant a
guarantee on the assets of the trust
 The settlor challenges the authority of the trustees to act as
representatives of the trust before the Luxembourg court
Recognition of foreign trusts
 Court
 The trust is not a legal concept existing under Luxembourg law
 Impossibility of establishing a trust in Luxembourg
But
 The capacity of the trustees to act as representatives of the
trust exists in the law of the trust
 The law of the trust is not contrary to Luxembourg law and
Luxembourg public policy
 The action before the Luxembourg court introduced by the
trustees is admissible
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Recognition of foreign trusts
 The Hague Convention on the law applicable to trusts and on their
recognition
“…the legal relationships created - inter vivos or on death - by a
person, the settlor, when assets have been placed under the
control of a trustee for the benefit of a beneficiary or for a specified
purpose.” Article 2
 Luxembourg law dated 27 July 2003 applicable to trusts and
fiduciary agreements (with effect in Luxembourg since 1st January
2004)  recognition of foreign trusts
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Recognition of foreign trusts
 In « common law » jurisdictions : difference between legal and
economic property:
 the settlor transfers legal property of assets to the trustee
 the beneficiaries have the economic property of the assets
transferred to the trustee
 Luxembourg law does not recognize this difference:
 principle of unique and full ownership
 no possibility to launch a Luxembourg trust but foreign trusts are
recognized
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Recognition of foreign trusts
 Judgment of the Luxembourg District Court of 12 December 2008
 Facts
 A US resident, Mrs. B, holds a real estate in Luxembourg
 At the time of her death, the real estate is allocated to a US trust
 The trustee is in charge of managing the assets of the trust during a
certain period of time
 The beneficiary of the trust is the sister of Mrs. B and the French
foreign Ministry and a French association
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Recognition of foreign trusts
 Issue
 The Luxembourg tax authorities consider that the real estate
has been allocated to the trust and that inheritance tax is due
at a rate applicable to non-relatives
 Court
 Principle of tax neutrality of the transfer of assets to a trust
 Trusts do not have legal personality
 Recognition by the Luxembourg tax authorities of the US trust:
no inheritance tax was due
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Luxembourg fiduciary agreements
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Luxembourg fiduciary agreements
 Introduced in the Grand-Ducal regulation of 19 July 1983 modified
by the law of 27 July 2003
 Innovation: introduction of the principle of segregation of assets
 Fiduciary agreements may be used for various purposes:
 Management purposes (fiducie-gestion);
 Guarantee purposes (fiducie – sûreté);
 Credit purposes (fiducie – crédit);
 Carrying purposes (fiducie – portage)
 Gift or inheritance purposes (fiducie – donation)
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Luxembourg fiduciary agreements
 Definition (Art 5, Law 2003)
“A fiduciary agreement is an agreement by which a person, the
principal, agrees with another person, the fiduciary, that, subject to
the obligations determined by the parties, the fiduciary becomes
the owner of assets which shall form a fiduciary estate”.
 full transfer of ownership in favor of the fiduciary
 separate patrimony held by the fiduciary on behalf of the settlor
(patrimoine d'affectation)
 No registration requirements in Luxembourg, except when relating
to real estate located in Luxembourg, or aircrafts or vessels
registered in Luxembourg
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Luxembourg fiduciary agreements
 Eligible persons as fiduciary  credit institutions and certain
professionals of the financial sector:
investment firms, investment funds (SICAV, SICAF), management
companies of collective investment funds (FCP), pension funds,
insurance or reinsurance companies, securitization vehicles.
 Non-eligible persons:
Lawyers, notaries, domiciliation agents
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Luxembourg fiduciary agreements
 Functioning
 Freedom of contract
 In absence of defined rules set by the parties  rules
governing mandates except for representation and dismissal
principle
 The fiduciary arrangement may be irrevocable and
discretionary
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Luxembourg fiduciary agreements
 The fiduciary assets do not belong to the personal estate of the
fiduciary agent
 This segregation survives even in the case of bankruptcy or
insolvency of the fiduciary agent
 the fiduciary assets cannot be seized by creditors of the
fiduciary agent
 the fiduciary assets will not form part of the insolvency
estate of the fiduciary agent
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Family wealth management company as an alternative
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Family wealth management company as an alternative
 The law on family wealth management companies (“société de
gestion de patrimoine familial” - “SPF”) was adopted on 11 May
2007
 The SPF is designed as an investment company intended solely for
individuals managing their private wealth. The level of wealth or
sophistication of the individual is irrelevant.
 The SPF is a legal entity separate from its shareholders
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Family wealth management company as an alternative
 Shareholders of the company :
 any individuals acting within the framework of the management
of their private wealth;
 any wealth management entities acting exclusively in the
interest of the private wealth of individuals i.e. family offices,
trusts, private foundations or similar entities;
 intermediaries holding shares in the SPF on a fiduciary basis
or in a similar capacity, on behalf of eligible investors
 « Family » notion :
 no need to be relatives
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Family wealth management company as an alternative
 Corporate form : any form of a capital company such as the private
limited liability company, the public limited liability company, the
partnership limited by shares, or the cooperative company in the
form of a public limited company
 minimum registered capital
 31,000 EUR for a public limited liability company
 12.500 EUR for a private limited liability company
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Family wealth management company as an alternative
 purpose of the company
 acquisition, holding, management and sale of financial assets,
to the exclusion of any commercial activity
 The SPF cannot:
 hold real estate directly, but it can invest in any kind of property
company
 grant loans
 subscribe to an insurance policy
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Family wealth management company as an alternative
 Subjective tax exemption
 No Withholding tax
 No benefit from Double Tax Treaty
 0.25% subscription tax (with a cap)
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Specialized Investment Fund as an alternative
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Specialized Investment Fund as an alternative
 Introduced by a law of 13 February 2007
 Subject to a light supervision by the CSSF:
 Ex post approval procedure
 Requirement of a prospectus (issuing document) which needs to
be updated only if new shares or units are issued to new
investors
 No promoter requirement but reputable and experienced directors
 Principle based investment restrictions
 Subject to an annual subscription tax (taxe d’abonnement) at the
rate of 0.01%
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Specialized Investment Fund as an alternative
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Eligible investors: well-informed investors
 Institutional investor, or
 Professional investor, or
 Other well-informed investor, i.e.
 having confirmed in writing that he/she adheres to
the status of well-informed investor, and
 investing a minimum of 125,000 Euros in a SIF
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Specialized Investment Fund as an alternative
 All legal forms permitted:
FCP (common fund)
SICAV (investment company with variable capital) / SICAF
(investment company with fixed capital) under the form of an
S.A., S.C.A., S.à R.L. or S.C.S.A.
Umbrella structure possible
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Specialized Investment Fund as an alternative
 Risk diversification
 No quantitative investment restrictions except CSSF Circular
07/309 of 3 August 2007 (possible derogation):
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no more than 30% of the SIF assets in securities of the same kind
issued by a single issuer;
 Master-Feeder structure possible
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Thank You
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Contact us
 Carine Feipel
 Partner
 Tel :+1 212 554 3541
 Email : [email protected]