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ournal of International Trust and Corporate 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 corporate 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 corporation acting as a trustee of investment and security
provision trusts, mostly for individuals or small corporations. Today,
commercial and corporate-employed trusts, for foreign national and
multinational corporations, 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 portfolio, 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 important financially are
corporate organisations of all sizes, public and private, which have
assets for investment in the national economy.6 The corporation 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 corporate transactions. It means protection
from the insolvency of the trustee, corporate 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
corporation, 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 (PR
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