Joyman Lee, ‘Settlor’s Retention of Powers in Civil Law Trusts’

… This article examines the role of the settlor in civil law trusts with reference to the Japanese and Chinese trusts as well as the French fiducie. Unlike the common law trust, which Donovan Waters describes as the ‘property model’ in the sense that ‘it is the proprietary element that particularly catches attention’, the ‘obligational model’ which characterises civilian trusts is based on an agreement between the settlor and the trustee. What the basic distinction does not capture is the diversity of doctrinal structures within the obligation model: the Japanese trust, for example, provides a powerful proprietary remedy resembling rescission in the English sense, whereas the French fiducie is strongly contractual, and trustee duties are owed to the settlor rather than the beneficiary. In all obligational models, the settlor is usually the person charged with policing the performance of the trust. While the precise designation of powers and duties to each part of the trust structure is a matter of institutional design, it is submitted that unless the settlor is subjected to some form of fiduciary control, it would be meaningless to describe the institution as a trust comparable to the common law trust, because property would not have meaningfully departed the settlor’s hands. The historical neglect of this question stems in part from the lack of taxation considerations in civilian trusts. Unlike the English trust, where the designation of property as remaining within the settlor’s control may render the settlor liable for income tax on trust property, in civilian jurisdictions trust taxation lacks the sophistication of common law systems. Consequently, the pressures for a clarification of the roles of trusts parties, especially that of the settlor, have to come from the practical purposes which the trust is designed to achieve, including the goal of preventing the settlor’s contract creditors from enforcing their claims against the trust …

Joyman Lee, ‘Settlor’s Retention of Powers in Civil Law Trusts’ (2021) 35(2) Trust Law International 90.

First posted 2021-09-11 10:00:36

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