A French family sets up a Jersey trust, moves a foreign portfolio into it, and a few years later the heirs go to a Paris court to claim their forced share. Whether the French court will recognise the trust, and which law it applies to its assets, depends above all on whether the country has ratified the 1985 Hague Convention — the only international instrument establishing rules for recognising trusts in civil-law jurisdictions.
History of the Recognition Problem
The trust developed in English equity: the Lord Chancellor recognised the beneficiary's right to compel the trustee to manage property for their benefit, and so ownership came to be split into legal and beneficial ownership. Continental codes were built on the Roman tradition of unitary, indivisible ownership, where a single asset does not have two "owners" holding different rights. While the trust was used within the common law, this feature caused no difficulties; the difficulty began when wealthy families started holding assets around the world through trusts. The Hague Conference on Private International Law took up the question in the early 1980s and in 1985 opened for signature the Convention on the Law Applicable to Trusts and on their Recognition.
Legal Characterisation of Trust Relationships
The trust originated in the common law; continental legal systems historically lacked this institution: their law has no construct in which ownership is split between a trustee and a beneficiary — the structure and classification are explained in the articles on how a trust is structured and the types of trusts. The problem acquires practical significance once a trust acquires assets or beneficiaries in a civil-law country: the local court has to characterise a relationship its code does not provide for.
The Hague Convention 1985
The Convention lets contracting states recognise a trust created under the law of its "home" jurisdiction and apply that law to it. Only fourteen states are party to it, by ratification or accession (HCCH status table). Among civil-law jurisdictions these are Italy, the Netherlands, Luxembourg, Switzerland, Liechtenstein, Monaco, San Marino, Malta and Panama, plus mixed-system Cyprus; the United Kingdom extended the Convention to its offshore territories — Jersey, Guernsey, the Isle of Man, the BVI, Bermuda and Gibraltar. France and the United States signed it but never ratified, while Germany, Spain, Austria, Belgium and Russia are not party to it at all. The Convention entered into force on 1 January 1992 and has attracted few major new members since.
How Recognition Works
The separate fund is protected against the trustee's personal creditors but not against forced-share claims.
Article 6 lets the settlor expressly choose the law governing the trust — usually the law of a classic trust jurisdiction such as Jersey, Guernsey or the Cayman Islands (their regimes are covered in the article on Jersey and Guernsey trusts). If no choice is made, or the chosen law does not provide for a trust, Article 7 points to the law with which the trust is most closely connected: the place of administration, the location of the assets, the trustee's residence. Article 11 describes the minimum effect of recognition: the trust assets form a separate fund, the trustee's personal creditors cannot reach them, and they do not fall into the trustee's bankruptcy, estate, or division of matrimonial property. It is for this effect that trusts are used for asset protection.
Recognition has its limits. Article 13 lets a court refuse to recognise a trust whose significant elements — apart from the choice of law, the place of administration and the trustee's residence — all point to a country with no institution of the trust; this is a mechanism against purely artificial constructs. Article 15 preserves the mandatory rules of whichever law the forum's conflict rules designate: the heirs' forced share (forced heirship), spousal protection, creditors' rights. A court may recognise a trust and at the same time draw its assets into the forced share.
Three Separate Questions: Recognition, Forced Heirship and Creditors
The Hague Convention distinguishes three separate questions. Recognition determines the trust's characterisation in a civil-law court; it does not determine what heirs may claim or what creditors may recover.
- Recognition (Art. 11). A trust created under its applicable law is recognised as a trust: the assets are a separate fund, the trustee sues and is sued as trustee, the trustee's personal creditors have no recourse against trust assets, and the assets stay outside the trustee's insolvency, matrimonial property and estate (Art. 11(a)-(c)); assets the trustee has mingled or alienated in breach of trust can be recovered (Art. 11(d)).
- Forced heirship (Art. 15(c)). Recognition does not exclude the application of the forum's succession law: provisions that cannot be derogated from by voluntary act — expressly including "the indefeasible shares of spouses and relatives" — continue to apply. A forced-heirship claim under the applicable succession law can therefore reach value the settlor moved into a recognised trust. Art. 13 also applies: no state is bound to recognise a trust whose significant elements, apart from the choice of law, the place of administration and the trustee's residence, are more closely connected with non-trust states.
- Creditors (Art. 15(e), 16, 18, 19). Insolvency creditor protection of the forum survives recognition; the forum's own overriding mandatory rules apply regardless (Art. 16); recognition can be refused on public-policy grounds (Art. 18); and the Convention "shall not prejudice the powers of States in fiscal matters" (Art. 19) — a recognised trust can still be taxed as if transparent.
Practical Consequences
In a country that does not recognise trusts, the assets or the beneficiary may be recharacterised — for instance, treating the property as the settlor's own for forced-share or tax purposes. So for families from such jurisdictions a foundation is the steadier choice: it is a legal entity and is recognised without any convention — whether a Liechtenstein foundation or a Panama foundation.
Typical Situations
Italy ratified the Convention without reservations (Law 364 of 16 October 1989), and since Article 13 only permits, and never obliges, a refusal of recognition, Italian families freely set up the so-called trust interno: a trust under English or Jersey law over Italian assets and with Italian beneficiaries. The Italian tax authority and courts recognise such trusts, and over thirty years an extensive body of practice has grown up around them.
France took a different path. It has no trust of its own — only the narrower fiducie (2007). French law does nevertheless take account of foreign trusts, above all for tax purposes: since 2011 the Tax Code has contained a definition of the trust, a duty on the trustee to report the trust's French connections, and a special levy on undeclared assets. Even without ratification, a trust is recognised in France, albeit in a truncated, mainly fiscal form.
Russia is not party to the Convention, and Russian law does not provide for the trust as an institution. For Russian tax residents a trust is addressed through the CFC and beneficial-ownership rules: the settlor or beneficiary is readily treated as a controlling person, with all the attendant reporting duties and tax on undistributed profit — further details are provided in the article on trusts and CFC.
Development of Recognition and Transparency
The Convention itself remains a niche instrument: it has gained no major new members since 2017. The main changes concern transparency — automatic exchange under the CRS, beneficial-ownership registers and the EU anti-money-laundering directives have increased the transparency of trusts towards tax authorities. In parallel, the EU Succession Regulation (Brussels IV, 650/2012) took trusts themselves out of its scope but subjected cross-border succession to a single applicable law, and the forced share under it may well reach the trust's assets.
Review of Recognition and Tax Treatment
Before setting up a trust for a family from a continental jurisdiction, one checks whether that jurisdiction's law recognises trusts and how it taxes them. Often the answer points toward a foundation or a hybrid structure.
Comparison of Eighteen Jurisdictions: Convention Status and Trust Treatment
Ratification of the Convention and trust taxation are two independent questions: the local tax system determines treatment regardless of judicial recognition, because Article 19 leaves fiscal powers untouched. The comparison covers eighteen jurisdictions where a private trust's assets, heirs or beneficiaries are usually located.
| Jurisdiction | Hague 1985 | Own construct or reservation | Tax treatment of the trust | Forced heirship and trust assets |
|---|---|---|---|---|
| Italy | Party; in force 01.01.1992 | Ratified without reservations; refusal under Art. 13 is only optional — hence the trust interno over Italian assets | Opaque trust is a taxable person for IRES (art. 73 TUIR); transfer to the beneficiary taxed under art. 4-bis TUS | Yes — the azione di riduzione reaches the value transferred |
| Netherlands | Party | No domestic trust; the afgezonderd particulier vermogen is a statutory category of its own | Assets and income attributed to the settlor, and after death to the heirs, under art. 2.14a Wet IB 2001 | Yes — the legitieme portie is a money claim against the estate |
| Luxembourg | Party | Law of 27 July 2003 on trusts and fiduciary contracts | Characterisation follows the deed: transparent or a separate taxpayer | Yes — the réserve of the Civil Code survives |
| Switzerland | Party; in force 01.07.2007 | No domestic trust; practice set by SSK/ESTV Circular 30 of 22.08.2007 | Revocable: transparent. Irrevocable discretionary: attributed to the settlor where he was resident at settlement | Yes — Art. 522 ZGB, on the reserve reduced by the reform of 01.01.2023 |
| Liechtenstein | Party | Its own Treuhänderschaft under the PGR, alongside the Stiftung | A foundation pays 12.5% on net income (art. 61 SteG), or only the CHF 1,800 minimum tax with private-asset-structure status (art. 64); a trust, having no legal personality, pays only the minimum tax (art. 65) | Yes, within the statutory limitation on claims against the endowment |
| Monaco | Party; reservation excluding Art. 16(2), and a declaration under Art. 20 | Law 214 of 1936 admits a trust only for a settlor whose national law knows one | Registration duty on the settlement; no income tax on individuals | Yes — the réserve is mandatory |
| Malta | Party | Trusts and Trustees Act; trust and foundation both available | Income attributed to the beneficiaries, or the trustee elects to be taxed as a company | Yes — the reserved portion of the Civil Code |
| Cyprus | Party | Cyprus International Trusts Law 69(I)/1992, amended in 2012 | The trust is not a taxable person; a resident beneficiary is taxed on the income attributed to them | A CIT is expressly protected against a foreign heirship claim; a Cypriot estate stays under the Cap. 195 reserve |
| Panama | Party | Law 1 of 1984 on trusts, and the 1995 foundation law beside it | Foreign-source income of the trust untaxed | Local forced heirship does not reach a foreign-asset trust |
| United Kingdom | Party, with thirteen territorial extensions | The extensions are why a Jersey, Guernsey, Isle of Man, BVI, Bermuda or Gibraltar trust falls within the Convention regime | Relevant property regime: entry, ten-year and exit charges | No reserve; the Inheritance (Provision for Family and Dependants) Act 1975 claim instead |
| France | Signed 1991, never ratified | Only the narrower fiducie (2007) | A fiscal definition without civil recognition (art. 792-0 bis CGI); prélèvement 1.5% under 990 J; 60% on exit in the resident-settlor case | Yes — the réserve héréditaire, and since 2021 the droit de prélèvement restores it against a professio juris |
| United States | Signed, never ratified | Recognition is not an issue: trusts form part of domestic law in every state | Grantor or non-grantor (IRC §§ 671–679), with Forms 3520 and 3520-A | No reserve; a spousal elective share, and Louisiana as the exception |
| Germany | Not a party | No trust; a Vermögensmasse ausländischen Rechts, with the Stiftung as the domestic alternative | Income attributed to the settlor and beneficiaries under § 15 AStG; settlement and distribution are gifts under § 7 ErbStG | Yes — the Pflichtteil, with the supplementary claim under § 2325 BGB on a sliding ten-year scale |
| Spain | Not a party | No trust and no equivalent; the fundación is public-interest only | Complete transparency: the beneficiary is treated as taking directly from the settlor, ISD on the settlor's death | Yes — the legítima, with regional variation |
| Portugal | Not a party | No trust; the fiduciary structure exists only as a tax object | Distribution taxed at 28% as investment income (art. 5 (2) (t) CIRS), 35% from a listed jurisdiction | Yes — the legítima of arts. 2157–2161 of the Civil Code |
| Israel | Not a party | No civil trust; the tax ordinance has a full trust chapter, ss. 75C–75P | Attribution to an Israeli settlor; an Israeli beneficiary trust elects 30% on the distribution or 25% on the income | No classic reserve; maintenance for dependants out of the estate |
| UAE | Not a party | DIFC Trust Law 2018 and the ADGM regime operate as common-law enclaves inside a civil-law federation | No personal income tax; a trust may be treated as a family foundation and elect fiscal transparency | For non-Muslims Sharia no longer applies by default since Decree-Law 41 of 2022; for Muslims the fixed shares remain |
| Russia | Not a party | No trust; Ch. 53 of the Civil Code is a management contract that does not transfer title, and the personal fund is the domestic alternative | A foreign structure without formation of a legal entity: the founder is a controlling person by default | Yes — the compulsory share of art. 1149 of the Civil Code |
Convention status alone does not determine the outcome. The Netherlands ratified the Convention and still attributes the trust's assets and income to the settlor by statute; Germany never ratified and does the same thing through § 15 AStG. Recognition and attribution are simply different questions, and the Convention says so itself in Article 19. For tax purposes, the relevant factor is the trust's tax treatment; for succession, it is the effect of forced heirship.
Where both recognition and freedom of disposition are missing — Spain, Portugal, France for the reserve, and any non-party where the heirs will litigate at home — the vehicle that survives is an entity rather than a relationship. A foundation is a legal person recognised without the Convention; the thirteen-jurisdiction comparison of foundations is provided in Private Foundations, and the choice among trust jurisdictions themselves in Trust Jurisdictions.
Two points matter for recognition. Jersey, Guernsey, the Isle of Man, the BVI, Bermuda and Gibraltar fall within the Convention regime not in their own right but through the United Kingdom's territorial extensions — which is why a trust under their law is treated in an Italian or Swiss court exactly as an English one would be. Monaco is a party, but its reservation (excluding Article 16(2)) and its Article 20 declaration concern recognition, not creation; creation is governed by Law 214 of 1936, under which a Monaco resident whose own personal law knows no trust cannot simply settle one there.
Choosing an Instrument by Jurisdiction
| Where the heirs and the assets are | Limitations of a trust | Instruments and Ownership Arrangements |
|---|---|---|
| Italy, Switzerland, Liechtenstein, Malta, Cyprus | Little — recognition is available; the reserve remains | A trust under the law of a party, funded early, no settlor control |
| Spain or Portugal | Transparency or a flat charge on the distribution; the reserve remains applicable | A foundation, or dealing with the asset by situs and ownership form |
| Germany or the Netherlands | Statutory attribution regardless of recognition | A domestic Stiftung or an entity, with the attribution priced in |
| France | Fiscal-only recognition, 60% on exit in the resident-settlor case, the droit de prélèvement | An entity, or assets and heirs genuinely outside France before settlement |
| UAE, Israel, Singapore | Nothing on the tax side; personal status is decisive instead | A DIFC or ADGM structure with a registered will, or a trust in a party jurisdiction |
Q/A
If a country has ratified the Convention, does that exclude claims against the trust?
No. Ratification answers the civil-law question and nothing else. Article 19 preserves each state's fiscal powers, so a recognised trust can still be taxed as transparent, and Article 15(c) preserves the reserve, so a recognised trust can still be drawn into it. The Netherlands is an example: a party to the Convention that nonetheless attributes the trust's assets to the settlor by statute.
Why is a Jersey trust treated as Convention law when Jersey is not a state?
Because the United Kingdom extended the Convention to its territories, and Jersey is one of thirteen such extensions. In an Italian or Swiss court a trust governed by Jersey law is therefore in the same position as one governed by English law. The same applies to Guernsey, the Isle of Man, the BVI, Bermuda and Gibraltar.
Can civil-law heirs claw back trust assets?
Yes. Recognition does not rule out clawback. Article 15(c) of the Hague Convention expressly preserves the forum's mandatory succession rules, including the indefeasible shares of spouses and relatives: if the law applicable to the succession grants a reserved share, the court can count trust transfers against it. In countries that are not party to the Convention at all, the risk is more direct — the trust may be ignored and the assets treated as still the settlor's own. What reduces the exposure is timing (funding years before any dispute), real separation of control, and choosing the instrument the family law recognises.
Which structures resist clawback?
No structure resists every form of clawback; protection depends on a combination of conditions. A trust under the law of a Convention party, administered there, funded early, with no reserved settlor powers beyond what Article 2 allows, stands best in Convention courts. For families anchored in non-Convention civil-law systems, a foundation (Liechtenstein, Panama) is often recognised more naturally than a trust. Against creditors of existing claims, neither helps: insolvency and fraudulent-transfer rules of the forum apply over any recognition (Art. 15(e)).