Monaco

3. Trusts

a. Introduction

In 1936, an enlightened Monaco government enacted Law 214, which was specifically designed to favour foreign nationals resident in the principality by allowing them to dispose of their estates in accordance with rules familiar to them. This departed from the provisions of the Monaco Civil Code to which, being resident and domiciled there, these foreign nationals would ordinarily have been subject, by operation of the renvoi principle from their ‘national’ law. In 1999, Law 1216 added flexibility to the procedure required to conform to the law.

The guiding principle behind Law 214 is that persons who, by reason of their personal status, are able to regulate their estates according to a system of trusts, are entitled to have recourse to such a system within the territory of Monaco. It is thought that this remarkable legislation is unique in a pure civil law jurisdiction.

Law 214 allows both new settlements and transfer to Monaco of existing trust arrangements. Transfer follows the same procedure as for new settlement. Any person who, as at the date of the previous settlement, was a foreign national (even if there has been a subsequent change of nationality, including becoming a Monaco national) may create in Monaco a new trust to replace an existing trust established abroad, although this supposes that the new settlement reproduces precisely the same terms as the old.

Law 214 is used almost exclusively in the context of will trusts, importing an individual’s succession law and trust law as a consequence.

Upon pain of nullity, a trust purporting to benefit from the provisions of Law 214 must conform to certain strict formal procedures. Although the law is not specific (‘personal status’ not being defined), practice dictates that only Monaco residents (i.e. those holding residents’ permits) of nationalities whose domestic law incorporates trusts can make use of the facilities offered by the law.

The integrity of the law is safeguarded by Monaco notaries, who alone are empowered to preside over the formalities.

b. Proper law of a trust

Whereas Monaco law alone determines the appointment of trustees, Law 214 does not create a Monaco trust. Such an instrument does not exist. A Law 214 trust is regulated, except for appointment of trustees, by the proper law to which it was specifically made subject. In the event of dispute, Monaco courts have jurisdiction and expect to hear arguments from foreign advocates familiar with such law. Thus, instead of creating a Monaco trust, Law 214 creates a set of criteria by which Monaco courts will enforce and have jurisdiction over a trust formally created in Monaco but specifically subject to the laws of another jurisdiction. By definition, such a jurisdiction must have its own body of domestic trust law.

Trustees, in the context of will trusts, will be named as executors, importing not only a testator’s trust law, but the testator’s national succession law and rules relating to administration of estates.

While notaries may advise, experienced English and US lawyers also practise in Monaco and provide advice on international estate planning and the formation of Law 214 trusts, especially will trusts.

c. Creation of a trust

i. Validly constituted trusts

Since the advent of Law 1216, a Law 214 will trust is properly made if it is in ‘mystical’ form, that is, if it is presented to a notary in a sealed envelope by persons declaring that the contents constitute their testamentary dispositions before four witnesses.

Previously, notaries required French translation of the trust instrument to read to the settlor in the presence and hearing of four witnesses, a procedure that many found discouraging. Notwithstanding Law 1216, the old procedure remains available. Inter vivos trusts may also be established with Law 214 status, although they are unknown in practice.

Before accepting the instrument, notaries must be assured of two additional features. One requirement relates to the delivery, by a lawyer skilled in the domestic law of the settlor/testator, of a certificate confirming that the trust conforms to that law. This lawyer must be admitted to a list of practitioners maintained by the Monaco Court of Appeal. All English solicitors of the Supreme Court and all US attorneys-at-law are admitted as of right; other practitioners must make more detailed application. The second requirement is that the corporate trustee must also be included in a list maintained by the court.

ii. Trustees

Only companies may be included in the list maintained by the court, and individuals are admitted only as co-trustees. Procedure for registering as a trustee is time consuming, and companies expecting to be called upon to act as trustees should apply well before the expected date of execution of the trust and its lodging with the notary. Settlors/testators may choose from trustees already listed or choose an unlisted individual who can act only for that single trust. Individual co-trustees registered may, however, serve in several settlements. Listed corporate trustees who are not Monaco-registered companies must nominate a local representative.

d. Trust administration

Administration, investment, maintenance and advancement, variation of trust terms, and trustees’ and beneficiaries’ rights, are not fettered by Law 214 rules, so the trust is run exactly as it would have been had there been no Monaco connection (e.g. the foreign law is adduced before the courts of Monaco).

e. Confidentiality and disclosure

Confidentiality is assured as a matter of professional good practice, although trust companies in Monaco are not bound or protected by the provisions of the Monaco Criminal Code that apply professional secrecy to certain other professions. International letters rogatory calling for disclosure of information, once validated by the judiciary in Monaco, must be complied with. Because of its treaty arrangements with Monaco, France can discover information of a fiscal nature and French Customs, responsible for VAT matters, among others, have direct access to information.

f. Rights of creditors

In many trust jurisdictions, stringent rules deriving from the Statute of Elizabeth apply to protect the rights of creditors; in Monaco, a virtually identical notion known as the ‘action paulienne’ applies. Questions of conflict of laws could arise whereby the proper law of the trust conflicts with that of Monaco on this subject, although Law 214 is clear that the Monaco courts will apply the foreign law in matters relating to the operation of the trust in Monaco.

g. Provision for private trust companies

In theory, private trust companies created to serve a single family in another jurisdiction would be admissible. Nonetheless, since the enactment of Law 1216 and its stronger vetting process, it is unlikely that the court would approve such a structure. It would probably prefer to approve a regulated entity in a recognisably strict jurisdiction that appoints a regulated Monaco representative.

Monaco recently began a review of local trust service providers with a view to future legislation. Substantial progress has already been made by way of recommendations for good practice and a code of conduct. The International Monetary Fund report on regulatory levels in Monaco was entirely satisfactory for the sector.


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© 2011 Society of Trust & Estate Practitioners