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STEP Caribbean Conference May 4-7,
2008 Presentation BASIC TRUST
Jaime E. Alemán Alemán, Cordero, Galindo
Lee Panama, Republic of Panama
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INTRODUCTION

• Main Topics
• Development of the trust concept.
• Fundamental elements of a valid common law
  trust.
• The civil law Fideicomiso.

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• BACKGROUND

• Development of the trust concept during
• Roman times.
• Court of Chancery in England in the
• 14th Century.

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• WHAT IS A TRUST?

Definition of a Trust The classic definition
of a common law trust is the following one, which
is found in a book published by Underhill and
Hayton titled Law Relating to Trust and Trustees,
15th Edition A trust is an equitable
obligation, binding a person (who is called a
trustee) to deal with property over which he has
control (which is called trust property), for the
benefit of persons (who are called the
beneficiaries), of whom he may be himself one,
and any one of whom may enforce the obligation.
Any act of neglect on the part of a trustee which
is not authorized or excused by the terms of the
trust instrument, or by law, is called a breach
of trust. The control of the trustee, may, under
the terms of a trust, be subject to fiduciary or
personal powers vested in another person, who may
sometimes be expressly designated a
Protector.
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• PARTIES OF A TRUST

• The Settlor
• The grantor or donor in a deed of settlement.
• The Trustee
• Person holding property in trust.
• The Beneficiaries
• Persons or entities for whose benefit the trust
  is created.
• The Protector (optional)
• His functions are to supervise or oversee the
  actions of the trustee.

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• THE TRUST CONCEPT

• A trust does not have a legal personality of
  its own.
• A trust consists of a number of equitable
  rights belonging to the beneficiary and
  corresponding obligations owed by the trustees to
  the beneficiaries.
• The trust property is beyond the reach of the
  trustees personal creditors.
• The trustees have a fiduciary obligation to
  comply with the terms of the trust.

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• THE NATURE OF A BENEFICIARYS EQUITABLE INTEREST

• In personam rights.
• Rights enforceable by the beneficiaries against
  the trustees.
• In rem rights.
• Rights enforceable by the beneficiaries to
  recover the properties whose rights have wrongly
  been transferred by the trustee against anyone
  who acquires it whos not a bona fide purchaser.

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• THE THREE CERTAINTIES

• Certainty of intention.
• The words used by the settlor must be clear and
  unambiguous, and show that the settlor intended
  to impose a binding obligation on the trustee.
• 2. Certainty of subject matter.
• The trust property must be clearly identified.
• Certainty of objects.
• Named and/or identified
• Defined so that they can be ascertained with
  certainty.

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• THE TRUST INSTRUMENT

• Most legal systems impose few, if any,
  restrictions on the drafting and contents of the
  trust instrument itself.
• There are many standard forms that can be used
  for drafting a trust, but adaptations will
  obviously need to be made on a case by case
  basis.
• Most jurisdictions do not require trust
  instruments to be publicly filed.
• The trust instrument is the most critical point
  of reference for the trust professional, since it
  sets out the terms of the trust, the duties of
  the trustees and the rights of the beneficiaries.
  

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• THE TRUST PROPERTY MUST BE PROPERLY TRANSFERRED
  TO THE TRUSTEES

• In order for the trust to be valid, the trust
  assets must be lawfully transferred to the
  trustees.
• The following formalities are required for an
  effective transfer of assets into the trust
• Ownership
• Capacity
• Transfer of legal title to the trustees.
• EQUITY WILL NOT PERFECT AN IMPERFECT GIFT.

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• THE RULE AGAINST PERPETUITIES

• The common law rule was that no interest in
  property would be valid unless it could be shown
  that the interest would vest, if at all, no later
  than 21 years after the death of some person
  alive when the interest was created.
• Many jurisdictions have statutes that either
  eliminate the rule entirely or put clearer limits
  on the period of time and who is affected by it.

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DIFFERENCES IN THE TRUST LAWS OF COMMON LAW AND
CIVIL LAW JURISDICTIONS

• Common law is essentially judge-made law,
  whereas civil law tends to be codified.
• The concept of equity does not exist in the civil
  law jurisdictions with respect to trusts.
• The Anglo-Saxon trust has never developed or been
  applied in most civil law jurisdictions.
• The main risk of setting up a trust in a civil
  law jurisdiction is that the assets transferred
  to the trustee in trust by the settlor, are not
  considered as being separate from the trustees
  own assets, and are thus subject to being
  attached by the trustees creditors.

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DIFFERENCES IN THE TRUST LAWS OF COMMON LAW AND
CIVIL LAW JURISDICTIONS

• Civil law jurisdictions have not developed the
  legal framework necessary for effective use of
  the trust.
• The private interest foundation is a much more
  effective vehicle than the trust for estate
  planning purposes in civil law jurisdictions.

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THE HAGUE CONVENTION ON THE LAW APPLICABLE TO
TRUSTS AND THEIR RECOGNITION

• The Convention has a dual purpose
• To introduce uniform conflict of law principles
  applicable to both common law and civil law
  jurisdictions and
• To enable jurisdictions that dont derive their
  law from English common law to recognize foreign
  trusts so that common law concepts become
  acceptable in said jurisdictions.
• The aim of the Convention is to build a bridge
  between the common law and the civil law trust
  systems.
• The present rate of ratifications of the Hague
  Convention is disappointing.

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CONCLUSIONS

• There is still a large schism between common law
  and civil law jurisdictions regarding trust law.
• More needs to be done in this era of
  globalization to close the gap between the common
  law and civil law jurisdictions in the trust
  area.