Trust Law Glossary: Jurisdiction Terms Defined

Anyone comparing trust jurisdictions meets the same vocabulary again and again, and the words are rarely used loosely by the lawyers who draft the documents. This trust law glossary sets out the terms that matter when you weigh one seat against another, in alphabetical order, each with a short definition. It is general information, not advice: how a term applies to you depends on your residence, your beneficiaries, the nature of the assets and the law governing your trust.

A

AEOI (automatic exchange of information)

The system under which tax authorities pass on financial account data about each other's residents, usually through the Common Reporting Standard. A trust can be caught either as an account holder or through the people behind it, so its reporting status depends on how it is classified and where its trustee and bank are located.

AMLA (anti-money laundering rules)

The Swiss anti-money laundering framework, known as LBA in French and GwG in German. It requires regulated intermediaries, including professional trustees, to identify their clients and the controlling persons behind a structure and to keep records. Other seats have comparable regimes with different scope and supervision.

Asset-protection trust

A trust, usually settled by the person who may also benefit, in a seat whose statute limits how far creditors can reach the assets. The protection has limits: courts look at timing, solvency and intent, and a foreign court may not respect the statute. See also firewall legislation.

B

Beneficiary

A person, or class of persons, who may receive income or capital from the trust. Rights range from a fixed entitlement to a mere hope of a discretionary distribution, and that difference drives both creditor exposure and disclosure duties.

Blacklist and grey list

Public lists of jurisdictions judged deficient on tax transparency or anti-money laundering standards. A listing can raise banking friction and reporting duties for a trust sited there, which is why seat reviews often follow a listing.

C

Civil law

A legal tradition built on codes and statutes rather than on judge-made precedent, as in Switzerland. Civil-law systems did not traditionally know the trust, which is why recognition rules matter when a trust meets a civil-law court.

Common law

A legal tradition developed largely through court decisions, in which the trust grew up through the courts of equity. Most of the best-known trust seats, such as Jersey or the Cayman Islands, are common-law systems.

Common Reporting Standard (CRS)

The international standard for the automatic exchange of financial account information between participating countries. For trusts it raises questions about who counts as a controlling person, usually the settlor, trustee, protector and beneficiaries.

D

Decanting

Pouring the assets of one trust into another trust with different terms, using a power in the deed or in a statute. It can update outdated provisions or change the seat, but it is only available where the law or the deed permits it. Read the full entry on decanting a trust.

Discretionary trust

A trust in which the trustee decides who among the beneficiaries receives what, and when. Because no beneficiary has a fixed claim, creditors and tax authorities may treat the position differently from a fixed arrangement.

Dynasty trust

A trust designed to last across several generations, limited only by the perpetuity rules of its governing law. Some US states and offshore seats have relaxed those limits, while many other systems still cap duration.

E

Economic substance

Real activity, people and decision-making in the place where a vehicle is based. Some seats require it for companies owned by a trust, and the practical cost differs between seats.

Exchange of information on request

A process by which one tax authority asks another for specific information about a taxpayer. It is narrower than automatic exchange but can reach trust records held abroad.

F

FINMA

The Swiss Financial Market Supervisory Authority. It authorizes and oversees financial institutions and, indirectly through supervisory organizations, certain professional trustees.

FinIA (also LEFin or FINIG)

The Swiss Financial Institutions Act, called LEFin in French and FINIG in German. It brings trustees who manage assets professionally under authorization and supervision. Its text refers back to the Hague Convention on trusts.

Firewall legislation

Statute in a trust seat that tells its own courts to ignore foreign rules, such as forced heirship or foreign judgments, when they would unwind the trust. It shields a trust only to the extent that the seat's courts are the ones deciding. Compare the entry on firewall legislation.

Fixed interest trust

A trust in which each beneficiary has a defined entitlement, set out in the deed. The certainty helps planning and valuation but leaves less flexibility than a discretionary trust.

Flee clause

A provision allowing the trustee or protector to move the trust to another seat if a defined danger arises, such as political instability or a hostile legal change. It must be drafted with care and used within the limits of the governing law. See flee clause.

Forced heirship

Rules, common in civil-law countries, that reserve a share of an estate for close relatives. A transfer into a trust may be challenged under these rules, and seats differ on whether they will protect the trust. The topic is explored in forced heirship and trusts.

Foundation

A legal entity holding assets for a purpose or for beneficiaries, found in several civil-law countries. Unlike a trust it has its own legal personality.

G

Governing law

The law that decides the validity, interpretation and effects of the trust. It need not be the law of the place where the trust is administered, a distinction that causes many mistakes.

H

Hague Trusts Convention

The 1985 Hague Convention on the law applicable to trusts and on their recognition. Switzerland signed it on 3 April 2007, ratified it on 26 April 2007, and it entered into force for Switzerland on 1 July 2007; the Federal Office of Justice confirms that foreign trusts have been recognized since that date. The Convention is filed as RS 0.221.371. Article 2 describes the trust, Articles 6 and 7 deal with the applicable law, Article 11 with recognition and Article 13 with the limits of the duty to recognize. Further context: The Hague Trusts Convention Explained.

I

Irrevocable trust

A trust that the settlor cannot simply cancel or reclaim. The degree of permanence has effects on creditors, taxation and the settlor's retained powers.

L

Letter of wishes

A non-binding note from the settlor guiding how the trustee should use discretion. Its legal weight differs between systems, and some courts will look at it when disputes arise.

M

Mandatory rules

Rules of a legal system that apply whatever the parties have agreed, for example on the rights of heirs or on public policy. They are the usual limit on the freedom to choose a governing law.

O

Offshore, onshore and hybrid seats

Informal labels for seats according to their link with the settlor and their regulation. The labels are shorthand and say little by themselves about quality or risk.

P

Perpetuity period

The maximum time a trust may last under its governing law, or the rule against remoteness of vesting. Some seats set a fixed cap, others have abolished it for certain trusts, and the answer for your trust depends on the law chosen.

Private trust company

A company set up to act as trustee for one family's trusts. Its seat, its regulation and the substance needed for it are separate questions from the seat of the trust.

Proper law

The law that governs a trust, whether chosen by the settlor or determined by connecting factors. Under Articles 6 and 7 of the Hague Convention, the law chosen by the settlor applies, expressly or by implication; failing that, the law with the closest connection applies, looking at the place of administration, the location of the assets, the trustee's residence and the purposes of the trust. If the chosen law does not know the trust, the choice has no effect. See proper law of a trust.

Protector

A person with oversight powers over the trustee, such as the power to remove and replace it or to veto certain decisions. The scope of these powers is a matter of the governing law and the deed.

Purpose trust

A trust that exists for a purpose instead of for beneficiaries, often with an enforcer. Only some seats allow non-charitable purposes. See purpose trust.

R

Recognition

The acceptance by a state's courts and authorities that a trust exists and is valid. Article 11 of the Hague Convention requires, at a minimum, that trust assets be separate from the trustee's personal estate and that the trustee may act in court in that capacity. Under Article 13, a state need not recognize a trust whose significant elements, other than the chosen law, the place of administration and the trustee's habitual residence, are connected essentially with states that do not know the trust.

Reserved powers

Powers that the settlor keeps over the trust, such as investment direction. The Hague Convention states that reserving powers is not incompatible with the existence of a trust, though too many reserved powers can raise the risk of a sham finding.

Revocable trust

A trust the settlor may revoke or amend. Because the settlor keeps control, many legal systems and tax authorities treat the assets as still belonging to the settlor.

S

Seat

The jurisdiction in which a trust is administered, as opposed to the law that governs it. Seat, governing law and the residence of the people involved can all differ.

Settlor

The person who creates the trust and transfers assets to it, also called the grantor or, in German, the Errichter. See settlor.

Sham trust

A trust that is disregarded because the parties never intended it to operate as written, typically when the settlor still treats the assets as his or her own. Courts in every seat can reach this finding.

Situs

The place where an asset is legally located. Rules on land, shares or digital assets differ, and the situs can bring local law into play whatever the trust's governing law. See situs of trust assets.

STAR trust

A trust created under the Cayman Islands special trusts regime, allowing both purposes and beneficiaries and an enforcer. See STAR trust.

T

Trust deed

The document that creates the trust and sets out its terms, the powers of the trustee and the rights of beneficiaries. Under the Hague Convention, a trust is a relationship in which assets are placed under the control of a trustee for the benefit of a beneficiary or for a particular purpose; the assets form a separate fund and title stands in the trustee's name.

Trust register

An official or private record of trusts or their parties, kept by a state. Access varies from authorities only to persons with a legitimate interest, which is why registers matter when comparing privacy. See trust registers and privacy.

Trustee

The person or company that holds the trust assets, manages them and accounts for them. The trustee owes duties to the beneficiaries and may be an individual or a regulated professional firm.

V

VISTA trust

A trust form from the British Virgin Islands that lets shares of a company be held without the usual duty to diversify or intervene. Read the entry on VISTA trusts.

W

Winding up

The ending of a trust, whether through expiry of its term, distribution of all assets or a court order. The governing law decides how it is carried out and what must be paid or reported on the way out.