Established by the Act of February 19, 2007, but initially with a very restricted scope of application, the French form of a trusts, has after its introduction undergone a series of legislative amendments that have improved its attractiveness with the goal of competing with its Anglo-Saxon equivalent. After the Act of August 4, 2008 expanded the scope of application of the trust, in particular with regard to the qualifications of the settlor and trustee, and facilitated certain transfer operations such as those relating to claims and credits, the government ordinance dated December 18, 2008, guaranteed the stability of the trust in financial reorganizations, while the order dated January 30, 2009, and the Act of May 12, 2009, clarified the legislation applicable to the trust when it is set up as a form of surety.
Trust seems to have attained legislative maturity and stability in France. The opportunities that the various reforms and changes have brought about, have expanded and enhanced the trusts regime to a point where they have become a valuable legal tool that can be used to provide numerous solutions in various transactions such as acquisitions, mergers and financing.
The first characteristic of the “trust à la française”, after these successive waves of legislative amendments which have significantly changed the rules governing trusts, is its great flexibility. The general framework defined by Article 2011 of the French Civil Code widens the scope of application to trusts because it is stated that a trust is a transaction by which one or more settlors can transfer assets, rights or sureties (or a group of assets, rights or sureties), present or future, to one or more trustees who, while keeping them separate from their own assets, act toward a determined objective for the benefit of one or more beneficiaries.
Under a trust arrangement, ownership of certain assets or rights is transferred to the trustee – which can be either a financial institution, an investment company, an insurance company or a lawyer – in the interest of a beneficiary, to whom ownership of these assets or rights will ultimately be transferred, whereby the beneficiary can be a third party, the trustee itself or the settlor, depending on the terms of the arrangement. One of the most notable innovations of the trust arrangement, besides the assignment of temporary ownership for a specific purpose and the transfer of ownership for the benefit of a third party, is to set up, for the entire term of the trust, a fiduciary trust which keeps the transferred assets or rights separate from the trustee’s personal assets and the settlor’s personal assets. The trust thereby erects a real firewall and guarantees complete security of the property held in trust.
The framework within which the trust can be utilized is very broad, whilst only gift trusts are prohibited, the trust can be used for a variety of purposes by the wealthy and be adapted to numerous situations, both with regard to the administration of an estate, surety for acquisition transactions as well as financing transactions and equity investments. In this regard, the trust can be roughly divided into two major categories, either as a surety trust or an administrative trust. In fact, the trust is most frequently established to transfer ownership of assets to guarantee a debt (the surety trust) or to confer on a “qualified” third party the management of assets and rights (the management trust) on behalf of the settlor, or even of a third-party beneficiary. In our legal landscape, trust arrangements must therefore be developed around one of these two categories.