Meaning
Legal principles concerning the cross-border recognition of fiduciary arrangements determine the governing law of international assets. The doctrine of lex trustis establishes which jurisdiction’s laws apply to the creation and administration of a trust. This is particularly relevant when the assets are located in a country that does not recognize the concept of a trust.
It provides legal certainty for the settlor.
Jurisdiction Selection
Parties often choose the law of a specific state to govern the fiduciary relationship. When lex trustis points to a specific legal code, that code dictates the validity of the trust and the powers of the trustee. This choice prevents the application of local laws that might restrict the distribution of the assets.
Trustee Obligation
Fiduciary duties are defined by the chosen law rather than the location of the beneficiary. Under lex trustis, the liability of the trustee for a breach of duty is assessed against the standards of the governing jurisdiction. This ensures that the management of the assets remains consistent despite the physical location of the property.
Asset Ownership
Recognition of the separation between legal and beneficial title is the primary challenge in civil law countries. The application of lex trustis allows for the enforcement of the trust structure even where the local court does not traditionally allow such a division. This boundary protects the beneficiaries from the creditors of the trustee.
A failure to correctly identify the governing law can lead to the total collapse of the protection scheme and the loss of the tax benefits intended by the creator. Such an error often leads to high litigation costs in several countries.
