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A trust is a contract – known as a trust agreement – whereby a person (the trustor, also called trustor) entrusts to another person (the trustee), under conditions agreed to by both parties, the ownership of assets, known collectively as fiduciary assets.

The main criterion where trust agreements are concerned is the transfer of ownership of assets to the trustee. The pool of assets whose ownership is transferred to the trustee need not be part of the trustor's assets.

Who is concerned?

Trust agreements whereby the trustee – regardless of their nationality or the location of their supervisory authority – is:

  • a credit institution: an establishment whose activity consists in receiving deposits and other reimbursable funds from the general public, and offering loans on its own behalf; or
  • an investment company, such as a wealth manager, a commission agent, etc.; or
  • a fixed- or variable-capital investment fund (société d'investissement à capital variable ou fixe); or
  • a securitisation company; or
  • a trust (fiduciary) agent in a securitisation transaction; or
  • a mutual investment fund or securitisation fund management company; or
  • a pension fund, such as a variable-capital pension savings company; or
  • an insurance or reinsurance company; or
  • a national or international public company operating in the financial sector.

A trust agreement may provide for one or more trustors. Likewise, one or more trustors may appoint several trustees.

How to proceed

Formation of the trust

Forming a trust requires a contract (a trust agreement). As such, a trust cannot be formed by way of a unilateral contract.

For the agreement to be considered valid, 4 conditions must be satisfied:

  • the contracting parties' consent must be free and informed: they must know what they are committing to. The parties' consent must not be invalidated by error, fraud (deceit or fraudulent manoeuvring) or violence (physical or moral duress);
  • the contracting parties must have the capacity to contract: they must have the legal capacity to contract; as such, this condition excludes legally incompetent adults and dependent minors;
  • the content of the agreement must be:
    • legal: only those purposes which are accepted in normal legal intercourse are considered legal purposes; and
    • certain: the purpose of the agreement must be accurately determined, or determinable based on elements contained in the agreement;
  • the cause of the agreement must be legal: the reason underlying the parties' desire to contract must comply with the law.

Remoteness of assets

The fiduciary assets must be distinct from the trustee's personal assets, and from any other fiduciary assets. The fiduciary assets:

  • can only be seized by creditors whose rights stem from the assets;
  • are not considered to be part of the trustee's personal assets if the trustee is in liquidation or bankruptcy, or in any other situation involving their personal creditors.

The trustee must account for the fiduciary assets separately from their personal assets and other fiduciary assets.

Each fiduciary asset must be recorded separately in the trustee's books under an account that is clearly identified as a trust account. This account must include a reference to the relevant trust agreement.

Fiduciary obligations

Fiduciary obligations are the rights and duties of the trustee, the trustor and, where applicable, the beneficiary.

They determine the trustee's duties, that is to say, how they may use the trust assets.

Relationship between the trustor and the trustee

The mandate rules – discounting agency rules – govern the relationship between the trustor and the trustee.

As such, the trustor is entitled, in principle, to give the trustee instructions. However, the parties' interests, or those of a beneficiary, may dictate that the trustor waive this right.

Furthermore, neither the trustor nor third parties – even if they are aware of the existence of the trust agreement – may invoke the agreement to create a direct link between themselves.

Unless otherwise agreed, neither the trustor nor the trustee may unilaterally terminate a fixed-term trust agreement.

The trustor, the trustee, or a third-party beneficiary provided for in the trust agreement may bring legal proceedings, for serious reasons, to seek:

  • the temporary or permanent replacement of the trustee; or
  • early termination of the trust agreement.

Reasons deemed to be serious include, most notably:

  • mixing fiduciary assets and personal assets;
  • dissipation of assets;
  • grossly objectionable conduct by the trustee, in violation of financial legislation, etc.

Trusts established to serve as a guarantee

A trust agreement may be established for the purpose of serving as a guarantee for existing or future debts.

The parties may agree that the pool of fiduciary assets may change based on the guaranteed commitments or other factors of their choice.

Moreover, any provision of the trust agreement will be considered null and void if its purpose or effect dispenses the trustee from paying the trustor or a third-party beneficiary the net balance resulting from the difference between:

  • the value of the assets serving as the guarantee, on the day the assets are realised; and
  • the amount of the guaranteed debt.

The trust agreement may provide for a method for determining the value of the fiduciary assets and the guaranteed debt.

Proof and enforceability against third parties

Proof of the existence of the trust agreement must be established in writing.

The trust agreement is enforceable against third parties as soon as it is concluded. Nevertheless, there are 2 reservations with regards to this rule, i.e.:

  • the rules as to the form and the enforceability that are applicable given the nature of the transferred assets: this applies to assets for which the transfer of ownership is subject to public disclosure or registration. In this case, the transfer becomes enforceable against third parties only when it has been publicly disclosed/registered;
  • the contractual limitations to the trustee's powers are only enforceable against third parties who are aware of such limitations.

Accordingly, the transfer of debt is enforceable against third parties as soon as it is concluded. Nevertheless, the debtor is validly discharged from settling its debt with the trustor as long as they are unaware of the transfer.

Additionally, the rule governing enforceability is only applicable for debt transfers whose enforceability against third parties is governed by Luxembourg law.

Public disclosure of trustees for certain assets

There is a special obligation of public disclosure for buildings and assets which require that the owner be registered in a public register.

As such, the trustee must be specified when:

  • the property rights to a building included in, or destined to be included in, the pool of fiduciary assets, are transcribed; or
  • the owner is registered in a public register (e.g. aircraft register, public maritime register, etc.).

Registration and inheritance rights

Concluding and updating a trust agreement are not subject to registration formalities, even if the agreement is used in proceedings before the courts or any other authority.

However, this rule only applies to trust agreements that have no impact on:

  • buildings located in Luxembourg; or
  • aircraft, seagoing vessels or interior waterway vessels registered in Luxembourg; or
  • rights that:
    • must be transcribed or registered; and
    • relate to an asset mentioned above.

In these cases, however, voluntary registration is possible.

A fixed registration fee is charged:

  • when a trust agreement concerning assets or rights that the trustee may not hold for more than 30 years is concluded or updated; and
  • for legal instruments that provide for the return of the assets or rights to the trustor within this 30-year time limit.

If the trust agreement has been registered at the fixed fee, the definitive allocation to the trustee – during the term of the trust agreement, or when the agreement expires – of the assets or rights that have been transferred to them, must be registered, at the trustee's request. The registration fee is charged at the normal rate.

When assets or rights are transferred by a trustee to a third party beneficiary for no consideration, gift taxes are due depending on the degree of kinship between the beneficiary and the trustor. The same applies for the calculation of inheritance tax and transfer duties in the case of death.

Compulsory approval of trust (fiduciary) agents

Investors and creditors in a securitisation undertaking may entrust the management of their interests to one or more trust (fiduciary) agents.

Trust agents whose registered offices are located in Luxembourg must be approved by the minister responsible for the CSSF (the Financial Sector Supervisory Commission).

The application for approval must be sent in writing to the minister responsible for the CSSF, along with all information that is necessary for the minister's assessment, in particular, detailed information on the applicant's administrative and accounting structure.

Approval of the trust agent's activity is only granted to capital companies with a share capital and shareholder equity of at least EUR 125,000.

Declaring a fiduciary contract or trust

Certain trustees and fiduciaries – see below for further details – must file certain details on the beneficial owners of any trust and fiduciary contract with the Register of Trusts and Fiduciary Contracts.

The obligation to file information with the register applies in the following situations:

  • any fiduciary contract or express trust in which the fiduciary or trustee is established or resides in Luxembourg must be registered with the Register of Trusts and Fiduciary Contracts;
  • when the fiduciaries or trustees named in a fiduciary contract or trust are established or reside in different Member States, the fiduciary(ies) or trustee(s) established or residing in Luxembourg must submit a certificate to the Registration Duties, Estates and VAT Authority (Administration de l'enregistrement et des domaines – AED), a registration certificate, or an extract of the details on the beneficial owners as recorded in a register held by a Member State;
  • any fiduciary contract or express trust in which the fiduciaries or trustees are not established in Luxembourg or in another Member State must file with Luxembourg's register when the fiduciary or trustee, acting on behalf of the fiduciary contract or trust, forms a business relationship with a professional in Luxembourg or acquires real estate in Luxembourg;
  • when the fiduciaries or trustees, acting on behalf of the fiduciary contract or trust, form multiple business relationships in different Member States, the fiduciary or trustee established or residing in Luxembourg must submit a certificate to the AED, a registration certificate, or an extract of the details on the beneficial owners as recorded in a register held by a Member State.

Related procedures and links


Filing the details of a fiduciary contract or trust Registration fees


Legal references

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