FRANCE Trends and Developments Contributed by: William Julié, Amélie Beauchemin and Camille Gosson, WJ Avocats
settlor, where assets are placed under the control of a trustee, for the benefit of a beneficiary, or for a special purpose. Trusts can take many forms and are shaped for the purpose they are designed to serve (eg, revocable or irrevocable, fixed or discretionary, charitable, protec - tive, bare, etc). Each category has its specificities. Notably, as regards the settlor’s relationship to the trust once constituted, a revocable trust allows the settlor to modify or dissolve the arrangement at any time, while an irrevocable trust permanently severs the settlor’s formal legal title to the assets. As for the beneficiaries’ rights, under a fixed trust, each benefi - ciary holds a predetermined entitlement defined in the trust deed, whereas, under a discretionary trust, no beneficiary has a vested right and the trustee alone determines if, when and to whom assets are distrib- uted among a defined class of beneficiaries. A further distinction arises where trusts are set up not for iden - tifiable beneficiaries but for the pursuit of a specified objective. Finally, regardless of type, trust deeds may confer additional powers on parties. The trust is a well-established and widely used legal instrument, particularly in common law jurisdictions and within the context of international private wealth management. High net worth individuals commonly rely on trust structures for a variety of legitimate pur - poses – eg, estate planning and intergenerational wealth transfer, asset protection in connection with commercial risk, succession planning across multiple jurisdictions, and philanthropic arrangements. Many such trusts were established long before the adop - tion of restrictive measures by the EU, and have no connection with the geopolitical events that prompted those measures. Importantly, trusts are not opaque by design – the roles of settlor, trustee, beneficiary and, where applicable, protector, are legally defined, documented, and, in properly constituted trusts, read - ily identifiable. Nevertheless, like any legal instrument, trusts may, in certain circumstances, be misused. The separation of legal and beneficial ownership may be leveraged to shield assets from creditors, to obscure the ultimate beneficial owner of assets for tax or regulatory pur - poses, or to circumvent reporting obligations appli -
cable to the direct holding of assets. The flexibility afforded by certain trust regimes can further compli - cate the identification of the person who ultimately benefits from or controls the trust assets. The defining feature of the trust, namely the sepa - ration of legal and beneficial ownership, is therefore both the rationale for its use and, within the context of restrictive measures, the source of interpretative difficulty. An individual subject to restrictive meas - ures may contend that assets held through a trust no longer fall within the scope of the asset-freeze meas - ures, either because the settlor was a sanctioned individual but the legal title is vested in the trustee or because only one beneficiary among several is sub - ject to restrictive measures, or where a sanctioned beneficiary has been removed from the list of ben - eficiaries. In its 2023 Guidance for EU Operators, the European Commission identified the use of unjustified complex or corporate trust structures as an indicium of possible circumvention of restrictive measures, and the Commission’s wording is revealing. The concern does not lie in the use of trusts as such, but rather in the recourse to structures whose complexity lacks a legitimate justification. The Commission therefore acknowledges that trusts are not inherently opaque or suspicious, and that they may be an indication of circumvention only where their structure is unneces - sarily complex. In any event, such complexity merely constitutes an indicium. A properly constituted trust is a transparent legal instrument: the identity of the settlor, the trustee, and the beneficiaries, as well as the respective rights and obligations of each party, are documented in the trust deed and governed by a defined body of law. The difficulty that arises within the context of restrictive measures does not stem from a deficiency inherent in the instrument itself but, rather, from the question of how the concepts of “belonging to” and “controlled by” under Article 2 (1) of Regulation (EU) No 269/2014 apply to a legal structure in which ownership is, by design, divided between at least two distinct parties, and in which the allocation of powers among the vari - ous trust actors may complicate the assessment of control. It must be determined whether, and under what circumstances, assets held through a trust may be regarded as belonging to or being controlled by a
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