Aline Pardi Ribeiro
Lawyer at Marcos Martins Advogados
Against a backdrop of economic crisis and corruption scandals, it is common to find news in the media about the appearance of trusts set up in tax havens belonging to politicians or big businessmen, which have not been declared to the Brazilian tax authorities. News like this leads to an understanding of the use and purpose of trusts as a means of hiding assets, tax evasion, money laundering and even fraud against creditors.
In this sense, the media tends to distort the concept of a trust, creating confusion among the general public, who come to identify it as a mechanism that only serves fraudulent purposes. However, this is an erroneous and completely distorted understanding. The concept of a trust, in simple terms, is that it is an institute created to manage assets that were owned by the person who set up the trust, who will in turn become the owner of these assets, for the period of time for which it was set up, in favor of a beneficiary, who may be the former owner or other people indicated in the trust deed.
According to the illustrious Arnoldo Wald, a trust is
[…] the transfer of ownership of assets to a trustee, for a certain period of time, under certain conditions, so that the assets are managed and revert in favor of a beneficiary, who may even be the original owner[1].
In most countries, a trust is set up through a deed, structured in such a way that there are three positions in the legal relationship: that of the settlor (called the “trustor”), that of the person who receives the assets as a fiduciary (called the “trustee”) and that of the beneficiary (called the “ultimate beneficial owner” or “UBO”).
It is worth noting that Brazilian legal scholars have discussed the use of trusts, probably due to the difficulty of understanding the institute under the Civil Law system, from the point of view of property rights, whereas this institute is easily dealt with and defended under the Common Law system[2]. Brazilian jurists understand property as one and inseparable, so that no one could give property in trust to another for their own benefit, since after the transfer of ownership, the transferor would have no rights whatsoever over the property that is no longer theirs. Thus, the existence of a beneficiary in whose favor the assets will be administered, who would be the real owner of the assets, is not accepted under Brazilian law and doctrine.
In a trust, there is a split between legal and beneficial ownership, providing for the possibility of more than one person having rights over the assets. In this sense, Brazilian legislation and that of the majority of Civil Law countries does not allow the splitting of property, and therefore does not allow trusts in its regulations.
With regard to asset liability, as set out in the New Brazilian Code of Civil Procedure, according to article 789 (formerly 591), the debtor must respond with all his assets, present and future, to fulfill his obligations, except for restrictions established by law. In this way, Brazilian procedural law provides for the debtor to be liable for the obligations he has contracted in such a way that he will be liable with all his assets, i.e. it can even be understood that the trust ‘s assets may also be subject to an attempt at expropriation if the debtor is the ultimate beneficiary of the assets managed by the trust. Once a trust has been created, the trustor no longer owns the assets, but is merely the final beneficiary, meaning that the assets transferred to the trust are no longer part of his personal assets.
In addition to the trust, in Panama there is the fundación de interés privado, or private interest foundation, an estate planning instrument that can be used to hold various assets, such as companies, bank accounts, investment accounts, real estate, trusts or any other type of asset: real, tangible or intangible. The initial capital of the foundation must be at least US$10,000.00 (ten thousand dollars) and the name of the foundation must be defined, as well as its domicile, the members of the Board, a local agent (lawyer) who must take the act for registration before the local authorities, its corporate purpose, duration, among other items characteristic of an ordinary company. The foundation can be set up by one or more individuals and/or legal entities and its registration is carried out quickly. In this way, by transferring the assets to the foundation, the founder will determine in his bylaws how, when and who will receive the assets that were once his and now belong to the foundation, after his death or at any other time determined by him in the bylaws.
Similar to a trust, a foundation also separates ownership between the founder and the assets transferred to it, which will be managed by the foundation’s board.
Both institutes can be used for asset protection, with the purpose of separating the assets of an individual, for example, or for succession planning purposes, to define how the assets will be divided among their successors even before the death of the initial owner. Transfers of assets for the purpose of succession planning are fully supported by the law, but only in the case of any transfer of assets with the aim of avoiding judicial constriction and payment of obligations to third parties can they be declared ineffective by the judiciary, under the terms of article 792 of the New Brazilian Code of Civil Procedure.
The use of institutes such as foundations and trusts, which are provided for by law in the jurisdictions in which they are applicable, is entirely valid, with the aim of providing users with the legal certainty necessary to carry out succession planning involving their assets, including those that are abroad and will remain there, given that Brazilian legislation, despite providing for real estate investment funds and equity investment funds, does not provide for a corporate institute to which property could be transferred in trust and also regulates it so that it can be administered after the death of its creator. Given the gaps in our legislation, there is a need to look for foreign mechanisms to use in specific cases for the benefit of individuals, in a legal, declared and clean way, without any relation to the concealment of assets or fraud against creditors.
[1] WALD, Arnoldo. Algumas considerações a respeito da utilização do “trust” no direito brasileiro. Revista de Direito Mercantil, Industrial, Econômico e Financeiro, São Paulo, n. 99, p. 109, 1995.
[2] TERPINS, Nicole Mattar Haddad. The Legal Nature of Real Estate Investment Funds. 2013. 148 f. Dissertation (Master’s Degree – presentation to the Commercial Law Department). University of São Paulo Law School. São Paulo, 2013. p. 32.
