The use of a fiduciary contract can be helpful in many contexts including equity investment, wealth management, succession planning and the management of guarantees.
Luxembourg law defines the fiduciary contract as an agreement whereby the settlor (or fiduciant) agrees with the fiduciary (or fiduciaire) that the latter will become the owner of certain fiduciary assets (the fiduciary estate or patrimoine fiduciaire) under agreed conditions.
Thus, the Luxembourg fiduciary agreement is a contract requiring at least two parties. The establishment of a fiducie by unilateral action is not permitted, differentiating it from the Anglo-saxon trust which exists in many countries with a common law legal system.
The key factor for establishing a fiduciary agreement is the transfer of ownership of goods to the fiduciary. The latter will then take on the obligations defined by the contracting parties. These obligations comprise the fiduciary mission, which includes clear instructions on what the fiduciary must do with the entrusted assets.
These entrusted assets (the fiduciary estate) are clearly and strictly separated from the fiduciary’s personal wealth. For each fiduciary agreement, a separate fiduciary estate is created, separated both from the fiduciary’s personal wealth and any other fiduciary estates that have been entrusted to him.
Luxembourg law on trusts and fiduciary agreements only applies to fiduciary contracts where the fiduciary is a credit institution, an asset management company, an investment company with variable or fixed capital (SICAV or SICAF), a securitisation company, the management company of a common investment fund (fonds commun de placement) or a securitisation fund, a pension fund, an insurance or reinsurance company or a public institution of national or international character operating in the financial sector.
This does not preclude the creation of fiduciary agreements with other actors. However, establishing a fiduciary contract outside the field of application of the relevant law has the consequence that these contracts will not be governed by its rules, such as the obligatory separation of fiduciary assets from the personal wealth of the fiduciary and the protection that this separation affords in the case of the fiduciary going bankrupt.