WHAT IS THE FIDUCIE?

The French-law fiducie : an instrument for protecting wealth

Since the entry into force in 2007 of the French law on the fiducie, practitioners have regarded this instrument from the outset as the benchmark for wealth protection and private wealth management, as well as a considerable asset in wealth and succession planning strategies.

Favoured by high-risk professions (avocats, notaires, doctors, politicians, ambassadors, entrepreneurs, sportspeople, artists…) which are particularly exposed, by reason of their activities, to potential legal proceedings, the fiducie nevertheless proves to be an essential instrument for anyone seeking to preserve their assets and to secure the fruit of years of work or an inheritance.

What is a fiducie ?

What is a fiducie ?

A fiducie is a contract governed by the French Civil Code and described by the Minister for the Economy as « the Queen of security interests » since its entry into force. Although the instrument is often equated, often wrongly, with the Anglo-American trust, which under its own regime operates very differently, the fiducie nonetheless offers a number of similar advantages that a person with significant wealth would be wrong to overlook.

Fiduciary practice is closely regulated and falls both within the remit of the supervisory authority (AMF, ACPR) for asset management companies and insurance companies and within that of the Bar for fiduciary avocats. Moreover, since the fiducie is declared to the tax authorities within the month following its creation, it cannot serve the purposes of tax evasion, all the more so as the Fiduciaire is bound by an enhanced duty of vigilance, which tends to guarantee an additional degree of security for the benefit of the Settlor and the Beneficiaries of the fiducie.

Consequently, the rules imposed by the legislature make it possible to offer all the guarantees expected by a domestic and international clientele wishing to domicile the centre of management of their wealth in France and, on that basis, to benefit from the advantages conferred by French law in relation to property and, more broadly, by the European instruments that are also applicable.

The advantages of the fiducie in wealth management

A French fiducie offers the Settlor (the person who establishes the fiducie) numerous advantages. One of the principal ones, and no doubt one of the most powerful, is that it renders the assets immune from seizure.

That said, French fiducies are strictly governed and regulated, and fiduciary avocats are subject to enhanced verification obligations as to the origin of the funds placed in fiducie, in order to ensure their complete traceability.

Moreover, since French fiducies are declared and registered with the tax authorities and file their accounts each year, the transactions carried out are entirely lawful, so as to preserve the reputation of the sector. With this in mind, fiduciary avocats carry three layers of insurance : first, their professional indemnity insurance as an avocat; secondly, a special policy for the activity of fiduciary avocat; and lastly, a policy for the account of whom it may concern, in order to insure the fiduciary assets.

It should be noted that the Settlor of a French fiducie may also be its Beneficiary, just as the Fiduciaire may likewise be the Beneficiary of the fiducie. Although this may at first sight appear confusing, these possibilities, afforded by articles 2016 et seq. of the French Civil Code, make it possible to devise complex yet extremely advantageous wealth strategies. By way of example, where assets are placed in a fiducie, ownership of those assets is held by the Fiduciaire, even though the latter is naturally strictly circumscribed in its duties by the fiducie agreement. The assets are thus protected even though their ownership is transferred. In other words, legal ownership of the assets (and the risks) is transferred to the Fiduciaire, while control and economic ownership of the assets (the gains) remain in the hands of the Settlor and/or the Beneficiary(ies).

An advantageous principle of tax transparency

In drafting the legislation, the French legislature judiciously provided that the transfer of assets into fiducie and their recovery would be exempt from tax under the principle of tax transparency, so as not to penalise financially the use of this instrument. Only a very low duty of 0.714% applies to the transfer of real property into fiducie, the transaction having to be carried out, like any transfer of real property, before a notaire.

Moreover, the fiducie preserves the tax consolidation regime and the parent-subsidiary regime, while neutralising unrealised capital gains at the time of transfer, once again in order to make the instrument competitive with comparable foreign systems.

The tax benefit is therefore secured for the Settlor and the Beneficiaries throughout the term of the contract and until the assets are recovered, after a number of years, once the fiduciary objective has been achieved.

Wealth management entrusted to professionals

The other advantage of the fiducie also lies in the peace of mind it affords the Settlor. Managing complex personal and/or business wealth often calls for a multitude of different areas of expertise and of different service providers, able to cover several types of asset class (property management, securities, collectibles, holdings in companies operating in different sectors of activity, etc…), in order to preserve that wealth and make it grow.

Yet identifying such providers, ensuring compliance with precise specifications and with an investment policy suited to the objectives pursued, and overseeing their performance and their governance over several years requires not only an extensive professional network but also, and above all, time and technical skills in order to retain the best expertise over the years.

In this respect, engaging a Fiduciaire with an established practice and a sufficiently broad business skilfully resolves this difficulty, in the same way that a lay individual will turn to the services of an Independent Wealth Management Adviser, a bank adviser or, on a larger scale, a Family Office in order to delegate that management.

Against this background, beyond the legal advantages specific to the fiduciary instrument, Settlors, like Beneficiaries, value finding in the Fiduciaire all the skills they need in order to bring holistic solutions to their wealth issues.

Who may establish a fiducie ?

In theory, any natural or legal person may set up a fiducie. In practice, it is advisable to have sufficient wealth for the transaction to present, according to each person’s particular circumstances, a genuine benefit justifying recourse to this instrument.

In practice, however, experience shows that the instrument is particularly sought after and valued by :

• Wealth Management Advisers and Family Offices who can combine all their expertise and their existing networks in order to offer their clients advanced wealth management solutions and a guarantee of capital thanks to the laws applicable to the fiducie, and to move their own business and their own client base upmarket.

• The entrepreneur or company director currently in business who seeks to protect his or her personal and/or business wealth from creditors in order to preserve the jobs of his or her staff and the security of his or her family ;

• The company director who has just sold his or her company and wishes to reorganise his or her wealth in order to maintain his or her standard of living and/or, at the same time, to reinvest in new projects without putting the whole of his or her wealth at risk ;

• The artist, the sportsperson or the content creator who generates substantial and diversified income (salaries / bonuses / image rights / sponsorship, etc..) over a relatively short career and who wishes to prepare for a change of career, to entrust management to a professional and to secure his or her future by erecting a shield around his or her wealth ;

• Politically exposed persons who seek to protect their wealth entirely lawfully and to entrust its management to professionals, while preserving the highest level of discretion and complying with their transparency obligations according to their country of residence and/or of exercise of their offices ;

• Foreign nationals and residents (in particular those from common-law countries, already culturally familiar with the concept in their own national law through the use of trusts) who find in this instrument a means of locating the legal ownership of their assets in Europe so as to benefit from the protection of the body of European Regulations and Directives, which are particularly protective of the consumer, the investor and privacy ;

How is a fiducie established ?

The first and most significant difficulty in establishing a fiducie is finding a fiduciary avocat with solid experience in asset management and asset protection and offering all the guarantees required in terms of insurance, training and authorisation to practise. Establishing a fiducie is definitely not a matter to be taken lightly by doing it yourself with a rudimentary contract found on the internet or generated by Artificial Intelligence.

In the case of complex wealth in particular, a command of international taxation and of comparative law, in addition to knowledge of each local legislation in which the assets are situated, proves crucial.

The next step is to identify all the parties to the contract. The persons concerned by the fiducie are as follows :

• Settlor(s) : This is the person who establishes the fiducie.

• Fiduciaire : This is the avocat who holds the assets and administers the fiducie.

• Beneficiary(ies) : This is the person or persons who will enjoy the benefits of the fiducie.

The whole of the documentation must then be collected, according to the nature of the parties as well as the nature and location of the assets transferred.

Why establish a fiducie ?

A fiducie can protect all kinds of assets, whether tangible (real property, works of art, vehicles, etc…) or intangible (securities, cryptocurrencies, NFTs, patents, intellectual property rights, etc…). A properly structured fiducie will also protect your assets in the event of divorce, so as to preserve the integrity of your wealth and to avoid, in particular, its fragmentation following a court decision.

In certain structures, the fiducie can also make it possible to establish multigenerational wealth protection tailored to the needs of each generation (funding studies for the youngest, funding acquisitions for those of working age, supplementary income for seniors, and transmission). Furthermore, once transferred into fiducie, the assets may make it possible to free oneself from the constraints of the law of succession.

Particularly well suited, too, to protected adults, the fiducie once again proves to be a valuable asset, thanks to the guarantees it offers, in managing the wealth of protected adults alongside the adult protection deputy and under the constant supervision of the guardianship judge.

Lastly, entrepreneurs in particular should note that the fiducie also makes it possible to protect not only their personal wealth but also the assets of the business, by allowing them to be segregated so as to place them beyond the reach of creditors, including within a rehabilitation plan, which preserves the technological and/or industrial tool and thereby maintains a position of strength in negotiations with creditors from the stage of a conciliation, a safeguard procedure or a mandat ad hoc.

Consequently, for anyone with significant wealth, recourse to the fiducie now proves, more than ever, a serious solution to be considered, particularly in the uncertain political and economic context that characterises the present time.

The information presented in this article is provided for general information purposes only. It constitutes neither financial, legal or tax advice, nor a personalised investment recommendation or inducement. We invite you to contact a fiduciary avocat in order to receive the best advice suited to your own situation.