TY - JOUR
AU - Malumian, Nicolas
AB - Abstract This recent case is a leading case relating to local trusts and forced heirship. Forced heirship is a restriction to the liberty to write a will and determine the destiny of his/her future estate by the testator. It can be found in all South America (not in Latin America from Panama to México) and in most Civil Law countries in Europe, besides similar restrictions under sharia law. The way to avoid these restrictions has been the creation of a foreign trust over foreign assets. Although authors have long analyzed whether a local trust allows the avoidance of local forced heirship rules over local assets, there has been no case law in this respect (at least since the inclusion of the trust in Argentine law in 1995). In short, this is the first time a local trust over local assets has been under the scrutiny of the courts to determine if there is a violation of forced heirship. Introduction The name of the case only informs us that an individual (initials C.R.O.) sued another individual (initials C.O.N.) requesting that a set of deeds be declared null and void, and as such, without any legal effect. What exactly happened and why is relevant for trust law? Relevant facts Back in 2004, the father of the plaintiff transferred his countryside properties located in Buenos Aires Province (the most valuable agricultural zone of Argentina) to two Argentine trusts with a time limit of 30 years. His wife gave her consent. The trustees were his two sole children: the plaintiff (C.R.O.) and his sister. The initial beneficiaries were the settlor and his wife. After the death of the settlor and his wife, the beneficiaries would be the grandchildren of the settlor. At the end of the 30-year period of the trust, the trustees (the children of the settlor) would receive the right to use the real estate properties for the rest of their lives (it should be said that under Argentine law the legality of this trustee “fee” is at least debatable) and the beneficiaries would receive the naked ownership. This means that while alive the former trustees would have the right to usufruct the property (but not to sell it or pledge it) and the children would automatically be full owners after the death of their parents. In 2009, after the death of the settlor (in fact, the day after his death!), a second trust deed ratified and amended the original one. This second trust deed was signed by the two children of the settlor as trustees. All formalities were fulfilled and the documents proving kinship were provided to the notary. The second deed contains a description of the assets owned by the trust, which ratifies that the widow is to be the beneficiary of the trust and that after her death the grandchildren are to become the beneficiaries of the trust. It is also established that the trust should last for 30 years (this period starting in 2004). The trustees’ fees were amended, it would be the amount of money equivalent to the grain harvested in a portion of the real estate assets of the trust, and this fee was to be increased after the death of the widow. Other minor amendments were made. As the asset transferred to the trust was real estate property, the trust deed was done in front of a public notary and registered with the Immovable Asset Public Registry of the Province of Buenos Aires (Argentina). The second trust deed (2009) was also signed in front of a public notary and registered with the Immovable Asset Public Registry of the said Province. Therefore, there is no doubt on the wording of the deeds, the signatories of the deeds, the date of the deeds and on the transfer of the real estate to the trust. In 2012, three years after the death of the settlor and after the second trust deed, legal action is started by the settlor’s son (trustee of one of the trusts). The plaintiff requested that these trusts be declared null and void, the registration be deemed without any effect, and the assets of the trust be considered as part of the estate of the settlor. The plaintiff based his request on three main claims: There was a transfer of a future estate. It should be noted that under Argentine law there is public order prohibition on transfers of any right to an estate before the death of the deceased. There was a violation of the forced heirship principle. The heir, instead of receiving all the assets of the estate at the moment of the death of his or her father, is just the trustee of the trust. Therefore, instead of being the full owner, she/he was the mere trustee in favor of a third party (the granddaughters of the settlor, who are the trustee’s daughters). The plaintiff claimed there was a “fiduciary substitution” (in Spanish “sustitución fideicomisaria”) that consists of appointing an heir (could be a forced heir) to be mere trustee of the estate until this heir/trustee should transfer the assets to the beneficiary/real heir.1 It is a way to avoid the forced heir actually receiving the estate because he or she is not the actual owner, only the trustee, and the beneficiary is the final/actual heir. Section 1972 of the current Civil and Commercial Code of Argentina provides in its last sentence that in causa mortis instruments (the obvious examples being wills/testaments and testamentary trusts) any clause that undermines forced portions or implies a fiduciary substitution is null and void. This is the key point to be analyzed.2 The trust was signed by the plaintinff under threats of the settlor (as violence was involved, he was not free to choose whether to sign or not). First-instance decision On 11 December 2018, the First-Instance Judge rejects the action filed by the plaintiff. In other words, the Judge refuses to declare that the trusts were against public order and as such null and void without the possibility of being ratified by the parties which created it. Furthermore, the Judge provides that the expenses of the procedure should be borne by the plaintiff. The Judge explains that the trust was first ruled by Argentine Law in 1995 by Law Nr. 24,441, and that in August 2015 this law was replaced by the Argentine Civil and Commercial Law that entered into force at that moment. The Judge also expounds that Argentine law rules testamentary trusts that are created to have effects after the death of the settlor and are under the same rules as wills. After these general comments, the Judge addresses the three claims of the plaintiff. In relation to the first point (i.e. the trust deed was illegal because it was a transfer of a future estate), the Judge rejects it because he considers the trust a way to organize the assets of the settlor while alive and not a sale or transference of rights over his own future estate. In other words, a trust created to have effects during his lifetime which did not have the regulation of his estate as its purpose. Regarding the second point (i.e. a violation of forced heirship),3 the Judge states that fiduciary substitution means that at least two successive heirs are appointed, and that in the case under analysis there is a creation of a trust (not a testamentary trust) with a beneficiary. In other words, as this is not a testamentary trust and there is no instruction for the beneficiary to hold the assets in favor of a third party, there is no fiduciary substitution. In short, no illegal fiduciary substitution, but a legal trust. As regards the third and last point (i.e. the trust deeds were signed by the plaintiff under threats by the settlor), the Judge stated that the alleged threats could not be proved. Furthermore, the action to declare that the trusts were invalid based on the lack of free will was time-barred by the passage of a two-year period in the statute of limitations. The First-Instance Judge’s decision in favor of the validity of the trust is appealed to the Civil and Commercial Chamber of Appeals. The decision under analysis4 The plaintiff/appellant claimed that the First-Instance Judge was wrong because, among other reasons, the trusts were used to encroach on the rights of the settlor’s heirs. The son of the owner of the real estate property ended up being the trustee instead of the full owner of the estate. In other words, he did not have the power to use the assets for his own purposes and benefit. Forced heirship is public policy and determines that the father’s assets should be received (at least 66% currently, and 80% under the abrogated Civil Code at the moment of the death of the deceased/settlor) by the children. No matter there was a ratification of the trust after the time of the death of the deceased/settlor because this ratification is invalid. The first relevant statement of the Court is that no matter if the trust is qualified as causa mortis (testamentary trust) or not, it cannot violate forced heirship. In other words, it is irrelevant if the trust was created by will or with a deed that does not qualify as will, and it is irrelevant if the trust had effects before the death of the settlor; in no case can it result in limiting forced heirship. The second relevant point is that for the Court it is apparent that the assets transferred to the trust are a very significant portion of the estate. In other words, if the assets transferred to the trust were within the free portion (33% today, 20% at the time of the transference), it would be clear that the forced portion was not violated. In other words, the settlor was free to do whatever he desires with his free portion, including creating a trust. The third point of the Court is that there are obvious instructions to the trustee to comply with after the death of the settlor. Furthermore, considering the age of the settlor at the moment of the creation of the trust (in his 70s), it is reasonable to understand that while valid during his lifetime, the part of the trust that seeks to rule after the death in violation with forced heirship should be put under legal scrutiny. As no legal instrument could modify the order of succession nor restrict or eliminate the forced portion, the trust should be considered non-existing and the assets of the trust should be included in the estate and attributed by the Judge of the probate procedure of the settlor/decedent. We reach the most relevant point of all. The defendant claims this second deed after the death of the settlor was a confirmation of the original deed (which was reviewed in detail and amended), but the Court states that the original trust deed is in violation of public order and cannot be confirmed. The Court states that there should have been a whole new trust deed with transfer of assets after the death of the decedent, not just an amendment and confirmation. An express and clear declaration of the heirs stating that they renounce to their forced heirship rights is needed. Furthermore, as the trust deeds are considered against public order (forced heirship violation), there is no statute of limitations and, also, although the plaintiff signed the trust deeds, there is no estoppel based on the rule venire contra factum proprium non valet. This last statement of the Court is the most debatable one. The Court does not provide strong rational to request a new trust deed and not to consider enough the ratification of the trust deed after the death of the settlor. In short, as no instrument could modify the order of succession nor restrict or eliminate the forced portion, the trusts were declared null and void, and the assets of the trusts included in the estate of the settlor. Therefore, the Judge of the probate procedure of the settlor/decedent should decide the attribution of these assets no matter what the trust deed says. Finally, expenses of the case were borne by the defendants in all instances. Final comment The first case declaring a trust invalid due to collision with forced heirship was Gilrich, Harry.5 A Scottish national creates a trust with his brother as trustee and his mother as beneficiary with real estate property in Argentina as an underlying asset. He dies domiciled in Argentina and the probate procedure is in Argentina. The Court decided that the will creating the trust was formally valid, but against forced heirship of the deceased’s mother. The Court stated that trusts were alien to Argentine law and that the mother should have full property of the assets of the probate procedure. The main difference is that the Gilrich case was “only” 39 years before the inclusion of trust in Argentine Law. Therefore, it is no wonder that the Court did not recognize the trust as valid.6 More recently, in 2005 (10 years after the inclusion of trust in Argentine law), we analyzed the “Vogelius” case,7 one which involved a trust created in the UK with underlying assets in the UK, but with a probate procedure in Argentina and with heirs in Argentina who were not beneficiaries of the trust.8 The solution of the Court (considering the beneficiaries of the UK trust as receiving a portion of the deceased settlor’s estate ruled by Argentine law) is based on the idea that foreign trusts are legal schemes that are not alien to the law of Argentina, but which if in violation of inheritance law (public order law), the distribution of assets among the heirs should be done in such a way that the forced portion is respected. When analyzing “Vogelius”, we said that as there were enough assets of the estate in Argentina to “compensate” for the assets received by the heirs abroad (beneficiaries of the trust), there was no need to move forward in the analysis. In this case, all the relevant assets of the deceased were in the local trust. Therefore, the Court had no other solution than to declare the trust null and void. In conclusion, it is not a surprise that the Court declared that a trust against forced heirship (although not a testamentary trust) is null and void (at least, up to the point in which the forced heirship is harmed). What was a surprise is that even with a second deed after the death of the settlor, it was considered that the trust deed was still invalid and could not be ratified, with no statute of limitations and not estoppel based on the fact that the plaintiff signed and consented the deed. In short, based on this case doctrine, any renouncement of rights over forced heirship should be express, clear and must not just be a confirmation of a previous deed, and requires a transfer of property after the death of the settlor/decedent. Notes Nicolas Malumian is an attorney (Cum Laude) from Argentina and a STEP Member. He holds a doctorate degree in Law at Buenos Aires University. He is the author of Trusts in Latin America (edited in 2009 by Oxford University Press). He has lectured in more than 150 conferences in Latin America, Europe and the USA. Email: nmalumian@emya.com.ar. Footnotes 1 Black´s Law Dictionary explains: “Fiduciary heir: The Roman laws called a fiduciary heir the person who was instituted heir, and who was charged to deliver the succession to a person designated by the testament.” Sixth Edition, West Group, 1990, p. 626. In Roman law, it was a Fideicommissum Familiae Relictum. 2 It should be noted that there are Civil Law countries, e.g., Spain, which do not have local trusts nor do they recognize foreign trusts, but they do have “sustitución fiduciaria”. For a complete and clear explanation on sustitución fiduciaria and other estate planning legal schemes under Spanish Law, see: Dr. Pedro Ignacio Botello Hermosa, The Incomprehensible Use as Synonyms of Two Different Legal Instruments: Fideicommissum and Trusteeship Estate (Revista Crítica de Derecho Inmobiliario, Nº 756, pp. 2264 and 2280). As Botello explains in the abstract of his article “[b]y the establishment of Law 41/2003 of Patrimonial Protection of Persons with Disabilities, the trusteeship estate became in 2003 one of the most important concepts of Spanish Succession Law. It was chosen by the legislature in 2003 as a legal instrument and this is how, for the first time, the sacred and historic principle of the intangibility of [forced heirship] was violated.” 3 For the avoidance of doubt, it should be said the not only the current Civil and Commercial Code does prohibit the “fiduciary substitution” but also the abrogated Civil Code (enacted in 1868 and in force up until August 2015) banned fiduciary substitution, either before or after the inclusion of trust in Argentine law in 1995. 4 The sentence was written by one of the members of the Civil and Commercial Chamber of Appeals (Judge Ana Clara Issin). As her vote had the consent of a second member (Judge Fabián Marcelo Loiza), there was no vote of the third (no need to have a third vote to decide). In short, the final decision of the Court only has one vote. 5 Gilchrist, Harry B. (suc.); Chamber of Appeals of San Nicolas, Buenos Aires Province, Argentina (6 November 1956). 6 This was clearly seen by the UK House of Lords in Brown and others, and Gregson and others [1920] AC 860, 6 May 1920, when they said Argentina did not recognize trusts over real estate. 7 Vogelius, Angelina T. et al v. Vogelius, Federico et al. (Buenos Aires City Civil Chamber of Appeals, Room F, 2005). This case was analyzed in Case Law on Foreign Trust Recognition by Latin American Countries, 2010 16 (8): 667–671. 8 In Vogeliuous case, the Court said that: “The circumstance that the trust is ruled by the law of the place of execution –i.e. the English Law due to application of the locus regit actum … – it does not mean that for inheritance regimen purposes, the effects of such trust cannot be evaluated under Argentine law … in the case under analysis the validity and execution of the trust is ruled by English Law which, as it is known, has different [inheritance] principles from the local law.” Author notes Nicolas Malumian, Attorney, 25 de Mayo 445, 10_ C1002ABI Buenos Aires, Argentina. Tel: 54 11 5238 5550; Fax: 54 11 5256 8355; Website: www.emya.com.ar © The Author(s) (2020). Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model) © The Author(s) (2020). Published by Oxford University Press. All rights reserved.
TI - Local trusts and forced heirship (Commentary to the “CRO” case)  C. R. O. c/C. O. N. y otros s/nulidad de acto jurídico (22 October 2019) Court: Civil and Commercial Law, Chamber of Appeals of Necochea (Buenos Aires Province—Argentina)
JO - Trust & Trustees
DO - 10.1093/tandt/ttaa078
DA - 2021-02-09
UR - https://www.deepdyve.com/lp/oxford-university-press/local-trusts-and-forced-heirship-commentary-to-the-cro-case-c-r-o-c-c-dQtsGkL0zy
SP - 875
EP - 879
VL - 26
IS - 8-9
DP - DeepDyve
ER -