With the approval of the Macau Trust Law, we took the opportunity to provide our expert insights on its components and how this instrument could help to modernize the local financial system.
On November 14, 2022, Law No. 15/2022 (the Trust Law) was published, and approved by the Legislative Assembly of Macau on November 3, 2022, with entry into force on December 1, 2022.
The approval of the Trust Law, which establishes the legal concept of trust in Macau, constitutes a response to a growing demand for the availability in the local legal system of the fiduciary institute – the trust in the Anglo-Saxon legal systems –, as a way of modernizing the local financial sector by providing it with a specialized instrument for the management of wealth and assets by third parties, for the pursuit of various purposes (namely wealth management, succession planning, financing, investment, tax planning or risk management, inter alia).
The matters regulated by the new statute relate, essentially, to the definition of the legal regime of the trust in the Macau Special Administrative Region, namely with regard to the constitution and extinction of the trust, its object and purposes, as well as the capacity, rights, and duties of its stakeholders, that is, the trustee(s), the trustor(s) and the beneficiary(ies). Let’s take a brief look at each of them.
I – Concept and legal nature of the trust
The trust consists of the legal relationship through which the trustee transmits his property rights to the trustor, so that the latter, in his own name, manages or disposes of the trust property, in the interest of the beneficiary.
It is, therefore, a tripartite relationship, involving the trustee – the person to whom the assets subject to the trust belong –, the trustor – the third-party responsible for managing the assets subject to the trust – and the beneficiary – the one on whose behalf the trust is established.
On the other hand, the trust is not endowed with legal personality, consisting of an autonomous estate, totally independent from those of the trustee(s), trustor(s), and beneficiary(ies).
II – Constitution of the trust
The trust may be constituted by means of a contract (the so-called “living trust”) or by means of a will (the “testamentary trust”), each of those modalities being subject to different regimes, both in terms of the respective formal requirements and in terms of the production of trust effects.
Thus, while the living trust can be constituted by means of a private document (but this is not the case if the assets or rights to be part of the trust require a more solemn form, which, in this case, must be observed), the testamentary trust must be constituted in accordance with the provisions relating to the will set out in the Civil Code.
In turn, the living trust begins to produce effects on the date of its execution or another established in the respective contract, while the testamentary trust only begins to produce effects after the fact that will give rise to it, that is, the death of the trustee.
In both cases, the act of incorporation of the trust will have to contain i) the object of the trust, ii) the list of assets or rights to integrate the trust, iii) the identification of the trustee, iv) the identification of the trustor(s) (s), v) the powers assigned to the trustor(s), vi) the identification of the beneficiary(ies) and vii) the content of the beneficiary’s right to the trust benefit.
III – Object of trust
In accordance with the new law, any assets or rights determined or determinable on the date of the signing of the deed of incorporation may form part of the trust. In the case of assets subject to registration (whether real estate or shares, for example), they will also be subject to registration, with the trustor appearing as the holder of the registered right, with mention being made that the asset or right is part of the trust’s estate.
On the other hand, in addition to the assets or rights acquired by the trustor at the time of the constitution of the trust, the assets or rights acquired by administration, disposition, or other circumstances relating to the trust assets, namely liberalities, pure or with charges, made for the benefit of the trust.
IV – Purposes of trust
The law does not specifically determine which purposes may be pursued by the trust, with the purposes of the trust being generally identified as wealth management, succession planning, financing, investment, tax planning, or risk management.
In this regard, the new law stipulates, however, the nullity of trusts that pursue purposes contrary to law or public order, purposes that offend good morals, as well as those whose main purpose is the lodging of a legal action.
V – Position, rights, and duties of trustees
As mentioned above, the concept of trust will always imply the intervention of 3 actors – the trustee, the trustor, and the beneficiary -, each with these different rights and obligations.
- a) Trustee
In terms of capacity, the law provides that all natural and legal persons who can contract and dispose of their assets can constitute contractual trusts (living trusts), while all natural persons with the capacity to constitute a will, can constitute a testamentary trust.
As for the spectrum of rights and duties of the trustee, the law recognizes the possibility of changing the beneficiary or the right to the trust benefit and, as well, to revoke the contractual trust with the consent of all beneficiaries. Such consent will not be required in case of ingratitude of the beneficiary(ies).
Without prejudice to the above prerogatives, the trustee(s) may always claim compensation, under general terms, for damages caused by the revocation of the trust.
- b) Trustor
Under the terms of the new law, the following entities are entitled to perform the functions of trustor:
1) Credit institutions;
2) Financial institutions;
3) Asset management companies;
4) Investment fund management companies;
6) Pension fund management companies;
7) Other entities authorized to exercise trustor activity under a special law.
Whoever performs the role of trustor is obliged to observe a set of duties, namely, i) duties of diligence, ii) duties of loyalty and impartiality towards the beneficiary(ies), iii) duty of self-management ( having powers to designate suitable third parties in the interest of the trust), iv) duty of separation of assets (between its assets and trust assets), v) duties of conservation and updating of records relating to trust assets, trust administration activities and the rights of the beneficiary(ies), vi) duty of secrecy and, furthermore, duties of information (covering the trust assets, the rights of the beneficiary, the number of beneficiaries, the duration of the trust, the powers of the trustee, or any other relevant facts regarding the above elements).
The management of the trust may be carried out by one or more trustors, with the right to remuneration in accordance with what is stipulated in the articles of the constitution of the trust.
Failure to comply with the respective duties may lead, through judicial action for dismissal, to the dismissal of the trustee and the eventual appointment of a provisional administrator, without prejudice to a claim of compensation for the trustor’s responsibility to be claimed in a civil liability lawsuit.
- c) Beneficiary
In accordance with the Trust Law, any natural or legal person can be a beneficiary, including unborn children conceived or not conceived, being descendants of a specific person, living at the time of the constitution of the trust.
On the other hand, both the trustee and the trustor can be beneficiaries, as long as the latter is not the sole beneficiary.
Several beneficiaries may also be designated as co-beneficiaries, and the rights of each of these co-beneficiaries are quantitatively equal, unless otherwise provided in the respective articles of the constitution of the trust.
The beneficiary is entitled to the right to the trust benefit, under the terms of the articles of constitution of the trust, including the right to assign his or her right, to renounce it (in which case, if there are co-beneficiaries, the remaining ones will receive, in addition and in equal parts, the corresponding benefit). In cases where the right to the trust benefit still remains within the legal sphere of the beneficiary(ies), this will be transmitted by succession to the heirs in the event of the beneficiary’s death (unless otherwise stipulated in the articles of the constitution of the trust).
VI – Extinction of the trust
In general terms, the trust is constituted for an indefinite period, except in cases where the articles of the constitution of the trust determine a term. The verification of such a deadline is, moreover, one of the causes of the extinction of the trust foreseen in the law now approved and published.
In addition to this, the trust is extinguished i) in accordance with the articles of constitution of the trust, ii) by the achievement of its purpose or because it becomes impossible, iii) by revocation, iv) by the concentration, in the same person, of the positions of sole beneficiary and trustor; v) the waiver of the right to the trust benefit by all beneficiaries or vi) the loss of all trust assets.
VII – Tax treatment
Despite the fact that this law was considered for a long period of time by the Legislative Assembly of Macau, the final wording given to the Trust Law did not address the tax treatment of this new legal concept, subjecting it to the general tax provisions of the Macau Special Administrative Region.
Therefore, in the absence of any special or favorable treatment for the trust, it is assumed that the trust will be subject to the applicable stamp duty rules regarding the transfer of real property assets and other assets in the case of the living trust, the income tax rules regarding the income resulting from the management of the trust and possible distribution of income to the beneficiaries (potentiating possible double taxation, to the trust and to the beneficiaries) and also the rules of the complementary tax in relation to the remuneration earned by the trustor(s).