Property trust management agreement
- one of the types of contracts provided for by the Civil Code of the Russian Federation[1]
Under a property trust management agreement, one party (the management founder) transfers property into trust management for a certain period of time to the other party (the trustee), and the other party undertakes to manage this property in the interests of the management founder or the person specified by him (the beneficiary).
The property trust management agreement is real, fiduciary, as a general rule, gratuitous and unilaterally binding, although in the case provided for by the agreement it can be compensated and therefore bilaterally binding.
As a rule, a simple written form is required for a property trust management agreement, with the exception of the case of transfer of real estate to trust management. Failure to comply with the form of the property trust management agreement entails its invalidity (Article 1017 of the Civil Code of the Russian Federation).
Object of trust management
Objects of trust management can be enterprises and other property complexes, individual objects related to real estate, securities, rights certified by uncertificated securities, exclusive rights and other property[1].
Money cannot be an independent object of trust management, except in cases provided for by law.
Property under economic management or operational management cannot be transferred to trust management. Transfer to trust management of property that was under economic management or operational management is possible only after the liquidation of the legal entity in whose economic management or operational management the property was, or termination of the right to economic management or operational management of the property and its receipt by the owner as otherwise provided by law reasons. The transfer of property into trust management does not entail the transfer of ownership of it to the trustee.
Essential terms of the trust management agreement
The property trust management agreement must indicate[1]:
- composition of property transferred to trust management;
- the name of the legal entity or the name of the citizen in whose interests the property is managed (the founder of the management or the beneficiary);
- the amount and form of remuneration to the manager, if the payment of remuneration is provided for in the contract;
- contract time.
A property trust management agreement is concluded for a period not exceeding five years. For certain types of property transferred to trust management, the law may establish other deadlines for which an agreement can be concluded.
In the absence of an application from one of the parties to terminate the contract at the end of its validity period, it is considered extended for the same period and on the same conditions as provided for in the contract
Peculiarities
The owner of real estate needs to know that the rights to manage the property can only be transferred through an agreement. It is drawn up on the basis of the same rules as the purchase and sale agreement.
It is important that Rosreestr registers the transfer of rights to property. The contract itself is not registered, only the transfer. If such property is registered, the owner’s rights as an owner are strengthened.
Do I need to contact Rosreestr if any changes occur in the trust management agreement? Since only the fact of transfer is registered, changes and additions to the agreement do not need to be registered . They are simply recorded in a document, which is then only attached to the main, initial agreement.
If the transfer of property is not registered in the State Register, the manager does not have the right to rent out the property or perform other actions with it. Therefore, you should always remember the need for state registration.
IMPORTANT! Trust management is formalized by an agreement only for 5 years, no more. If the parties do not want to interrupt the cooperation, it is automatically extended for 5 years.
Powers and responsibilities of the parties
The trustee makes transactions with property transferred into trust management on his own behalf, indicating that he acts as such a manager. This condition is considered to be met if, when performing actions that do not require written documentation, the other party is informed about their performance by the trustee in this capacity, and in written documents after the name of the trustee the note “D.U.” is made. (Article 1012 of the Civil Code of the Russian Federation[1]). In the absence of an indication of the trustee's action in this capacity, the trustee is obligated to third parties personally and is liable to them only with the property belonging to him.
The trustee is liable to the beneficiary in the amount of lost profits, and to the founder of the management - in the full amount of losses caused. The presence of a causal connection of losses with force majeure circumstances or the actions of the beneficiary or founder of the management releases the trustee from liability. The burden of proving the existence of such grounds for exoneration lies with the trustee. The risk of the trustee exceeding his powers in transactions with persons who did not know and should not have known about the fact of exceeding his powers is borne by the founder of the management, who has the right to demand compensation from the trustee for losses caused. The trustee has the right to remuneration only if this is specifically provided for in the contract, and to reimbursement of necessary expenses - regardless of the presence of such a condition in the contract. However, the amount of both remuneration and reimbursement of necessary expenses is limited by the amount of income received from the use of property (Article 1023 of the Civil Code of the Russian Federation)[1].
Trust
trust property means a system of relationships in which property that previously belonged to the founder is transferred to the trustee. The beneficiaries (in other words, the beneficiaries) are directly involved in receiving income from this property. The founder, thus, transfers the assets under the control of the trustee, who will have to carry out transactions with them that bring maximum profit. The trust agreement is drawn up taking into account the wishes of all parties, and in this case the main aspects are also taken into account. This type of property has recently become the most relevant, and this popularity is due to a number of its advantages.
Another name for trust management is a trust, and it has its own characteristics. Its main feature is that the property does not belong to the founder himself or even the manager, and even the beneficiaries do not own the property. The property that is transferred to trust management is not a kind of separate property, but continues to remain the property of the trustor, while his obligations also apply to such property. Trust property in general arises on the basis of necessity and is an excellent source for the implementation of a set of activities.
The services provided by the trustee are usually paid through a percentage of the profits received. Absolutely any property can act as an object of trust property. And intellectual property objects can also be transferred to a trust. Only property that is prohibited by the state is excluded from this list.
Rights of the founder and trustee
The founder has the right to transfer his property for disposal, both during life and after death, having previously provided for the transfer. The trustee, in turn, is responsible for fulfilling the terms of the agreement and receives numerous powers to manage the property. He may also receive instructions regarding the distribution of trust capital among the acquirers. Similar conditions are included by the founder in the letter of wishes, which is addressed to the trustee. The founder may also consider special conditions for replacing the trustee, as well as stipulate his right to the subsequent transfer of property to another person.
Trust ownership has recently gained popularity and is truly beneficial for settlors and trustees.
Where is a trust used?
A trust property contains a number of elements that need to be considered. In general, trust deeds can be used for several purposes:
1) Anonymity. In many countries, the contents of wills become public information after the death of the people who drafted them. But the names of the trust beneficiaries remain secret information, so the new owner of the property transferred to trust management remains unknown.
2) The purpose of joint ownership of property. In this case, a trust acts as an excellent way to jointly own property, such as real estate.
3) Saving capital from waste. Trust management in this case is a powerful tool, so the terms of the trust limit the use of money, as well as the age at which the child can manage property.
4) Another purpose of the trust is charity, because in some countries property that implies charitable purposes is in trust management.
5) Pension plans. Corporate pensions are very often structured as a trust.
6) Complex corporate-type structures. Trusts are often used as legal entities in the insurance and finance industries. Thus, trust management of property allows you to solve a lot of problems and conduct operations at your own discretion.
7) Concealment of property. A trust in some cases provides anonymity, in which the same person can act as the party who provides the property as well as the party who receives it. That is, to be both a beneficiary and a founder.
A trust is also beneficial in other situations. For example, in case of tax evasion. And many countries require the trustee to report trust income to the tax office in the beneficiary's country of residence. Also, such parties to the trust are used for so-called money laundering. Another method of tax evasion is possible when there is a progressive income tax. Beneficiaries are thus exempt from paying tax.
9) Hiding income. Purchasing property in the name of a trust allows you to declare that your own assets are missing or that they are insufficient.
10) For the safety of property. If property is transferred to a trust, the founder loses all rights to the property if the trust agreement was drawn up correctly. Thus, property becomes inaccessible to creditors as soon as trust management of the property has been formalized.
How did trusts come about?
The history of the appearance of the first trusts correlates with the times of the Crusades, when knights set out to liberate Jerusalem from infidels; by agreement, they left their property at the disposal of relatives so that they would manage it for the benefit of their wives and relatives. Further, during the Middle Ages, property was transferred to trusts in order to protect it from numerous attacks. Further, the church began to provide such services as a trust manager, and the protection could be used profitably, so all actions were carried out in the interests of the trust founder.
Soon the transfer of property became very common as a form of will, and also as an excellent means of opposing inheritance tax. Thus, a lawyer from England managed to develop and perfect a form of property ownership. Currently, citizens who wish to carry out real estate transactions and protect property have the right of trust ownership.
Trust management: pros and cons
If we take into account exclusively the stock market, then the trustee performs the same function as the manager, that is, he sells or buys securities and carries out the entire process in such a way that it becomes possible to receive investment income from them. But trust management contains slightly different legal regulations, so the trustee does not have a number of his responsibilities to hold funds in securities.
Thus, when prices decline, it becomes possible to sell all securities and thereby wait out the fall. In addition, there are no special requirements for portfolio diversification, because the trustee cannot use margin trading, since this process would require borrowing securities or money from a broker. These operations are prohibited by mutual funds, since their participation increases the risk of losses.
In general, if you look at it from a theoretical point of view, trust management is more profitable than mutual funds, but the lack of requirements for diversification is a strong disadvantage, as it complicates the process, exposing it to greater risk. Thus, trust property contains many nuances that must be observed in any case, since this is necessary for each party who takes part in drawing up the agreement.
Communication with trustees can easily and simply fulfill the wishes of the trustor, and, in turn, mutual funds are very limited in their actions through the existence of an investment declaration, so they are generally not obliged to fulfill the wishes of clients. An important advantage of the speed of circulation of funds in a mutual fund is the ability to purchase and sell shares quickly enough, and the movement of funds is carried out at maximum speed.
You can often find PAMM accounts in the range of services of brokerage companies, which have recently become popular.
Trust in the Forex market
In general, trust management involves the possibility of investing assets in securities and purchasing currencies of different countries. Brokerage companies have recently begun to publish information that the number of clients who are beginning to transfer their assets into trust management is constantly growing. And every year their number increases by 30-40%. In general, professional speculators who trade for a client earn about 5-10% per month, and also have about 60% net income per year. And this is just the minimum number. The starting price for an investor is about 50-100 thousand dollars. Companies have recently offered specialized types of accounts that can simplify the entire procedure for transferring funds into management and returning them.
It is imperative to understand the difference between the process of converting the principal's funds into currency, as well as margin trading in the Forex market, in which the trusted funds are used as collateral for issuing a loan. Trust ownership in this case implies the performance of a number of operations. Funds are transferred to trust management of companies or special traders, and this is often contrary to the law. This is due to the fact that very often companies and traders themselves do not have licenses to carry out trust management.
In general, Russian legislation does not allow trust management, especially of funds, except for those cases provided for by law. If we consider the data for 2010, then specialized organizations that have special licenses have the right to such management. Despite all the possibilities, banks cannot attract loans secured by property that is under management. They also do not have the right to use margin trading mechanisms in their activities.
In addition, the code considers the fact that transactions with property, which is in fact transferred to trust management, must be carried out by the manager exclusively on his own behalf, and he must indicate that he is acting on behalf of the manager. If there is no indication of the action of such a manager, then he undertakes to answer to third parties with the property that belongs to him. He is also responsible for losses that may occur.
Forex usually offers a wide variety of account options, which often violate the norms of the code, and in controversial situations, protection from a legal point of view cannot be used.
Trust property – is it worth it?
In general, trust property has recently been gaining momentum in popularity and is an integral element of the mechanism. So, it has a number of advantages that are obvious:
- The ability to protect numerous transactions from a legal point of view.
- Possibility of confidentiality of information about the person who is the beneficiary of the trust, and so on.
- If a person does not know how to manage finances competently, such a transaction will free him from spending.
- The benefit of a trust as such is in many legal and personal matters, since this type of transaction has managed to prove itself only on the positive side.
Also, as already noted, a trust has many advantages in many ways that are very important to take into account. With the right approach to transferring property into ownership, excellent results can be achieved, both from a legal and personal point of view. In general, the right of trust property is subject to everyone. If you follow the basic recommendations for registering trust property, you can make transactions as profitable as possible and at the same time protect yourself from all kinds of risks.
