How Trust Law Formed Common Law

Trust law was established sometime in the 11th century when crusaders went into battle and kept portions of their wealth in safekeeping by using a trust.

However, over the years, trust law formed common law that would protect these assets.

Early Beginnings

Trusts developed when knights would leave their gold at a knight organization, which would take possession of it and give the knights depository receipts.

The knights would then use these depository receipts as they traveled to other countries. The receipts proved that the knights had assets in reserve. This made knights the first international bankers in the world. They would issue letters of credit, and they developed the idea that people could give their property to another person to hold in a safe manner for them.

Later Developments

English common law accepted the notion that property could be held in trust. The Napoleonic Code further incorporated this notion. The code went a step further by stating that individuals could not separate legal and beneficial ownership. Spain, France and Italy have adapted these concepts into their own common laws in regards to accepting the legal concept of a trust.

International Treaties

International treaties allow citizens in countries to create foreign trusts in other countries besides their homeland. Those foreign entities are legally recognized in regard to tax purposes.

Foundations and Trusts

Some countries, such as Panama, recognize a foundation. Foundation in trust terms means that a corporation will be enhanced with trust-like qualities, allowing a group of people to hold property on behalf of another person. These devices look and appear like a trust, but they are actually different than traditional trusts.

Holland may use a STAK or Stichting AK. These are quasi-trust entities. They are able to hold property on behalf of another person. They are not called trusts, but they function in a similar manner to a traditional trust.

Implications for Foundations and Taxes

The Internal Revenue Service has responded to the use of foundations. They have a system in which individuals can check the box to indicate that they are using a foundation in this manner. The Internal Revenue Service allows foreign entities to select the status of their choosing under United States law. This decision is often based on the purpose and attributes of the entity.

Nagel & Associates, LLC can help individuals establish foreign trusts. Find out more about the firm and global strategies to protect your wealth.