Trust in France : definition, advantages and disadvantages for the business world

I. Trust: definition and main principles in French law

1. What is a trust? (Trust: definition, synonym trust)

In French law, a trust is the operation by which a grantor transfers assets, rights or guarantees to a trustee, who keeps them separate from his own assets and acts for a specific purpose for the benefit of one or more beneficiaries.

Concretely, you “remove” certain assets from your assets or that of your company to place them in a separate asset, managed by a trustee, for a specific period of time, with a view to a specific objective (guarantee, management, management, transfer, restructuring, etc.).

In practice, the close synonyms are: “trustee transfer of ownership”, “property and safety” or, by analogy with common law countries, the Trust, even if the French trust is governed by a specific regime.

2. The three actors in a trust and the role of the trustee

A trust always involves at least three legal persons:

• The constituent : the person who transfers the goods (e.g. your company that brings real estate or debts to the trust).
• The trustee : the person who receives these assets and manages them within the framework of the agreed mission.
• The beneficiary : the person who benefits from the transaction (for example the creditor bank, an investor, or even the grantor himself in some schemes).

The role of the trustee is central: he becomes the owner of the transferred assets, but only within the framework of the purpose set out in the trust contract and in the interests of the beneficiary (s). Its typical missions:

• manage assets (collecting rent, collecting receivables, managing a portfolio),
• ensure compliance with the conditions of the trust (coverage ratio, information about the grantor, etc.),
• realize or allocate assets in the event of default, in particular in a trust‑security.

In France, only certain professionals (credit institutions, investment firms, insurance companies, etc.) can be trustees, even if certain special regimes admit lawyers as trustees, under strict conditions.

II. What are the main types of trusts in practice?

1. Trust management and trust safety

Conventionally, there are two main uses in French law:

• Trust management : it is used to manage assets or a set of assets (buildings, securities, receivables) for a specific objective (preparation of a sale, asset protection, governance organization, etc.).
• Trust and safety : it serves as a guarantee. You transfer ownership of an asset to the trustee to secure a debt. If you pay, the asset is returned to you; if you default, it is attributed to the creditor or made to repay it.

For the Business world, trust‑security has become a major financing tool, particularly in bank restructuring and refinancing operations.

2. Trust and “family trust”: what are we talking about?

In France, the so-called trust “family” is an expression of practice rather than a standalone legal category. It refers to arrangements where the trust is used to:

• organize the holding of family shares,
• support the transfer of a business,
• protect certain heirs or spouses,
• isolating assets from inheritance disputes

However, the liberal trust is strictly regulated and “family trust” arrangements must respect the prohibition of trusts used as simple disguised donations. It is an area where disadvantages potential (family disputes, tax challenges, nullity) are important, which justifies in-depth support.

III. Interest of the trust for entrepreneurs and managers

1. What are the benefits of trusts for the business world?

The main benefits of the trust for businesses are as follows:

• Creditor security : assets transferred in trust are earmarked for a specific debt or purpose and are, in principle, protected from other creditors of the grantor.
• Powerful restructuring tool : trust‑security is widely used in debt restructuring to secure lenders and facilitate continuation plans.
• Contractual flexibility : the trust contract can be very finely configured (duration, powers of the trustee, conditions for carrying out or returning, reporting, etc.).
• Patrimonial separation : the trust assets are housed in a separate estate, which makes it possible to Dedicate certain assets to a project or to a debt without permanently removing them from the economic fold of the group.

For a manager, the trust can thus become a real wealth and financial strategy tool : allocating an office building as a guarantee of refinancing, securing a banking pool, organizing the takeover of a subsidiary in difficulty, etc.

2. Concrete examples of the use of trusts in business

Example 1 — Refinancing a real estate asset

• A corporation operates an office building. She is seeking refinancing from a banking pool.
• It transfers the building into a trust asset managed by a trustee financial institution, for the benefit of lending banks.
• As long as the due dates are paid, the company retains use; in the event of default, the trustee builds or allocates the building to reimburse the banks.

Example 2 — Trade receivables security trust

• A service company places a portfolio of trade receivables in trust for the benefit of a financial institution that advances cash to it.
• Receipts are directed towards the repayment of the advance; once the debt is extinguished, the remaining claims (or their proceeds) go to the grantor.

Example 3 — Securing an investor

• An investor enters the capital of a start-up provided that certain founding shares are placed in trust until milestones are reached (turnover, next round).
• If they are not reached, the shares may be attributed to the investor or carried out as provided for in the contract.

IV. Benefits of trusts for the business world

1. Asset protection and risk management

A trust makes it possible to protect certain assets from creditors who are not parties to the trust contract, including in the event of collective proceedings initiated against the grantor.

For a company in difficulty, the contribution of certain assets under trust‑security for the benefit of strategic creditors can:

• encourage the acceptance of a continuation plan,
• reassure lenders about the level of coverage of their risk,
• organize the sale or takeover of an activity around a core of secure assets.

However, this protection should not be used to organize insolvency: a trust created by fraud of the rights of creditors may be contested.

2. Contractual flexibility and financial engineering

The trust contract offers a suppleness appreciable:

• wide choice of transferable assets (real estate, social rights, current or future claims, security, etc.),
• setting up the trustee's powers (simple preservation, active management, powers of disposition),
• coordination with other collateral (collateral, mortgage, bond), facilitating the set-up of complex financing.

This flexibility makes it possible to build packages that are very adapted to the needs of the company: structured financing, staggered refinancing, co-guarantees, etc.

3. Specific advantages compared to other collateral

For creditors, a security trust offers several advantages compared to a simple pledge or a mortgage:

• Transfer of proprietorship (and not just an accessory right in rem), which strengthens their position in the event of default,
• possibility of allocating assets in the event of default, on the basis of a supervised valuation, with possible payment of a payout to the grantor.

For the grantor, asset separation provides greater clarity on which assets are earmarked for financing and which remain available, which can also improve banking dialogue.

V. Disadvantages and limitations of trusts for businesses

1. Legal and technical complexity

The first limit Of the trust is his complexity :

• specific legal regime (articles 2011 and following of the Civil Code),
• numerous formal constraints (written contract, mandatory information, maximum duration, etc.),
• coordination with insolvency law, security law and taxation.

An inaccurate or incomplete wording of the trust indenture can lead to disputes, or even calling into question the arrangement (nullity, requalification, litigation with “external” creditors, tax disputes).

2. Cost of a trust for a business (What is the cost of a trust? How much does a family trust cost?)

The Cost of a trust depends in particular on:

• fees from the trustee (bank, insurer, investment company), who can charge set-up fees, then an annual management fee,
• lawyer fees for structuring, negotiating and drafting the contract,
• asset valuation costs (real estate valuations, equity valuation, debt portfolio audit),
• possible registration costs or taxes, depending on the nature of the goods transferred.

In the case of a “family” trust, tax and asset advice fees are often added, as well as follow-up over time (adaptations, renewals). The cost must therefore be balanced with the challenge (amount financed, protection sought, risks avoided).

3. What are the disadvantages of a trust and a family trust?

The main Disadvantages of a trust are:

• complexity and technicality, with a risk of misunderstanding by certain actors (partners, heirs, co-contractors),
• cost of setting up and managing,
• risk of abuse by the trustee in the event of poorly supervised powers,
• risk of dispute by creditors, especially in the event of proven difficulty for the company at the time of establishment.

For a family trust, are added:

• tensions and family disputes (feeling of plunder, lack of understanding of the mechanism),
• risk of being called into question in inheritance or tax matters (abuse of law, requalification, etc.),
• cumbersome management for assets that are sometimes too modest, making the system disproportionate to the challenge.

VI. Trust contract: structure, clauses and examples

1. What is a trust contract? What is a trust document?

The trust contract (or trust indenture) is the legal act by which the trust is established. It must be written and contain several mandatory information, otherwise it will be void.

In particular, it specifies:

• the assets, rights or security transferred (present or future, but determinable),
• the duration of the transfer (limited to 33 years under French law),
• the identity of the grantor, trustee and beneficiary (s) (or the modalities of their appointment),
• the specific purpose of the trust (loan guarantee, portfolio management, etc.),
• the mission and powers of the trustee,
• the conditions for ending the trust (arrival of the term, achievement of the purpose, dissolution of the trustee, etc.).

THEDeed of trust may be concluded by private instrument or, in certain cases, by authentic instrument, in particular when real estate is concerned.

2. What are the mandatory provisions in a trust contract? (Trust contract example)

Texts and practice impose a core of essential clauses:

• Trust asset identification clause : precise description of the goods or the category of goods (e.g.: “all claims arising and to be incurred under contracts X, Y, Z”).
• Duration clause : numerical duration, which may not exceed 33 years, and possibly conditions for extension.
• Trustee mission clause : powers of administration, management, disposition, reporting obligations, possible limitations.
• Purpose clause : securing financing, preparing for a sale, asset protection, etc.
• Trust end clause : arrival of the term, achievement of the goal, renunciation of all beneficiaries, judicial liquidation of the trustee, dissolution or disappearance of the trustee, etc.

Simplified example of a clause (style snippet):

“The Constituents transfer to the Trustee, as a security trust, the ownership of the following assets: [description of assets], hereinafter the “Trust Assets”. The Trustee will keep them separate from its own assets, in an autonomous trustee asset, in accordance with articles 2011 and following of the Civil Code. The purpose of the Fiduciary Assets is to guarantee, up to [amount/description], the payment of all amounts due by the Constituent to the Beneficiary under the Credit Agreement dated [...]. In the absence of payment by the due date, and after a formal notice that has remained unsuccessful for a period of [X] days, the Trustee may, at its option, proceed with the amicable realization of the Trust Assets or their allocation to the Beneficiary, on the basis of a valuation established by an independent expert appointed by common agreement, all in accordance with the legal provisions in force.”

This clause must of course be adapted to the specific case, to the type of goods and to the configuration of the parties.

3. Practical framework: points of vigilance when writing

Educational framework — Checklist for the manager :

• Verify that the assets transferred are properly identified and valued.
• Anticipating default scenarios: how will assets be created or allocated?
• Precisely frame the powers of the trustee (can he sell freely? under what conditions?).
• Ensure that the trust does not conflict with other existing collateral or bank covenants
• Examine the accounting and fiscal impact (on your company's balance sheet in particular).

VII. Focus: trust security, a financing and restructuring tool

1. What is a trust and security contract?

La safety trust is the contract by which a debtor transfers the ownership of certain assets to a trustee, to guarantee the debt he owes to one or more creditors.

• If the debt is paid, the assets are returned to the grantor (or any designated person).
• If the debt is not paid, the assets may be attributed to the beneficial creditor or realized, with the proceeds being used to repay the debt, based on a fair valuation.

This mechanism has earned the trust‑the nickname of “queen of securities” in some doctrinal analyses, as it offers greater security to lenders.

2. Benefits and limitations of trust security for businesses

Interests:

• secure significant bank financing by reassuring lenders,
• facilitate the restructuring of debts in collective proceedings,
• allow refinancing on specific assets (real estate, receivables, securities).

Boundaries:

• risk of loss of economic control over certain assets in the event of default,
• need to manage relationships between creditors (rank, guarantee sharing, regulatory constraints),
• complexity of coordination with collective proceedings law (nullity of certain achievements during suspicious periods, etc.).

VIII. Trust and trustee: responsibilities, advantages and disadvantages

1. What is the purpose of a trustee and what are its disadvantages?

The Purpose of a trustee is to hold and manage trust assets in accordance with the contract and the law, acting in the interests of the beneficiaries and maintaining the balance between the parties.

Its obligations include:

• the diligent and careful management of assets,
• the effective separation of assets (trustee/own),
• accountability to the grantor and/or beneficiaries.

Les disadvantages for the trustee are:

• increased responsibility (contractual and sometimes professional),
• strong regulatory constraints (approvals, prudential supervision for financial institutions),
• specific administrative and accounting management of trust assets.

2. Is a lawyer a trustee? What is the purpose of a trustee?

Under French law, trustee status is reserved for certain categories (credit institutions, investment firms, insurers, etc.), even if certain special regimes allow professions such as lawyers to intervene, under strict conditions and with specific ethical rules.

The Purpose of a trustee (understood as a trustee, company or dedicated service) is to ensure the professional management of trust assets, by offering:

• legal, financial and operational expertise,
• a management infrastructure (separate accounting, reporting, compliance),
• a framework of trust for the parties (constituents and beneficiaries).

IX. Summary (advantages/disadvantages/costs)

Aspect — Advantages of a trust for the business world — Disadvantages of a trust for the business world

• Security: protection of trust assets against external creditors, security of financing and restructuring plans — risk of contestation in the event of fraud of creditors' rights or poorly calibrated arrangements.
• Flexibility: very flexible contract (choice of assets, duration, trustee powers, default scenarios) — significant technical complexity, requires specialized legal and financial support.
• Cost: justified cost for high stakes (significant financing, restructuring, protection of major assets) — fees for trustees, lawyers, experts, administrative and fiscal costs that are sometimes substantial.
• “Family” use: fine organization of the holding and transfer of assets, protection of certain heirs — risk of litigation between relatives, fiscal complexity, sometimes disproportionate for modest assets.

X. FAQ — Trust, advantages and disadvantages for the business world

1. What is the benefit of the trust?

The main interest of the trust is to allow a temporary transfer of ownership on assets in a distinct asset, dedicated to a specific purpose (guarantee, management, transmission), while offering reinforced security to creditors or beneficiaries.

For a company, it is used to secure financing, organize restructuring, protect certain assets from financial risks, or structure the holding of shares in a flexible contractual framework.

2. What are the disadvantages of a family trust? (Family trust disadvantage)

The disadvantages of a family trust are mainly due to:

• the legal and fiscal complexity of the arrangements,
• the risk of conflicts between family members who are not familiar with the tool,
• the possibility of contesting by the administration (abuse of rights, requalification),
• the cost of setting up and monitoring, which is sometimes excessive in relation to the size of the assets.

These disadvantages require a very detailed analysis of the appropriateness of the system for each family situation.

3. What are the disadvantages of a trust?

The disadvantages of a trust are:

• a high level of technical expertise, requiring specialized support,
• a significant structuring and management cost,
• a risk of litigation in the event of inaccurate wording or disagreement between parties,
• a risk of being called into question in the event of fraud in the rights of creditors or abuse of rights.

4. What is the cost of a trust? How much does a family trust cost?

The cost of a trust depends on the volume and nature of the assets, the complexity of the arrangement and the professionals involved: trustee (often a financial institution) and consultants (lawyers, tax specialists, experts).

A family trust, which is often more personalized and supported by wealth taxation, can generate additional costs of structuring, updating and monitoring, which makes it necessary to verify that the effort is worth it in terms of the assets concerned.

5. Trust example: what does a concrete set-up look like?

A classic example is that of a security trust on a business building : the building is transferred into trust assets for the benefit of a bank that finances the company; the company continues to operate the building, but in the event of default, the property is realized or attributed to the creditor according to a mechanism provided for in the contract.

Another example: a trust involving Accounts receivable to secure a short-term financing line, with receipts being primarily used to repay the debt.

6. Birth trust: what is it?

The expression “birth trust” is not an autonomous legal category in French law, but refers to the idea of a trustee mechanism put in place very early (for example, as soon as a company is created or as soon as an asset is acquired) to organize the holding and transfer of assets.

We can thus imagine setting up a trust as soon as an entrepreneurial project is “born”, to secure investments or organize the future entry of partners.

7. What is the role of the trustee?

The role of the trustee is to own and manage trust assets in a separate estate, respecting the purpose determined by the contract and being accountable to the parties.

It must act with loyalty, diligence and competence, otherwise it will incur liability, and ensure strict compliance with the limits of its mission (powers of administration, provision, implementation, etc.).

8. Is a lawyer a trustee?

In French law, the law in principle reserves the function of trustee to specific categories (credit institutions, investment firms, insurers, etc.), even if some arrangements provide for the intervention of lawyers in similar or complementary schemes, under strict ethical rules.

It is therefore necessary to verify, on a case-by-case basis, the applicable legal framework and the possibilities of intervention of the lawyer (advice, structuring, mandate, or even certain trustee functions according to the texts in force).

9. What are the disadvantages of a trustee?

The disadvantages for a trustee include:

• significant responsibility, in case of poor management or breach of contract,
• regulatory, accounting and prudential obligations that are sometimes burdensome,
• the need to have teams and systems adapted to manage several distinct assets.

These constraints explain why the function of trustee is, in practice, reserved for specialized actors.

10. What is the purpose of a trust?

The purpose of a trust is to dedicate certain assets with a specific objective (guaranteeing a debt, managing an asset, organizing a transfer, structuring a financial transaction), by isolating them in a separate asset, managed by a trustee.

This allocation allows better security for beneficiaries and better readability for all stakeholders (creditors, investors, partners).

11. What is a trust indenture?

A trust indenture is the contractual document that establishes the trust and sets out all its parameters: assets, duration, parts, purpose, powers of the trustee, terms of end, etc.

It is a highly structuring act, whose drafting conditions the validity of the arrangement and the scope of the guarantees offered.

12. What is a trust and security contract?

The trust and security contract is the contract by which a debtor transfers, as security, the ownership of certain assets to the trustee to ensure the payment of a debt, with a mechanism of return in the event of payment or of attribution/realization in the event of default.

It is widely used in corporate finance, especially when creditors want strong and adaptable collateral.

13. Trust: definition and synonym in practice

As mentioned above, a trust is the transaction of transfer of assets into a separate asset, managed by a trustee for a specific purpose.

In practice, the terms “trust property”, “property and safety” or, by comparative analogy, “trust” (in common law systems) are sometimes used, while bearing in mind that the French regime is specific.

XI. A regulated system: the importance of being supported

The trust is a regulated device, at the crossroads of civil law, security law, banking law and tax law. The slightest imprecision can have significant consequences: invalidation of the arrangement, loss of protection, requalification, legal or fiscal challenges.

Before setting up a trust‑security, a trustee‑management or a similar arrangement (including a “family” arrangement), it is strongly recommended that you be assisted by a lawyer familiar with these mechanisms, in order to anticipate all the legal, economic, accounting and fiscal considerations specific to your management situation.

Article written by Guillaume Leclerc, business law lawyer in Paris, 34 Avenue des Champs-Elysées.

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