The laws on trusts in the Republic of San Marino. The critical role of the judge and other regulatory changes

By Paolo Gaeta, certified public accountant in Italy and University Lecturer

[email protected]

Abstract: The San Marino law of the trust represents a unicum in the international panorama. It is not only a law written in Italian; it is innovative and original, different from the "international" and English trust model, with efficient solutions that fit into the San Marino legal system. The law guarantees a) stability of the trust;b) respect for the settlor's will;c) balance of the interests of the subjects involved. In 2012, San Marino introduced "The Court for trusts and fiduciary relations." The Court is competent for all cases and disputes concerning legal relationships deriving from entrustment or trust regulated by any legal system.

Keywords: trusts, San Marino, Trust Court, Resident Agent, Register of Trusts.

Table of Contents: 1. Foreword; 2. The Court Dei Trusts, a fundamental novelty on the international level; 3. Further novelty: the Register of Trusts; 4. The Resident Agent, a role foreseen only in San Marino; 5. Tax advantage for trusts resident in San Marino, but that does not make them "tax-privileged" for Italy; 6. The desire to be truly innovative; 7. Does the beneficiary give way to the settlor?; 8. Some reflections on the experience in Italy over the last 30 years; 9. Final thoughts on the role of the judge

Foreword

In recent years, the Most Serene Republic of San Marino has been the protagonist of regulatory innovations in various areas of law, among them the enactment of the Law on Trusts and Fiduciary Relationships number 42 of 2010.

A breath of fresh air in the European legal tradition that led to the revival of the institution of trusts within a context other than that of exclusively customary law formation. For the first time, the law allowed trusts to develop within a positive, well-established, and comprehensive law framework to compete with major international jurisdictions with laws regulating the institution of trust.

The San Marino legislation is not only a trust law written in the Italian language (which is already a novelty and an objective advantage for an Italian citizen and operator), but it regulates a different model of trust than the Anglo-Saxon customary law models, marked by principles of greater connection with civil law, the Italian citizen and his interests.

With the introduction in Italy of Law No. 364 of October 16, 1989, ratifying and executing the Convention on the Law Applicable to Trusts and on their Recognition, trusts established in Italy by Italian citizens are governed by foreign laws (according to the conventional "universal" principle whereby the settlor may choose any international trust law to govern the relationship to which he wishes to give rise).

However, foreign laws regulating the subject matter of trusts will only be able to fulfill their required function if they are the expression of principles akin to those founding Italian domestic law. Only once said principles have been identified will the rules (or positive norms) represent their concrete expression and application.

The identification of the governing law then becomes a vital issue for the validity and long-term stability of the trust relationship, for the respect and fulfillment of the actual will of the settlor, the profitable operation of the trustee, and the protection of the interest of the beneficiary of the trust assets.

The choice is decisive not only because it affects the planning possibilities and behavior of the Italian settlor but also because it explains its effects vis-à-vis the beneficiaries and is a determinant of the long-term stability of the trust relationship.

Although it has been discussed over the past three decades, the reference standards applicable to the trust to be established are always a sensitive issue.

Entrusting assets to a relationship trustee with overly "advanced" or fancy rules is imprudent, and the history of Italian trust jurisprudence gives limpid evidence on the point.

The Court of Trusts, a fundamental innovation on the international stage[1]

The control and supervision of any trust regulated by Law No. 42 of 2010 are the responsibility of[2] to the Court for Trusts and Fiduciary Relations.

Here is the element that arouses strong interest in San Marino, where, for the first time, a state has decided to provide for a specialized court, precisely the "Court for Trusts and Fiduciary Relations," which is responsible for adjudicating disputes concerning trusts and trusteeships and which plays an essential role in the activities of trustees.

The Court may be appealed to by trustees whenever they need an "opinion" on the interpretation of a deed of trust or even if the deed of trust has not considered the context, the circumstances that the trustee is faced with and for which he or she needs guidance.

The Court comprises seven distinguished jurists who serve for five years and have distinguished themselves internationally in the field of trusts.

A court that is easy to access, that operates with digitized procedures and before which even an Italian lawyer can appear if domiciled with a colleague in San Marino. A court that, among other things, presents lower access costs for Italians than an Anglo-Saxon court.

The Court has international jurisdiction for all cases and disputes concerning legal relationships arising from trust or custody, such as trusts, trusteeships and similar institutions. A peculiar aspect of the San Marino Court concerns the fact that its "contentious and voluntary jurisdiction extends to the legal relationships listed above, by whatever system governed."[3].

The composition of the Court is varied precisely to have judges who, from case to case, are familiar with the various laws involved in the case brought to its attention. The Court sits in either monocratic or collegial composition depending on the type of decision to be made.

Having a judge intervene in the trust's control and administration during the trust's life is ontologically related to the nature of trusts.

It is not easy to think of a trust deed that provides for and regulates all situations and events that may occur in the long existence of the trust, and the Court is a reference point for some of the trustee's choices.

In fact, the trustee, under Article 53 of Law No. 42/2010, may petition the Court in order to:

a) be authorized to perform a helpful act that is not within his or her powers;

b) obtain ratification about an act that has already been performed or have the Court make such amendments to the deed of trust as may have become necessary or appropriate; and

c) obtain a ruling regarding the performance of an act inherent in the office if he or she is uncertain about the performance of such an act.

Thus, a cooperative relationship is created between the Court and the trustee, and the Court, in its experience over the years, rarely intervenes to handle litigation with the trustee.

The logic here is reversed from contract law's where the Court intervenes to cure the breach. In the trust, the Court intervenes to ensure exact performance (of the trustee).

Additional novelty: the Registry of Trusts.[4]

In the Republic of San Marino, the Register of Trusts maintained by the Central Bank of the Republic of San Marino, in which trusts governed by San Marino law are entered, has been operational for some time; access to the Register of trusts is allowed only to qualified parties and indicated by the regulations.

The Central Bank of San Marino[5] has issued its regulations, which, in addition to establishing the requirements, conditions and procedures for obtaining and maintaining the authorization for the office of professional trustee in San Marino, also regulate the procedures for maintaining and consulting the Register of authorized trustees (the trustee in San Marino unlike in Italy, even when a natural person registered with a San Marino professional order, must have attended a course, passed a qualifying examination and update annually). In addition, the Central Bank determines how the Book of Events must be exhibited to the same Bank and regulates the supplementary information supervision obligations to which San Marino financial firms are subject when trustee.

The Central Bank issues for each trust a "Certificate of Entry in the Register of Trusts," which states.[6]:

The registration number of the trust;

the name;

revocability or irrevocability;

The limitations on the trustee's powers;

The guardian and the nature of his powers;

the settlor;

beneficiaries;

The date of the founding act;

The duration of the trust;

the regulatory law;

Whether they are purpose trusts or trusts with beneficiaries;

The description of the purpose, if any;

the resident agent;

additional notes.

The possibility of having this information certified by the Central Bank through the custodial work of this information indicated by the Certificate meets requirements for transparency and effectiveness that are lacking in other systems and are designed precisely because of the consequences that may result in civil law countries.

The Resident Agent, a role provided only in San Marino

The connecting element between the trustee and the Central Bank of San Marino is the Resident Agent. The regulation provides that if the trustee of a trust governed by the law of San Marino is a foreign national or company, the same must mandate a Resident Agent (a person registered with the Register of Lawyers and Notaries or Certified Public Accountants and Bookkeepers of the Republic of San Marino) who must carry out the formalities at the Central Bank, under his responsibility, and fulfill the anti-money laundering requirements[7].

The figure of the Resident Agent is also new to international trust regulations. However, it again testifies to how every trust governed by San Marino law lives with a set of control, transparency, and governance provisions that constitute a security for the trust subjects and third parties who come into a relationship with the trustee[8].

Tax advantage for trusts residing in San Marino, but that does not make them for Italy "privileged tax status."

Provisions on the taxation and accounting of the trust are encapsulated in specific rules, which give the trust autonomy as a tax subject, as has already been the case in Italy since 2007; this choice to subjectivize the trust from the tax point of view allows it entirely to be among the subjects to which the Convention against double taxation for direct tax purposes applies. To date, San Marino has signed numerous conventions, including with Italy, to which the Convention with the United Kingdom will soon be added.

The days when the small state was considered a tax haven with solid banking secrecy are long gone and relegated to an almost forgotten period of history.

San Marino's domestic tax regulations and international tax and information exchange conventions have made the Titan Republic one of the most cooperative states with Italian tax authorities[9].

Titan rules allow trusts resident there not to be considered under Italian rules as having a "preferential tax regime"[10]; this is a very advantageous exclusion if those trusts resident in San Marino have beneficiaries residing in Italy who do not see themselves subject to the "punitive" rules that the Italian tax legislature has provided for Italian beneficiaries of trusts residing in states where the income of the assets in trust is subject to direct taxes at a rate of less than fifty percent of those provided in Italy.

The desire to be genuinely innovative.

San Marino Law No. 42/2010 was expertly written, with great awareness of the mechanisms by which trusts work and with equal attention to the needs of Italian citizens (and those in general from states with civil law systems) and civil law jurisdictions; it could be defined by two adjectives: innovative and competitive.

It is innovative because, compared to the Anglo-Saxon paradigm, it makes original variations on the institution's typical structure.

It allows the rights of the beneficiaries to be broadly defined but at the same time, gives the settlor the ability to prevent them (beneficiaries) from holding rights that, as is the case in the Anglo-Saxon model, can go so far as to interfere with the activity of the trust and its structure, even to the point of demanding its early termination.

The center of gravity of the San Marino trust can be shifted more to the settlor's wishes by allowing the trustee greater autonomy.

The trustee-court relationship is emphasized. The trustee may bring an action before the Court whenever there is uncertainty in the management or administration of the trust, and there is no provision in the trust deed. In the San Marino view, therefore, the judge assumes a paternalistic role.[11]: he is called upon to help, assist, and support the work of the trustee in order to ferry the assets in the interest of the beneficiaries.

The judicial body can intervene here on a preventive basis by assisting the trustee to fulfill its obligations properly. In the logic of the Italian legal system, on the other hand, the Court intervenes a posteriori, that is, to settle or settle disputes that have already arisen between the parties.

Competitive for completing the process of capitalization of the trust. While in the common law trust structure, the trustee is liable for ultra vires obligations, with the San Marino law, we have a capitalization of the trust: the trustee is liable only with the property in trust and never ultra vires and is liable up to the amount of the trust. In addition, under Article 47 of the San Marino Trust Law, "any person, other than the other trustees, beneficiaries and the guardian, who has rights against the trustee, arising from obligations assumed or from acts performed manifesting the capacity of trustee or from acts or facts in any way inherent in that capacity, may satisfy himself solely on the trust fund."

Does the beneficiary give way to the settlor?

In the common law view, the trust originates as an obligatory relationship, which arises in the hands of the trustee vis-à-vis the beneficiary (the Anglo-Saxon trust has been considered a "gift over time to beneficiaries.")[12]. Therefore, the beneficiary can come to play an impactful role in the structure of the trust. Suffice it to say that the English legal experience has gone so far as to give beneficiaries (provided that they have a position defined as "vested," precisely identified and capable of acting) the power to ask the trustee for an early termination of the trust-even in the face of a different provision by the settlor-thus having the trustee immediately transfer the assets.

This is the well-known English rule of a well-established jurisprudential source called "Saunder v. Vautier"[13], which in the law of England and other neighboring states to the English system is unbreakable and cannot be disabled by a clause in the deed of trust[14].

It is uncommon for the prerequisites of the rule in commentary to arise in practice. Indeed, the repentant draftsman is well aware of them, but the reminder helps to understand the point of view of the type of trust in which the beneficiary's will could override that of the settlor, even if this were explicitly forbidden in the deed.

San Marino law does allow early termination of the trust at the initiative of all beneficiaries, but it is subject to a different provision in the deed of trust.

The San Marino legislature, with Article 50.[15]paragraph 3 of Law No. 42 of 2010, privileges the will of the settlor and sanctions the derogation of this rule whenever the settlor is against the early termination of the trust.

The rationale from which the rule focused on the settlor's wishes arises also has other consequences; the legislation allows for there to be trusts without beneficiaries (so-called purpose trusts), or for there to be trusts whose beneficiaries can also be named later by the trust guardian. This would be unthinkable for an Anglo-Saxon trust.

Some reflections on the experience in Italy over the past 30 years.

This analysis focusing on San Marino legislation also helps Italians better understand some of the phenomena that have taken place in our country in recent decades.

If we look at what has happened in Italy from the perspective of this system of rules, functions and offices of the trust, we have the feeling that the trust's vision that has spread in recent years has suffered from two main limitations.

Let us first reiterate, if any were needed, that Italy has been able to accomplish a process of awareness in the use of the institution of trusts over the past 30 years that is unique internationally, which will remain an incontrovertible historical element.

A first limitation has resulted from the fact that there has sometimes been a tendency to treat trust in an abstract sense[16]. In the concrete application of trusts the abstract treatment does not help, even confuses the practitioner and seduces the neophyte to whom it appears to have magical effects to be afraid of.

The second limitation we have suffered is to equate the trust with the deed, with the document composed of clauses and formulas, or with the fiscally autonomous entity, losing the possibility of grasping the essence of how the trust works, which is given by a system of rules, people, behaviors and the relationship between trustee and judge, as taught by the centuries-old Anglo-Saxon legal history in which the Courts are physiological interlocutors of the trustee.

The aspect of the centrality of the trust's system of rules and persons, and not just the deed, can also be inferred from the Hague Convention on the Recognition of the Effects of Trusts; in fact, it defines trusts as "legal relations established by a person, the settlor - by deed inter vivos or mortis causa - where property has been placed under the control of a trustee in the interest of a beneficiary or for a specific purpose."[17].

The trust is the relationship established by the settlor between the trustee and beneficiaries. At the heart of this relationship is the trustee.

The limitation of abstraction and the trust identified in the deed has had adverse effects not only for professionals, disposers, and beneficiaries but also for practice, which has tried to give interpretative rules of an abstract phenomenon or one that is not understood in its breadth by expressing itself on bases far removed from the case in point; this has resulted in lacunar or even erroneous interpretations as evidenced by both the contradictions that have emerged from the Circulars of the Internal Revenue Service in recent years and the stubborn and dogmatic attitude of the Internal Revenue Agencies[18].

Final thoughts on the role of the judge

According to the British courts, the trust is not identified with the obligation itself but has a quid pluris: "it is the obligation whose performance is placed under the control of a court."[19]. In other words, the trustee must look to the Court for direction, authorization, and control.

From this corollary, the courts have affirmed that whenever the deed of trust seeks to eradicate the judge-trustee relationship, to remove the bond that is essential to the institution, the relevant clauses are void as contrary to mandatory rules.

Article 53 of the San Marino law gives the Court a general power to supervise and control the trusts it regulates since these are judicial measures that, making possible the continuous and regular management of the trust, fall within the scope of voluntary jurisdiction.

There is Italian case law on the point for which "the provision in the trust deed referring such a measure of voluntary jurisdiction to the President of the Court violates the mandatory and public order principles of the Italian legal system in terms of the typicality of administrative measures of voluntary jurisdiction. (Court of Crotone, September 29, 2008).

In addition, Article 12 of the law regulating the system of private international law, Law No. 218 of May 31, 1995, under the heading "Law regulating the process," reminds us that "civil proceedings taking place in Italy shall be governed by Italian law."

Article 8 of the Hague Convention on the Effects of Trusts.[20] provides a list of matters whose regulation refers to the governing law of the trust identified in the deed of trust. In this list, we do not find references to procedural aspects. The rationale for this can be found in the fact that the Convention is a rule of substantive private international law and, therefore does not regulate procedural aspects. The Hague Convention is, therefore, not entitled to give the trustee the power to bring suit in Court.

However, according to one thesis[21] (now prevailing), based on Article 8(2)(a) of the Convention-which delegates to the law governing the trust the task of regulating the appointment and removal of the trustee[22] - it is the governing law that provides for such measures, with the consequence that, as a result of its ratification, new extra-codictic hypotheses of voluntary jurisdiction measures have been introduced in Italy. According to this doctrinal strand, opting for the inadmissibility of such measures ultimately means risking the nullification of the ratification of the Convention[23].

But would the regulating law, to which the cited Convention refers, really have the power to do so?

Let us read Article 51 of the Jersey Trust Law (1984). It is understood that "a trustee may apply to the Court for directions as to how he should or may act about any fact concerning the trust, and the Court may make, if it thinks fit, any order necessary to prevent such directions." However, it does not mean that any court can issue directions. Looking closely at Article 1 of the aforementioned legislation, the legislature specifies that any reference to the "Court," should be understood to mean the Court of Jersey[24]. Therefore, the judicial powers conferred by the Jersey Act appear to be vested only in the Jersey Court and not attributable to any judge.

The same applies to the Serenissima law.

Before stating that "The Judicial Authority holds a general jurisdictional power to control and supervise any trust regulated by Law," it specifies that Judicial Authority should mean the Court for Trust and Fiduciary Relations of the Republic of San Marino (Art. 1, Paragraph 1(b), Law 42/2010).

When the governing law gives the trustee the power to address the Court and the Court the power to make the order, that law constantly alludes only to the Court of the governing law and not to another court.

In conclusion, even if one admit that the Hague Convention refers to the jurisdiction of the foreign Court (also) in procedural matters, it is the governing foreign law that states that the power belongs exclusively to the judicial body to which that law belongs.

Notes

[1] The Court for Trusts and Fiduciary Relations has a website at: https://www.cortetrust.sm/on-line/home.html.

[2] Article 53, Law March 1, 2010, No. 42.

[3] Art. 1 of the San Marino Constitutional Law of January 26, 2012 No. 1.

[4] A list of the main San Marino trust legislation can be found free of charge on the site reachable with this QRcode: or by visiting studiogaeta.com San Marino area.

[5] Delegated Decree No. 49 of March 16, 2010, Article 2, Paragraph VII.

[6] Article 7, Law No. 42 of March 1, 2010.

[7] Articles 6, 7 and 8, l.March 1, 2010, no. 42.

[8] For further discussion see S. Bartoli in Trust and Fiduciary Entrustment. The application in Italy of San Marino law, Giuffrè, p. 18.

[9] As also reflected in statements made to the press by Lieutenant Colonel of the Guardia di Finanza Alessandro Lo Bello, Head of the Direct Taxes and VAT Section, International Cooperation Office, who recognized San Marino as "the best partner in terms of tax cooperation with Italy." The interview can be found at this link: https://www.sanmarinortv.sm/news/attualita-c4/guardia-di-finanza-oggi-san-marino-e-uno-dei-migliori-partner-in-termini-di-cooperazione-a223463.

[10] The direct tax rate applied to income produced by assets in trust in San Marino is 1.7 percent or optionally 12.75 percent which is more than half of what is due in Italy and this places trusts residing in San Marino to be among the few internationally that do not fall under the scope of the punitive tax rules reserved for "paradise" trusts.

[11] D. Hayton, Trusts in Private International Law, Recueil de Cours, 2013, Leiden-Boston, p. 21.

[12] "A trust is an equitable obligation, binding a person (called a trustee) to deal with the property owned by him for the benefit of persons...any of whom may enforce the obligations." Underhill & Hayton, Law of Trusts and Trustees, LexisNexis Butterworths, 2002, p. 3.

[13] Statutory in an English ruling of 1841 and found in Trusts and Trust Assets, Wolters Kluwer, 2004, p. 294.

[14] The rule is explained by the consideration that since the trust is by definition established in the interest of the beneficiaries, once they are precisely identified there is no reason to force them to wait for the final term of the trust set by the settlor. Saverio Bartoli in Trust and Trusteeship. The application in Italy of the law of San Marino, Giuffrè, p. 25 and p. 22

[15] "If the deed of trust does not provide otherwise, all beneficiaries with specified rights to the trust property or, failing that, all beneficiaries may demand from the trustee the termination of the trust and the transfer of the trust property in their own favor or according to their instructions," L. 42/2010, Article 50, Paragraph 3.

[16] At the first Congress of the Association "The Trust in Italy" in 1999 in Rome, during his paper Prof. Raffaello Lupi began by saying, "Talking about the taxation of trusts is like talking about the taxation of legal transactions." A phrase that if remembered over the years would have avoided lengthy discussions.

[17] Law No. 364 of October 16, 1984, ratifying the 1985 Hague Convention, Articles 2 and 3.

[18] In the tax field, they have led to confusing the finger with the moon. Suffice it to consider that the Italian Revenue Agency issued over a decade ago a Circular on the treatment of indirect taxes that has been opposed by hundreds of Supreme Court rulings, and that the new version of the Circular, a year later, does not see the light of day despite being published in draft on August 11, 2021. This comes without any changes to the gift and inheritance tax rule in the time frame under review.

Even clearer appears the consequence of abstraction and trust/deed if we analyze what happened with Circular 61 of 2010 of the Italian Revenue Agency, where they tried to list elements of the trust deed whose presence could lead to consider it simulated and therefore interposed (fictitiously).

The Circular is still "active" and claims to unearth, from a reading of the deed of trust, elements of simulation, regardless of any other concrete subjective and objective elements, as if one could effectively investigate a simulatory phenomenon from a reading of a company's bylaws. Following the reasoning of the Internal Revenue Service in the 2010 circular applied to an LLC, it could follow from a sentence in the bylaws that reports the possibility for the shareholder to revoke the director of the company that it is no longer, as the law provides, the company that is the taxable person, but the shareholder. Likewise, the Internal Revenue Service makes abstract simplifications in interpreting some possible trust structures, we reiterate without reference to concrete cases, from which it would follow that the taxable person is not the trust, but others.

[19] "So that the administration of it can be reviewed by the court." Morice v Bishop of Durham, J. (1805) 32 ER 947.

[20] Art. 8, Hague Convention, July 1, 1985 ratified in Italy by Law 364 of 1989 effective January 1, 1992.

The law determined by Articles 6 or 7 governs the validity, interpretation, effects and administration of the trust.

Specifically, this law regulates:

(a) the appointment, resignation, and removal of trustees, the capacity to hold the office of trustee, and the transfer of trustee functions;

(b) the rights and obligations of trustees among themselves;

(c) the right of the trustee to delegate in whole or in part the performance of its obligations or the exercise of its powers;

(d) the power of the trustee to administer and dispose of trust property, to pledge it as collateral, and to acquire new property

(e) the power of the trustee to make investments; (

f) the limits on the duration of the trust and the powers to set aside the income of the trust;

(g) the relationship between the trustee and beneficiaries, including the personal liability of the trustee to the beneficiaries;

(h) the modification or termination of the trust; (

i) the distribution of the trust property; and

(j) the obligation of the trustee to account for its management.

[21] M. A. Lupoi "Mom, I replaced the trustee!" in Trusts and att. fid. Wolters Kluwer, 2010 585-587.

Court of Ancona, January 29, 2018, in Trusts and fid. att. 2018, 288.

[22] Trust Jersey Law, Art. 51 "a trustee may apply to the court for directions as to the manner in which he should or may act in relation to any fact concerning the trust, and the court may issue, if it thinks fit, any order necessary to prevent such directions." Based on this rule, the Italian Court may issue such directives.

[23] In this sense, Saverio Bartoli in Trust and Trusteeship. The application in Italy of the law of San Marino, Giuffrè, p. 25.

[24] Trust Jersey Law, art. 1 "in this Law (...) "court" means the Inferior Number of the Royal Court."

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From: Paolo Gaeta - Paolo Gaeta & Associati <[email protected]> Sent: Wednesday, January 31, 2024 15:36 To: Roberta Marinelli <[email protected]> Subject: [EXTERNAL]

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EXTERNAL EMAIL: Use caution before replying, clicking links, and opening attachments.

The laws on trusts in the Republic of San Marino

The key role of the judge and other regulatory changes

By Paolo Gaeta, certified public accountant and university lecturer

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Abstract: The San Marino law of trusts represents a unicum in the international landscape. It is not only a law written in Italian, it is innovative and original for the founding principles that distinguish it from the international and English trust model, as well as for its ability to identify efficient solutions that are perfectly grafted into the San Marino law system. With its punctual articles, the legislator wanted to provide guarantees of stability of the relationship, respect for the settlor's will and balancing the interests of the parties involved in the trust. A law with many innovations: from the appointment of the guardian to the establishment of the register of trusts. Finally, a truly unique element on the international scene is the decision to establish a special court for trusts, the "Court for Trusts and Fiduciary Relations" called to operate ex ante, with rigor, competence and celerity on all aspects inherent in the life of a trust.

?Abstract: The San Marino law of the trust represents a unicum in the international panorama. It is not only a law written in Italian; it is innovative and original, different from the "international" and English trust model, with efficient solutions that fit into the San Marino legal system. The law guarantees:a) stability of the trust;b) respect for the settlor's will;c) balance of the interests of the subjects involved. In 2012 San Marino introduced "The Court for trusts and fiduciary relations." The Court is competent for all cases and disputes concerning legal relationships deriving from entrustment or trust, regulated by whatsoever legal system.

Keywords: trusts, San Marino, Trust Court, Resident Agent, Register of Trusts.

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Table of Contents: 1. Foreword; 2. The Court Dei Trusts, a fundamental novelty on the international level; 3. Further novelty: the Register of Trusts; 4. The Resident Agent, a role foreseen only in San Marino; 5. Tax advantage for trusts resident in San Marino, but that does not make them "tax-privileged" for Italy; 6. The desire to be truly innovative; 7. Does the beneficiary give way to the settlor?; 8. Some reflections on the experience in Italy over the last 30 years; 9. Final considerations on the role of the judge

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1. Foreword

The Most Serene Republic of San Marino in recent years has been the protagonist of regulatory innovations in various areas of law; among them the enactment of the Law on Trusts and Fiduciary Relationships number 42 of 2010.

A breath of fresh air in the European legal tradition that led to the revival of the institution of trusts within a context other than that of exclusively customary law formation. The law allowed trusts for the first time to develop within a positive, well-established and comprehensive law framework for the purpose of being able to compete with major international jurisdictions with laws regulating the institution of trust.

The San Marino legislation is not only a trust law written in the Italian language (which is already a novelty and an objective advantage for an Italian citizen and operator), but it regulates a different model of trust than the Anglo-Saxon customary law models, marked by principles of greater connection with civil law, the Italian citizen and his interests.

With the introduction in Italy of Law No. 364 of October 16, 1989, ratifying and executing the Convention on the Law Applicable to Trusts and on their Recognition, trusts established in Italy by Italian citizens are governed by foreign laws (according to the conventional "universal" principle whereby the settlor may choose any international trust law to govern the relationship to which he wishes to give rise).

However, foreign laws regulating the subject matter of trusts will only be able to fulfill their required function if they are the expression of principles akin to those founding Italian domestic law. Only once said principles have been identified will the rules (or positive norms) represent their concrete expression and application.

The identification of the governing law then becomes a key issue for the validity and long-term stability of the trust relationship, for the respect and fulfillment of the real will of the settlor, the profitable operation of the trustee, and the protection of the interest of the beneficiary of the trust assets.

The choice is decisive not only because it affects the planning possibilities and behavior of the Italian settlor, but also because it explains its effects vis-à-vis the beneficiaries and is a determinant of the long-term stability of the trust relationship.

Although it has been discussed at length over the past three decades, the topic of the reference standards applicable to the trust to be established is always a sensitive issue.

Entrusting assets to a relationship trustee with overly "advanced" or fancy rules is imprudent, and the history of Italian trust jurisprudence gives limpid evidence on the point.

1. The Court of Trusts, a fundamental innovation on the international stage[1]

The control and supervision of any trust regulated by Law No. 42 of 2010 are the responsibility of[2]?to the Court for Trusts and Fiduciary Relations.

Here is the element that arouses strong interest in San Marino, where for the first time a state has decided to provide for a specialized court, precisely the "Court for Trusts and Fiduciary Relations," which is responsible for adjudicating disputes concerning trusts and trusteeships and which plays an important role in the activities of trustees.

The Court may be appealed to by trustees whenever they need an "opinion" on the interpretation of a deed of trust or even if the deed of trust has not considered the context, the circumstances that the trustee is faced with and for which he or she needs guidance.

The Court is composed of seven distinguished jurists who serve for five years, and who have distinguished themselves internationally in the field of trusts.

A court that is easy to access, that operates with digitized procedures and before which even an Italian lawyer can appear, if domiciled with a colleague in San Marino. A court that, among other things, presents lower access costs for Italians than an Anglo-Saxon court.

The Court has international jurisdiction, for all cases and disputes concerning legal relationships arising from trust or custody such as, for example, trusts, trusteeships and similar institutions. A peculiar aspect of the San Marino Court concerns the fact that its "contentious and voluntary jurisdiction extends to the legal relationships listed above, by whatever system governed."[3].

The composition of the Court is varied precisely to have judges who, from case to case, are familiar with the various laws involved in the case brought to its attention. The Court sits in either monocratic or collegial composition depending on the type of decision to be made.

Having a judge intervene in the control and administration of the trust during the life of the trust is ontologically related to the nature of trusts.

It is difficult to think of a trust deed that provides for and regulates all situations and events that may occur in the long existence of the trust, and the Court is a reference point for some of the trustee's choices.

In fact, the trustee, pursuant to Article 53 of Law No. 42/2010, who may petition the Court in order to: a) be authorized to perform a useful act that is not within his or her powers; b) obtain ratification in relation to an act that has already been performed or have the court make such amendments to the deed of trust as may have become necessary or appropriate; and c) obtain a ruling regarding the performance of an act inherent in the office, if he or she is in a state of uncertainty regarding the performance of such an act.

Thus, a cooperative relationship is created between the Court and the trustee, and the Court, in its experience over the years, rarely intervenes to handle litigation with the trustee.

The logic here is reversed from that of contract law where the court intervenes to cure the breach. In the trust, the court intervenes to ensure exact performance (of the trustee).

?Additional novelty: the Registry of Trusts.[4]

In the Republic of San Marino, the Register of Trusts maintained by the Central Bank of the Republic of San Marino, in which trusts governed by San Marino law are entered, has been operational for some time; access to the register of trusts is allowed only to qualified parties and indicated by the regulations.

The Central Bank of San Marino[5]? has issued its own regulations which, in addition to establishing the requirements, conditions and procedures for obtaining and maintaining the authorization for the office of professional trustee in San Marino, also regulates the procedures for maintaining and consulting the register of authorized trustees (the trustee in San Marino unlike in Italy, even when a natural person registered with a San Marino professional order, must have attended a course, passed a qualifying examination and update annually). In addition, it is the Central Bank that determines the manner in which the Book of Events must be exhibited to the same Bank and regulates the supplementary information supervision obligations to which San Marino financial firms are subject when trustee.

The Central Bank issues for each trust a "Certificate of Entry in the Register of Trusts" which states.[6]:

1. The registration number of the trust;
2. the name;
3. revocability or irrevocability;
4. The limitations on the trustee's powers;
5. The guardian and the nature of his powers;
6. the disposer;
7. beneficiaries;
8. The date of the founding act;
9. The duration of the trust;
10. the regulatory law;
11. Whether they are purpose trusts or trusts with beneficiaries;
12. The description of the purpose, if any;
13. the resident agent;
14. additional notes.

The possibility of being able to have this information certified by the Central Bank through the custodial work of this information indicated by the Certificate meets requirements for transparency and effectiveness that are lacking in other systems and are designed precisely because of the consequences that may result in civil law countries.

1. The Resident Agent, a role provided only in San Marino

The connecting element between the trustee and the Central Bank of San Marino is the Resident Agent. The regulation provides that, if the trustee of a trust governed by the law of San Marino is a foreign national or company, the same must mandate a Resident Agent (a person registered with the Register of Lawyers and Notaries or Certified Public Accountants and Bookkeepers of the Republic of San Marino) who must carry out the formalities at the Central Bank, under his own responsibility, and fulfill the anti-money laundering requirements[7].

The figure of the Resident Agent is also new to international trust regulations, but it again testifies to how each and every trust governed by San Marino law lives with a set of control, transparency, and governance provisions that constitute a security for the trust subjects and third parties who come into relationship with the trustee[8].

1. Tax advantage for trusts residing in San Marino, but that does not make them for Italy "privileged tax status."

Provisions on the taxation and accounting of the trust are encapsulated in specific rules, which give the trust autonomy as a tax subject, as has already been the case in Italy since 2007; this choice to subjectivize the trust from the tax point of view allows it fully to be among the subjects to which the convention against double taxation for direct tax purposes applies. To date San Marino has signed numerous conventions, including with Italy to which the convention with the United Kingdom will soon be added.

The days when the small state was considered a tax haven with strong banking secrecy are long gone and relegated to an almost forgotten period of history.

San Marino's domestic tax regulations, in one with international tax and information exchange conventions, have even made the Titan Republic one of the most cooperative states with Italian tax authorities[9].

Titan rules allow trusts resident there not to be considered under Italian rules as having a "preferential tax regime"[10]; this is a very advantageous exclusion in the event that those trusts resident in San Marino have beneficiaries residing in Italy who do not see themselves subject to the "punitive" rules that the Italian tax legislature has provided for Italian beneficiaries of trusts residing in states where the income of the assets in trust is subject to direct taxes at a rate of less than fifty percent of those provided in Italy.

1. The desire to be truly innovative.

San Marino Law No. 42/2010 was expertly written, with great awareness of the mechanisms by which trusts work and with equal attention to the needs of Italian citizens (and those in general from states with civil law systems) and civil law jurisdictions; it could be defined by two adjectives: innovative and competitive.

Innovative because, compared to the Anglo-Saxon paradigm, it makes original variations on what is the typical structure of the institution.

1. It allows the rights of the beneficiaries to be broadly defined, but at the same time gives the settlor the ability to prevent them (beneficiaries) from holding rights that, as is the case in the Anglo-Saxon model, can go so far as to interfere with the activity of the trust and its structure, even to the point of demanding its early termination.

The center of gravity of the San Marino trust can be shifted more to the settlor's wishes by allowing the trustee greater autonomy.

1. The trustee-court relationship is emphasized. The trustee may bring an action before the court whenever there is uncertainty in the management or administration of the trust and there is no provision in the trust deed. In the San Marino view, therefore, the judge assumes a paternalistic role.[11]: he is called upon to help, to assist, to support the work of the trustee in order to ferry the assets in the interest of the beneficiaries.

The judicial body can intervene here on a preventive basis by assisting the trustee to properly fulfill its obligations. In the logic of the Italian legal system, on the other hand, the court intervenes a posteriori, that is, to settle or settle disputes that have already arisen between the parties.

Competitive for completing the process of capitalization of the trust. While in the common law trust structure the trustee is liable for ultra vires obligations, with the San Marino law we have a capitalization of the trust: the trustee is liable only with the property in trust and never ultra vires and is liable up to the amount of the trust. In addition, under Article 47 of the San Marino Trust Law, "any person, other than the other trustees, beneficiaries and the guardian, who has rights against the trustee, arising from obligations assumed or from acts performed manifesting the capacity of trustee or from acts or facts in any way inherent in that capacity, may satisfy himself solely on the trust fund."

1. Does the beneficiary give way to the settlor?

In the common law view, the trust originates as an obligatory relationship, which arises in the hands of the trustee vis-à-vis the beneficiary (the Anglo-Saxon trust has been considered a "gift over time to beneficiaries.")[12]. Therefore, the beneficiary can come to play an impactful role in the structure of the trust. Suffice it to say that the English legal experience has gone so far as to give beneficiaries (provided that they have a position defined as "vested," precisely identified and capable of acting) the power to ask the trustee for an early termination of the trust-even in the face of a different provision by the settlor-thus having the trustee immediately transfer the assets.

This is the well-known English rule of well-established jurisprudential source called "Saunder v. Vautier"[13]?which in the law of England and other neighboring states to the English system is unbreakable and cannot be disabled by a clause in the deed of trust[14].

It is uncommon for the prerequisites of the rule in commentary to arise in practice, indeed the repentant draftsman is well aware of them, but the reminder helps to understand the point of view of the type of trust in which the beneficiary's will could override that of the settlor even if this were explicitly forbidden in the deed.

San Marino law does allow early termination of the trust at the initiative of all beneficiaries, but it is subject to a different provision in the deed of trust.

The San Marino legislature, with Article 50.[15]paragraph 3 of Law No. 42 of 2010, privileges the will of the settlor and sanctions the derogation of this rule whenever the settlor is against the early termination of the trust.

The rationale from which the rule focused on the settlor's wishes arises also has other consequences; the legislation allows for there to be trusts without beneficiaries (so-called purpose trusts), or for there to be trusts whose beneficiaries can also be named at a later time by the trust guardian. This would be unthinkable for an Anglo-Saxon trust.

1. Some reflections on the experience in Italy over the past 30 years.

This analysis focusing on San Marino legislation also helps us Italians to better understand some of the phenomena that have taken place in our country in recent decades.

If we look at what has happened in Italy from the perspective of this system of rules, functions and offices of the trust, we have the feeling that the vision of the trust that has spread in recent years has suffered from two main limitations.

Let us first reiterate, if any were needed, that Italy has been able to accomplish a process of awareness in the use of the institution of trusts over the past 30 years that is unique internationally, and this will remain an incontrovertible historical element.

A first limitation has resulted from the fact that there has sometimes been a tendency to treat the trust in an abstract sense[16].? In the concrete application of trusts the abstract treatment does not help, even confuses the practitioner and seduces the neophyte to whom it appears to have magical effects to be afraid of.

The second limitation we have suffered is to equate the trust with the deed, with the document composed of clauses and formulas, or with the fiscally autonomous entity, losing the possibility of grasping the essence of how the trust works, which is given by a system of rules, people, behaviors and the relationship between trustee and judge, as taught by the centuries-old Anglo-Saxon legal history in which the Courts are physiological interlocutors of the trustee.

The aspect of the centrality of the trust's system of rules and persons, and not just the deed, can also be inferred from the Hague Convention on the Recognition of the Effects of Trusts; in fact, it defines trusts as "legal relations established by a person, the settlor - by deed inter vivos or mortis causa - where property has been placed under the control of a trustee in the interest of a beneficiary or for a specific purpose."[17].

The trust is the relationship, the relationship established by the settlor between trustee and beneficiaries. At the heart of this relationship is the trustee.

The limitation of abstraction and the trust identified in the deed has had negative effects not only for professionals, disposers, and beneficiaries, but also for practice, which has tried to give interpretative rules of an abstract phenomenon or one that is not understood in its breadth by expressing itself on bases far removed from the case in point; this has resulted in lacunar or even erroneous interpretations as evidenced by both the contradictions that have emerged from the Circulars of the Internal Revenue Service in recent years and the stubborn and dogmatic attitude of the Internal Revenue Agencies[18].

1. Final thoughts on the role of the judge

According to the British courts, the trust is not identified with the obligation itself but has a quid pluris: "it is the obligation whose performance is placed under the control of a court."[19]. In other words, the trustee must look to the court for direction, authorization, and control.

From this corollary, the courts have affirmed that whenever the deed of trust seeks to eradicate the judge-trustee relationship, to remove the bond that is essential to the institution, the relevant clauses are void as contrary to mandatory rules.

Article 53 of the San Marino law gives the Court a general power to supervise and control the trusts it regulates. Since these are judicial measures which, having the purpose of making possible the continuous and regular management of the trust, fall within the scope of voluntary jurisdiction.

There is Italian case law on the point for which "the provision in the trust deed referring such a measure of voluntary jurisdiction to the President of the Court violates the mandatory and public order principles of the Italian legal system in terms of the typicality of administrative measures of voluntary jurisdiction. (Court of Crotone, September 29, 2008).

In addition, Article 12 of the law regulating the system of private international law, Law No. 218 of May 31, 1995, under the heading "Law regulating the process," reminds us that "civil proceedings taking place in Italy shall be governed by Italian law."

Article 8 of the Hague Convention on the Effects of Trusts.[20]?provides a list of matters whose regulation is referred to the governing law of the trust identified in the deed of trust. In this list we do not find references to procedural aspects. The rationale for this can be found in the fact that the Convention is a rule of substantive private international law and therefore does not regulate procedural aspects. The Hague Convention is, therefore, not entitled to give the trustee the power to bring suit in court.

However, according to one thesis[21]?(now prevailing), based on Article 8(2)(a) of the Convention-which delegates to the law governing the trust the task of regulating the appointment and removal of the trustee[22]?- it is the governing law that provides for such measures, with the consequence that, as a result of its ratification, new extra-codictic hypotheses of voluntary jurisdiction measures have been introduced in Italy. According to this doctrinal strand, opting for the inadmissibility of such measures ultimately means risking the nullification of the ratification of the Convention[23].

But would the regulating law, to which the cited Convention refers, really have the power to do so?

If we read Article 51 of the Jersey Trust Law (1984), it is understood that "a trustee may apply to the Court for directions as to the manner in which he should or may act in relation to any fact concerning the trust, and the Court may make, if it thinks fit, any order necessary to prevent such directions," but it does not mean that any court has the power to issue directions. Looking closely at Article 1 of the aforementioned legislation, the legislature specifies that any reference to the "Court," should be understood to mean the Court of Jersey[24]. Therefore, the judicial powers conferred by the Jersey Act appear to be vested only in the Jersey Court and not attributable to any judge.

The same applies to the Serenissima law.

Before stating that "The Judicial Authority holds a general jurisdictional power to control and supervise any trust regulated by Law," it specifies that Judicial Authority should mean the Court for Trust and Fiduciary Relations of the Republic of San Marino (Art. 1, Paragraph 1(b), Law 42/2010).

When the governing law gives the trustee the power to address the court, and the court the power to make the order, that law always alludes only to the court of the governing law and not to another court.

In conclusion, even if one were to admit that the Hague Convention refers to the jurisdiction of the foreign court (also) in procedural matters, it is the governing foreign law that states that the power belongs exclusively to the judicial body to which that law belongs.

?

Notes

[1]?The Court for Trusts and Fiduciary Relations has a website at: https://www.cortetrust.sm/on-line/home.html.

[2]?Article 53, Law March 1, 2010, No. 42.

[3]?Art. 1 of the San Marino Constitutional Law of January 26, 2012 No. 1.

[4]?A list of the main San Marino trust legislation can be found free of charge on the site reachable with this QRcode: or by visiting studiogaeta.com San Marino area.

[5]?Delegated Decree No. 49 of March 16, 2010, Article 2, Paragraph VII.

[6]?Article 7, Law No. 42 of March 1, 2010.

[7]?Articles 6, 7 and 8, l.March 1, 2010, no. 42.

[8]?For further discussion see S. Bartoli in Trust and Fiduciary Entrustment. The application in Italy of San Marino law, Giuffrè, p. 18.

[9]?As also reflected in statements made to the press by Lieutenant Colonel of the Guardia di Finanza Alessandro Lo Bello, Head of the Direct Taxes and VAT Section, International Cooperation Office, who recognized San Marino as "the best partner in terms of tax cooperation with Italy." The interview can be found at this link: https://www.sanmarinortv.sm/news/attualita-c4/guardia-di-finanza-oggi-san-marino-e-uno-dei-migliori-partner-in-termini-di-cooperazione-a223463.

[10]?The direct tax rate applied to income produced by assets in trust in San Marino is 1.7 percent or optionally 12.75 percent which is more than half of what is due in Italy and this places trusts residing in San Marino to be among the few internationally that do not fall under the scope of the punitive tax rules reserved for "paradise" trusts.

[11]?D. Hayton, Trusts in Private International Law, Recueil de Cours, 2013, Leiden-Boston, p. 21.

[12]?"A trust is an equitable obligation, binding a person (called a trustee) to deal with the property owned by him for the benefit of persons...any of whom may enforce the obligations." Underhill & Hayton, Law of Trusts and Trustees, LexisNexis Butterworths, 2002, p. 3.

[13]?Statutory in an English ruling of 1841 and found in Trusts and Trust Assets, Wolters Kluwer, 2004, p. 294.

[14]?The rule is explained by the consideration that since the trust is by definition established in the interest of the beneficiaries, once they are precisely identified there is no reason to force them to wait for the final term of the trust set by the settlor. Saverio Bartoli in Trust and Trusteeship. The application in Italy of the law of San Marino, Giuffrè, p. 25 and p. 22

[15]?"If the deed of trust does not provide otherwise, all beneficiaries with specified rights to the trust property or, failing that, all beneficiaries may demand from the trustee the termination of the trust and the transfer of the trust property in their own favor or according to their instructions," L. 42/2010, Article 50, Paragraph 3.

[16]?At the first Congress of the Association "The Trust in Italy" in 1999 in Rome, during his paper Prof. Raffaello Lupi began by saying, "Talking about the taxation of trusts is like talking about the taxation of legal transactions." A phrase that if remembered over the years would have avoided lengthy discussions.

[17]?Law No. 364 of October 16, 1984, ratifying the 1985 Hague Convention, Articles 2 and 3.

[18]?In the tax field, they have led to confusing the finger with the moon. Suffice it to consider that the Italian Revenue Agency issued over a decade ago a Circular on the treatment of indirect taxes that has been opposed by hundreds of Supreme Court rulings, and that the new version of the Circular, a year later, does not see the light of day despite being published in draft on August 11, 2021. This comes without any changes to the gift and inheritance tax rule in the time frame under review.

Even clearer appears the consequence of abstraction and trust/deed if we analyze what happened with Circular 61 of 2010 of the Italian Revenue Agency, where they tried to list elements of the trust deed whose presence could lead to consider it simulated and therefore interposed (fictitiously).

The Circular is still "active" and claims to unearth, from a reading of the deed of trust, elements of simulation, regardless of any other concrete subjective and objective elements, as if one could effectively investigate a simulatory phenomenon from a reading of a company's bylaws. Following the reasoning of the Internal Revenue Service in the 2010 circular applied to an LLC, it could follow from a sentence in the bylaws that reports the possibility for the shareholder to revoke the director of the company that it is no longer, as the law provides, the company that is the taxable person, but the shareholder. Likewise, the Internal Revenue Service makes abstract simplifications in interpreting some possible trust structures, we reiterate without reference to concrete cases, from which it would follow that the taxable person is not the trust, but others.

[19]?"So that the administration of it can be reviewed by the court." Morice v Bishop of Durham, J. (1805) 32 ER 947.

[20]?Art. 8, Hague Convention, July 1, 1985 ratified in Italy by Law 364 of 1989 effective January 1, 1992. ?The law determined by Articles 6 or 7 governs the validity, interpretation, effects and administration of the trust.

Specifically, this law regulates: (a) the appointment, resignation, and removal of trustees, the capacity to hold the office of trustee, and the transfer of trustee functions; (b) the rights and obligations of trustees among themselves; (c) the right of the trustee to delegate in whole or in part the performance of its obligations or the exercise of its powers; (d) the power of the trustee to administer and dispose of trust property, to pledge it as collateral, and to acquire new property (e) the power of the trustee to make investments; ( f) the limits on the duration of the trust and the powers to set aside the income of the trust; (g) the relationship between the trustee and beneficiaries, including the personal liability of the trustee to the beneficiaries; (h) the modification or termination of the trust; ( i) the distribution of the trust property; and (j) the obligation of the trustee to account for its management.

[21]?M. A. Lupoi "Mom, I replaced the trustee!" in Trusts and att. fid. Wolters Kluwer, 2010 585-587.

Court of Ancona, January 29, 2018, in Trusts and fid. att. 2018, 288.

[22]?Trust Jersey Law, Art. 51 "a trustee may apply to the court for directions as to the manner in which he should or may act in relation to any fact concerning the trust, and the court may issue, if it thinks fit, any order necessary to prevent such directions." Based on this rule, the Italian court may issue such directives.

[23]?In this sense, Saverio Bartoli in Trust and Trusteeship. The application in Italy of the law of San Marino, Giuffrè, p. 25.

[24]?Trust Jersey Law, art. 1 "in this Law (...) "court" means the Inferior Number of the Royal Court."

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