Luxembourg Trusts: Creation and Management Guide

Luxembourg trusts and their legal basis

A trust is a legal concept originating in common law and is widely used in estate planning, investment management and asset protection. It is a relationship in which a person, called settlor, transfers certain property or assets to another person or entity, called trustee, to manage them for the benefit of one or more persons or entities known as beneficiaries. The trustee acquires legal ownership of the assets but must manage them according to the terms of the trust deed and in the exclusive interest of the beneficiaries.

Since trusts have their origin in common law and Luxembourg follows the civil law system, trusts do not form part of its national legislation as its own legal institution. However, they are recognized and regulated by the Hague Convention of July 1, 1985 on the Law Applicable to Trusts and its Recognition, which was ratified and implemented by the Law of July 27, 2003 on Trusts and Trust Agreements.

Since this law, trusts created under common law are recognized in Luxembourg as long as they respect the provisions of the convention and do not violate local public policy. In addition, the Law of July 27, 2003 also establishes and regulates fiduciary contracts, a local figure that operates in a similar manner to trusts but within the framework of civil law in which one party transfers assets to another party for management for specific purposes.

Benefits of setting up a trust

Although Luxembourg fiduciary contracts are different from trusts in the technical sense, they offer significant advantages within the framework of Luxembourg civil law. Here are some of their main advantages:

Asset protection

Trust agreements allow the assets transferred to the trustee to be completely separated from the personal assets of the trustee or the trustee. This means that on the one hand the assets do not form part of the trustee's estate in the event of bankruptcy and on the other hand the trust assets are protected against claims of the trustee's personal creditors.

Flexibility in estate and succession planning

A trust makes it possible to structure the management and transfer of assets in an efficient manner and is therefore a very useful tool to ensure that assets are distributed according to the settlor's wishes. This avoids potential disputes between heirs and allows for better estate and succession planning.

Confidentiality

In compliance with European Union directives on anti-money laundering and combating the financing of terrorism, the country has implemented a fiduciary register which requires the registration of key information on trusts and trustees recognized in Luxembourg.

However, this register is not accessible to the general public, its access is restricted to certain entities such as financial supervisors, tax and judicial authorities, banks and lawyers in the framework of due diligence procedures or any natural or legal person demonstrating a legitimate interest in preventing the use of the financial system for money laundering or terrorist financing purposes.

This ensures a certain degree of confidentiality for those involved while complying with international standards of transparency. In addition, Luxembourg still manages to offer a significant level of privacy, according to the Tax Justice Network's Financial Secrecy Index 2022, the country ranks fifth out of 144 countries thanks to its policies that still offer discretion within a regulated environment.

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Versatility in asset management

A trust can be used for many purposes such as protection against political instabilities, participation in international tax planning structures, large wealth management or even as a vehicle for philanthropic or charitable purposes.

Limited but adaptable duration

Although the trust has a maximum duration of 99 years, it can be adapted to the needs of the trustee by means of a contract stipulating shorter terms or specific conditions for its termination. This makes it a flexible and temporary solution suitable for specific projects or purposes.

Trust features and requirements in Luxembourg

Let's now have a look at the key elements of a trust in Luxembourg and the requirements to establish one. The Luxembourg trust must contain the following essential elements:

👑 Settlor

is the person who creates the trust, who transfers the assets to the trustee and who establishes the terms and conditions under which the assets will be managed.

👨🏻‍💼 Trustee

is the entity that manages the trust assets and has the legal obligation to act in the best interest of the beneficiaries and to comply with the terms of the trust. The duties and scope of authority of a trustee are limited to what is written in the trust deed and nothing more.

Trust companies in Luxembourg can present any of the following forms:

A credit institution
An investment company such as a wealth manager or a commission agent
A fixed- or variable-capital investment fund
A securitization company
A trust agent in a securitisation transaction
A mutual investment fund or securitisation fund management company
A pension fund, such as a variable-capital pension savings company
An insurance or reinsurance company
A national or international public company operating in the financial sector

In addition fiduciary agents with registered office in Luxembourg must be authorized by the minister responsible for the CSSF (Commission de Surveillance du Secteur Financier).

👩🏽🧑🏻👩🏼‍🦱 Beneficiaries

are the persons or entities benefiting from the assets of the trust or the income derived therefrom.

📝 Fiduciary agreement

this is the closest functional equivalent to the trust deed of Anglo-Saxon trusts and consists of a contract regulating the fiduciary relationship between the different parties. It defines the beneficiaries, the powers and duties of the trustee and the duration of the trust, among other aspects.

💸 Assets

are the assets that the settlor transfers to the trust and that the trustee manages, which may include property, cash, investments, shares, among others.

In addition, certain conditions must be met for the trust agreement to be valid:

Free and informed consent: the parties must know what they are agreeing to and the consent must not be vitiated by error, fraud or violence.
Capacity to contract: the contracting parties must have legal capacity, which excludes incapable adults and unemancipated minors.
Lawful and certain content: the contract's content may only involve lawful objects in legal commerce and the object of the contract must be precisely determined or determinable from elements contained in the contract.
Lawful cause: the motive that leads each party to contract must be in accordance with the law.

Process for setting up a trust in Luxembourg

To conclude, we will now review the process of creating a trust in Luxembourg.

1. Consult a professional
The establishment of a trust involves multiple legal, financial and tax aspects, so it is highly recommended to have the advice of an expert consultant or a team of professionals specialized in the subject.
2. Identify the parties involved
The next step is to define the parties involved (the trustor, the trustee and the beneficiaries).
3. Determine the assets to be transferred
Next, it is necessary to identify which assets or rights will be the object of the trust; these may include investments, real estate, shares or any other asset, as long as they are legally transferable.
4. Establish the purpose of the trust
The trust must have a defined and legitimate purpose, such as asset management, guaranteeing debts or fulfilling philanthropic or business purposes.
5. Gather the necessary documents
Before formalizing the trust agreement, it is important to gather all necessary documents, including identity documents of the parties involved, deeds or title deeds of the assets to be transferred to the trustee, prior agreements related to the assets, or relevant tax or legal documentation on the assets or the parties. In addition, certifications of compliance with anti-money laundering regulations may also be required.
6. Drafting the trust agreement
The agreement should detail the identity of all parties, an accurate description of the property or assets transferred, the rights, responsibilities and powers of the trustee, the purpose of the trust and the duration of the agreement (up to a maximum of 99 years). It is recommended that the drafting of the contract be done or reviewed by a specialized lawyer.
7. Register the Fiducie
In accordance with the provisions of the law of July 10, 2020 it is necessary to register in the Luxembourg Fiduciary Register certain information relating to trusts. It is necessary to register identity data and certain information about the trustees, the trustees, the beneficiaries and any natural or legal person exercising effective control over the trust.
8. Transfer the assets
Finally, for the trust to be effective, the assets must be transferred to the trustee.

FAQ

Can a trust be created directly under Luxembourg law?

No, a trust in the Anglo-Saxon sense cannot be created directly under Luxembourg law. Luxembourg follows the civil law system, which does not recognize trusts as an institution of its national legal framework. However, Luxembourg allows the creation of fiducies (fiduciary contracts), which are regulated by the Law of 27 July 2003, and share many similarities with trusts. A fiducie is a contractual arrangement where a fiduciant (transferor) transfers assets to a fiduciary for administration on behalf of beneficiaries or for a specific purpose.

Are fiducies provide similar benefits to trusts?

While not identical to trusts, fiducies provide similar benefits, such as asset protection, flexibility in estate planning, and separation of ownership and control. Additionally, Luxembourg recognizes trusts created under foreign laws through the Hague Convention of 1985, ensuring their validity and enforcement within the country.

What is the difference between a trust and a fiducie in Luxembourg?

A trust is a legal arrangement typical of common law jurisdictions, where a settlor transfers assets to a trustee to manage them for the benefit of beneficiaries. A fiducie, on the other hand, is a civil law contract authorized under Luxembourg law. In a fiducie, the fiduciary temporarily holds and manages assets for the fiduciant or beneficiaries, as defined by the written agreement. Unlike trusts, fiducies are strictly contractual, with a maximum duration of 99 years, and fiduciaries are bound by national regulatory standards.

Who can act as a fiduciary or trustee in Luxembourg?

Only qualified professionals can act as fiduciaries in Luxembourg. This includes licensed financial institutions, banks, lawyers, and notaries authorized under local law. They must comply with strict regulatory requirements, including AML/CFT (Anti-Money Laundering/Counter-Terrorism Financing) standards. Non-professionals or unlicensed individuals cannot legally act as fiduciaries in Luxembourg.

How to create a trust in Luxembourg in 2025