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GLOBAL NEWS AND VIEWS Civil-law column

Holes in my cheese

Dr Daniel Lehmann compares the dairy and legal products of Germany and Switzerland


he neighbouring countries Switzerland and Germany have a long tradition of mutual cultural and economic exchange. The Swiss often attracted admiration from

their German neighbours, not only for their delicious chocolate and cheese but also – at least among German trust and estate practitioners – for ratifying the Hague Convention on Trusts. In this respect, in 2007 the Swiss followed the example of Italy, which had already ratifi ed the Convention in 1989. With regard to cheese, many Germans were particularly impressed by the fact that Swiss Emmental cheese has holes in it. In 1928, the German journalist and author Kurt Tucholsky wrote a piece elaborating on where the holes in Swiss cheese come from. Even today, many German children learn in primary schools how the Swiss intubate holes into their cheese. This has evolved to the German fi gure of speech that something, in particular a legal provision, is ‘as holey as Swiss cheese’, meaning that a rule has many loopholes. As an outside observer, one may think that the decision of the Swiss Federal Tribunal of 26 April 2012 constitutes a loophole in the recognition of trusts in Switzerland. The decision resulted from a preliminary hearing in a divorce case between two Russians domiciled in Geneva. In 2005, the husband settled a Cypriot discretionary trust into which he transferred assets of signifi cant value shortly after his wife had refused to enter into a postnuptial agreement. The court approved of seizure orders into trust assets securing the wife’s claims against her husband, in eff ect treating the trust assets like assets held by the husband directly. The decision on the merits is still outstanding. In Germany, by contrast, there is no

move to ratify the Hague Convention on Trusts. Consequently, no German-situated asset may be transferred to a trust without


interposition of a foreign holding company. A recent decision of the Kammergericht, the upper regional court in Berlin, shows how practitioners in a civil-law jurisdiction not recognising common-law trusts do their best to deal with them: the decision of 3 April 2012 (ZEV 2012, 594) related to a discretionary testamentary trust settled by a testator domiciled in Colorado who possessed – among other things, hopefully – a 0.0625 per cent ownership interest in a piece of German real estate. In Germany, all owners of real estate are registered in the land registry. The transfer of title from the decedent to the new owner needs to be registered. However, the registry does not accept common-law trusts as owners. Consequently, the question of whom to register arose. The Kammergericht sought the structure under German law that most closely resembled the testamentary trust in the case at hand, and held that the benefi ciaries of the trust should be registered as new owners. The trustee who holds the legal title only has a role comparable to an executor under German succession law and should not be registered. From a German perspective, this is an acceptable result. Yet the mechanics of

the changes in the land registry deserve a closer look: unlike common-law jurisdictions, German law does not provide for probate. Instead, the estate vests with the heirs directly and automatically by operation of the law. It is up to them to administer the estate. To prove their entitlement to dispose of estate assets and to get registered as new owners in the land registry, heirs usually use a certifi cate of inheritance (Erbschein) issued by a German court. In the case of the Colorado testamentary trust, a German Erbschein names only the trust benefi ciaries as heirs of the decedent, without mentioning the trust. Traditionally, the Swiss recognise a German Erbschein. If the Erbschein in the case decided by the Kammergericht was recognised in Switzerland, this would lead to the irritating result that in Switzerland the trust benefi ciaries were to be regarded as owners of the assets of the estate even though, as it is subject to the Hague Convention, Switzerland is obliged to recognise the trust, i.e. the ownership of the trustee. The European cheese is likely to develop

another unwelcome hole when, from 2015, the EU Succession Regulation will become applicable. The EU Succession Regulation does not apply to testamentary trusts (Art 1(j)). If a testator residing in a participating member state, e.g. Italy, settles a testamentary trust, the courts in Italy will have exclusive jurisdiction on the issuance of a European certifi cate of succession (Art 64). If the certifi cate issued in Italy names the trustee, in that capacity, as title-holder, the German land registry will not be able to accept this. A German certifi cate of inheritance, however, will not be available because the Italian courts will have exclusive jurisdiction. Luckily, the cheese delivered to testators in Switzerland, the UK, the US or other jurisdictions not participating in the regulation will be free of holes because in their cases the subsidiary competence of German courts subject to Art 10 of the regulation will be available. Enjoy!

APRIL 2013 19

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