Thought leadership from our experts

Monaco: Some considerations in respect Estate Planning and Trusts

Some history

Monaco if very tiny, is a very old country, ruled over by the Grimaldi family. It is wholly independent even if totally surrounded by its neighbour France on the landward side via which access is achieved by road, train and helicopter.

Approximately 37,000 people reside in Monaco made up of over 130 nationalities.

Monaco is not a member State of the EU; it is not therefore a signatory to the European Succession Regulation.

Monaco has a benign tax system for individuals, and its size, infrastructure, safety record, quality of life, health and school system, banking and legal system, climate and geographical position on the Mediterranean mean that it is a magnet for wealthy individuls to reside in.

Its legal system, including all appeals from it, is based on civil laws and is wholly independent even if, in the context of estates and succession laws, its origins can be found in the French Civil Code.

But its laws have developed separately from those of France; this is most notable in Monaco's approach to Private International Law, and Trusts, being matters of paramount importance to Monaco's foreign residents.

What succession law applies on the death of an individual resident in Monaco to determine how assets devolve?

In order for this question to make sense we need to look for a connecting factor with Monaco.

For example an individual may own Monaco real estate in his own name (there are no restrictions on buying real estate in Monaco whether individually or via a corporation for residents and non residents alike): inevitably this creates a connection with Monaco.

If a person buys real estate directly, Monaco succession law is going to apply to determine how that real estate passes on the death of its owner (regardless of the nationality, or place of domicile/ residence of the owner) and the Monaco Courts will have jurisdiction over the matter.

Where movable estate is concerned the answer is different. Monaco applies "national law" to determine how movable estate devolves. This would extend to the shares of a non-Monaco company that owns Monaco sited real estate, and indeed to anything which is "movable" in Monaco or elsewhere.

If the Monaco Courts have jurisdiction to determine how movable estate devolves they apply the individual's national law, that is to say the law of the country of which the individual is a citizen, but this will extend to looking to the Conflicts of Laws/Private International Law rules of that same country, and establishing whether any renvoi to the laws of another country may apply.

Certain countries (England & Wales for example) when confronted with a question from Monaco concerning a deceased Englishman will say that "nationality" is not the connecting factor. Rather the English Courts will say it is the "law of last domicile" that determines how that person's movable assets will devolve. This renvoi from English/Welsh law to Monaco law will cause Monaco to accept that renvoi and apply its own domestic laws to determine how the individual's movable estate will pass.

Because Monaco's succession law is based on civil law principles the consequences can be important: for example reserved property rights or forced heirship rights may apply, and the notion of Executor and Trustee in standard local law in Monaco are unknown.

When do the Monaco Courts have jurisdiction over an individual's movable estate?

If movable estate passes under "national law" -so says Monaco- we still need to establish that Monaco has jurisdiction to say so. Not every country's laws agree that national law prevails in succession matters. France does not. We have seen English/Welsh law says this is determined not by national law but by the law of last domicile. For Monaco to take jurisdiction the individual must inter alia be habitually resident in the Principality. If that is so his estate is "opened" in Monaco and the above considerations arise.

What approach does Monaco have to Trusts?

The diversity of residents of Monaco, many originating from countries versed in common law and/or from wealthy backgrounds where their families are familiar with Trusts, has meant that Trusts are commonly encountered in Monaco. If it is true that there is no Trust law per se in Monaco and no such creature as a "Monaco Trust" exists (this can be explained by the fact that Monaco's property laws, being civil , do not cater for the "split" legal concepts of legal and beneficial title) that is not to say Monaco does not recognise the effects of Trusts.

This is felt in two distinct ways:

  • The first relates to specific legislation enacted in 1936 which takes the form of Monaco Law 214. This Law sets out and creates a framework in which Trusts -necessarily Trusts created in accordance with the laws of some foreign Trust jurisdiction where Trusts exist, chosen by the Settlor/Testator- will be recognised and enforced in Monaco. It is necessary to respect a number of strict formal obligations if a Law 214 Trust is validly to come into existence (for example the Trust has to be executed before a Monaco notary, a "certificate of law" appended, a corporate Trustee named who has previously been approved by the Monaco Court of Appeal). Failure to respect these formalities can mean that the Trust is wholly void (indeed in a famous case of a British lady, resident in Monaco, who sought to set up Trusts under her "normal" Will, which did not respect these formalities, on her death and on an application from people who would take on that lady's intestacy they successfully applied to the Monaco Court for an order, and the Court declared the Will to be wholly void precisely because the form was not respected). Law 214 is of particular interest because it deliberately/statutorily overrides Monaco public policy. In this way if an individual successfully creates a Law 214 Trust (that is by respecting the requisite formalities) he/she can overcome Monaco reserved property rights which would otherwise potentially apply and/or name Executors and Trustees to administer the estate.
  • The second wholly separate way relates to the fact Monaco adhered to the Hague Convention on the Law Applicable to Trusts and on their Recognition in 2008 in such a way as to confirm that foreign Trusts can be enforced in Monaco. This would mean that Trusts which do not in fact respect the form laid down in Law 214 can be treated as valid in Monaco (the specific circumstances and interplay between Law 214 and such a Trust shoud be looked at) but, unlike a Law 214 Trust, a Trust set up elsewhere if generally enforceable in Monaco is not going to override Monaco's public policy rules. So a non-Law 214 Trust is not normally going to override Monaco's reserved property rights.

Some final thoughts

Monaco has developed in the face of the variety of individuals who live (and die) in the Principality. Monaco's laws are being adapted -but this has not yet occurred- to take account of the wishes of such individuals, and changes to the rules set out above are anticipated, most importantly to accord the right to all individuals, by Will, to choose application of their law of nationality without renvoi to the law of last domicile.