Forced heirship rights and community property rights should be considered prior to settling assets into trust, as these rules may invalidate the transfers into trust, subject to the applicable laws of the trust jurisdiction.
Jurisdictions that apply civil law “forced heirship” rules, or Islamic Sharia law, define the rights of surviving family members, grant them specific portions or percentages of the global estate of the deceased, and prohibit the exclusion or disinheritance of family members. If a person subject to forced heirship makes gifts or gratuitous donations during their lifetime, which operate to defeat forced heirship rights, excluded heirs may seek to enforce their rights, to “claw back” such assets, and divide them according to the forced heirship provisions, if the estate is insufficient to satisfy their entitlements.
Community property rules are marital rights that treat property acquired during the marriage as owned equally by both spouses. In some jurisdictions, community property rights vest upon marriage. In such jurisdictions, transfers of community property may be invalid without the consent of the other spouse. In these cases, a spouse would not have the power or capacity to transfer community property. In other jurisdictions, community property rights may not vest until death, divorce or separation and in such jurisdictions, a spouse might not require the consent of the other spouse in order to validly transfer community property.
Transfers into Trust
Where the settlor does not own or have capacity to transfer the property, title to the property will not vest in the trustee. In the case of community property rights that have vested, the settlor may lack capacity to transfer community property into trust without the consent of his spouse. On the other hand, in the case of forced heirship rights, the rights of the heirs do not vest until the death of the settlor, and the settlor normally would have capacity to settle the assets into trust, but the transfer may be subject to “claw back” by the forced heirs.
Most modern trust jurisdictions have firewall legislation, which present formidable obstacles to enforcement of forced heirship and community property claims. Before settling a trust in any particular jurisdiction, the treatment of forced heirship and community property rights under the firewall legislation should be carefully considered. In general, firewall legislation requires domestic law to apply to the formation and validity of trusts, the transfer of property to the trust, prevents the recognition and enforcement of foreign judgements relating to forced heirship or matrimonial claims, and precludes domestic courts from recognizing or enforcing foreign judgments based on such claims.