Trust in the Hungarian Law 3.
Rights of the settlor
The rights of the settlor extend to the appointment of the trustee, the determination of the transferred assets, the designation of the beneficiary, and the condition or time to become beneficiary. These rules are very similar to the three certainties principle in the Anglo-Saxon law. This, however, is a bilateral legal act, as it also requires the acceptance of the appointed trustee. Although the settlor defines the trust’s character, in practice the creation of the trust requires the involvement of the appointed trustee and its consent. Without clear determination of the asset management rules in the trust deed, the Civil Code’s general rule applicable that the trustee must act for the utmost benefit of the beneficiary. This rule is the governing element of the whole relationship and all and every condition of the trust deed must be examined and fulfil for the utmost benefit of the beneficiary. The settlor may determine other conditions of the trust as well, such as its duration, which is maximum 50 years, terms, the right of unilateral termination, remuneration of the trustee, appointment of additional trustees, regulation of the delegation of other contributors (for example a protector) and the beneficiary’s right for distribution. The settlor may reserve the right to remove the trustee, appoint a new trustee, replace the beneficiary, modify given parts of the settlor’s declaration and to determine or modify the duration of the trust. Although, the settlor has no rights to instruct the trustee, the settlor may specify the asset management guidelines in the trust deed. These guidelines provide the legal framework of the asset management.
The settlor may monitor the activity of the trustee but the expenses of such monitoring shall be borne by the settlor. It derives from the concept of asset separation that it is not allowed to the settlor to instruct the trustee. This rule provides independence for the trustee and higher responsibility, as well. The final legal instrument of the settlor to control the trustee’s activity is that settlor may remove the trustee at any time simultaneously appointing another trustee. This rule may seem simple; nevertheless, it carries an extra transfer of ownership as the current trustee holds the legal title of asset ownership; therefore, appointment of a new trustee must be in that legal form which fulfils the legal requirements of the transfer and registration of ownership.
The settlor must determine the identity of the beneficiary and the conditions of the commencements and termination of entitlement of beneficiary. The beneficiary may be described by the reference to the scope of the beneficiaries, providing power to the trustee to define the proportion of the beneficiaries creating a possibility to set up discretionary trust as well. The validity test of this rule is that the trustee always must be able to identify a beneficiary. Although the settlor transfers the right to select the beneficiary to the trustee using this opportunity; nevertheless, this does not mean that the trustee has unlimited rights to determine anyone as beneficiary. First, the settlor must determine the possible scope of beneficiaries and must provide guidelines how to select the beneficiary among options. Second, the settlor may delegate this power to its representative as well, appointing a protector, who is the settlor’s representative in the trust relationship; therefore, may practice the settlor’s rights.
The settlor may appoint the beneficiary or the scope of beneficiaries and dispose of the conditions of the managed assets’ distribution. The settlor may dispose that the managed assets must be transferred back to the settlor or to the settlor’s heirs or to a third person, wholly or partially by the occurrence of any specified conditions or after a specified period of time. The appointment of the trustee as sole beneficiary is null and void. However, the settlor and the trustee may be the same person but in this case the trust must be created in a public document by irrevocable statement of the settlor.