A Trust and Georgian Law
In international practice, a trust denotes a model of asset management in which a person transfers property to another person on the condition that the latter manages it in defined interests. Georgian law does not know the classic English trust as a separate, free-standing institution: the Civil Code builds the equivalent model differently. Article 724 defines the contract of entrustment of ownership: under this contract, the truster transfers property to the fiduciary owner, who receives and manages it in accordance with the interests of the truster. It is precisely this contract that serves, within Georgian law, the function of a trust — the transfer of property to a trusted manager who administers it in the truster's interests.
In practical terms, a person wishing to create a trust-like structure in Georgia builds it on the contract of entrustment of ownership: the property passes to the fiduciary owner, while the purpose, the limits and the accountability of management are defined by the truster's interests. This page explains the content of the contract, the rights and duties of the parties, its form and the rules of liability, so that the decision can be taken against a complete legal picture.
The Parties and the Content of the Contract
One party to the contract is the truster — the person who transfers the property for management; the other is the fiduciary owner, who receives and manages that property. Article 724 states the criterion of management clearly: the fiduciary owner acts in accordance with the interests of the truster, which means that every decision on the use and administration of the property must answer those interests rather than the fiduciary's personal needs.
Under this model the property legally passes into the powers of the fiduciary owner, yet in economic substance it serves the truster's interests. This distinction is the essence of the contract of entrustment of ownership, and it is exactly why precise drafting matters: the interests, the limits of management and the manner of reporting must be fixed in the text in detail.
Rights and Duties of the Fiduciary Owner
Article 725 defines two sides of the fiduciary owner's status. The first: the fiduciary owner is obliged to manage the entrusted property in his own name, but at the risk and expense of the truster. External legal acts are carried out in the fiduciary's name, while the costs and risks connected with management remain with the truster — a distribution that each party should weigh carefully when negotiating the contract.
The second: in relations with third parties the fiduciary owner enjoys the powers of an owner — towards outsiders he stands in the position of a full owner. At the same time the law sets a high standard of conduct: if the fiduciary owner, contrary to the interests of the truster, fails to show the good faith that he must show towards his own affairs, he is obliged to compensate the damage caused by such action. This measure of good faith — the degree of care shown towards one's own affairs — often becomes the decisive argument in a dispute.
The Form of the Contract and Liability Towards Third Parties
Article 727 regulates the form unambiguously: the contract of entrustment of ownership is concluded in writing. The written form is the means of fixing the agreed terms: which property is transferred, in accordance with which interests the fiduciary owner manages it, and how he discharges his duty to report. An oral arrangement deprives this construction of its legal foundation.
In relations with third parties, liability rests with the fiduciary owner — this is the rule of Article 728. Property that the fiduciary manages in his own name creates his responsibility towards outside persons, and this circumstance matters to the truster as well: when choosing a partner, the partner's reliability and resources are as important as the text of the contract.
It should also be noted that certain questions connected with the contract — for example, the details of transferring particular kinds of property, or the rules of reporting and of dispute resolution — are regulated by other provisions of the law, and their consideration in drafting is the lawyer's task.
The Lawyer's Role in Forming a Trust
A reliable structure begins with the choice of the right construction: the lawyer assesses whether the contract of entrustment of ownership matches the truster's goal, defines the limits of management, drafts the written text and formulates the truster's interests so that their violation becomes provable and sanctionable. Management framed by the standard of good faith creates a balance of the parties' interests, and that balance must be laid down in the text itself.
Where a dispute or damage arises, it is decisive to establish whether the fiduciary owner acted contrary to the truster's interests and which act caused the damage — the answers to these questions determine the prospects of a claim for compensation. In such a case the lawyer analyses the terms of the contract, the acts of management and the correspondence, and builds the position on the evidence.
Frequently Asked Questions
Does a trust exist in Georgian law?
Not in the classic English form; Georgian law performs this function through the contract of entrustment of ownership, under which the truster transfers property to a fiduciary owner to be managed in accordance with his own interests.
In whose name and at whose expense is the property managed?
Under Article 725, the fiduciary owner manages the property in his own name, but at the risk and expense of the truster; in relations with third parties he enjoys the powers of an owner.
What form does the contract of entrustment of ownership require?
A written form — the law states unambiguously that the contract of entrustment of ownership is concluded in writing, which secures the fixation of the terms and prevents disputes.
Who answers to third parties, and when must the fiduciary compensate damage?
In relations with third parties the fiduciary owner answers; and where, contrary to the truster's interests, he fails to show the good faith due to his own affairs, he must compensate the damage caused by such action.
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