Fiduciary Arrangement (Treuhandverhältnis)

A German fiduciary arrangement (Treuhandverhältnis) is a contract where the grantor (Treugeber) transfers the legal ownership of an asset to a fiduciary (Treuhänder), who holds the asset for the grantor and must deal with the asset in the manner specified in the fiduciary agreement (Treuhandvertrag). The ownership right of the fiduciary is in rem ("binds the world") and the fiduciary can transfer the legal title to a third person, while the grantor only has damages claims in those cases when the Treuhänder violates the contractual obligations. At the end of the term of the contract, the trustee must transfer back the asset to the grantor or to a designated beneficiary. Pursuant to § 39 AO, assets held by a fiduciary are attributable to the grantor (Treugeber) for tax purposes, if the fiduciary acts solely for the benefit of the grantor, the fiduciary must follow the instructions of the grantor and the grantor may terminate the fiduciary arrangement and claim back the transferred assets at any time.