"We Will Register It for You in Trust": What It Means for a Property in Romania, and the Difference Between Fiducie and a Side Agreement

To an Israeli ear, "we will register it for you in trust" sounds familiar and reassuring. In Israel lawyers hold properties in trust as a matter of routine. But in Romania the same word can describe entirely different things, with entirely different levels of protection. This guide helps you understand exactly what is being offered to you, and what to ask before agreeing.

1Why are Israeli buyers offered a "trust" in Romania at all?

Usually as a solution to the land problem. A citizen of a country outside the European Union cannot register land directly in their own name, so structures are offered in which another party holds the land component "in trust", and sometimes the buyer receives an irrevocable power of attorney alongside it. The question is what stands behind the word. There are three possibilities:

1. Fiducie under the Civil Code: a lawful, registered institution with an authorised fiduciary.
2. A side agreement: the property is registered in the name of a person or a company, and in the drawer there is a document stating that it is "really yours".
3. A marketing term: with no document behind it at all.

2Does Romania have a trust like Israel's?

No. Romania and Israel are not parties to the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. The closest Romanian institution is fiducie, and it differs fundamentally from a trust under Israeli law:

In other words, a Romanian fiducie is a regulated financial institution that is rare in residential transactions, not a flexible tool for registering a property in someone else's name.

3What conditions must be met in a Romanian fiducie?

• A notarial contract (Article 774).
• An authorised fiduciary only (Article 776): credit institutions, investment and asset management companies, investment services firms, insurance and reinsurance companies, notaries and lawyers.
• Mandatory particulars in the contract (Article 779): the rights transferred, the identity of the beneficiary, the purpose, the fiduciary's powers and a term of up to 33 years. The absence of any of them leads to nullity.
• Registration with the tax authority within one month (Article 780), and for immovable property also with the local authority, on pain of absolute nullity.
• Publicity towards third parties (Article 781): from the date of registration in the electronic archive of security interests, and for immovable property also in the land book.
• Prohibition of donative intent (Article 775): a fiducie intended to confer a gratuitous benefit on the beneficiary is null.
• A separate estate (Article 786): the assets in the fiducie are segregated from the fiduciary's personal assets.

4What is a side agreement stating that the property is "really yours" worth?

This is where most of the risk is concentrated. Under Romanian law, an agreement stating "the property is registered in X's name but belongs to you" is a case of simulation (simulație): an apparent document and, alongside it, a secret document. Under Article 1289 of the Civil Code, the secret document operates only between its parties and their successors, and even between them only if it meets the substantive conditions required by law. As against a third party acting in good faith who relied on the apparent registration, it is as a rule ineffective.

The practical meaning:

• The creditors of the person registered as owner see a property in their name and can take action against it.
• A buyer in good faith who purchased from the registered person is entitled to rely on the registration.
• The death, bankruptcy or dispute of the registered person draws you into legal proceedings to prove what is written in the drawer.

A familiar scenario: a buyer agrees that the land portion will be registered in the name of a broker or an acquaintance, because they trust that person. When the relationship breaks down, the only way to correct the registration goes through the courts, at considerable time and cost. A registration that rests on trust in one person is not ownership. It is a promise.

5Can the restriction on land for foreigners be circumvented through a trust?

This is a question for a Romanian lawyer, but two principles emerge from the law itself: a secret agreement is ineffective when it contradicts substantive requirements of the law, and a fiducie is prohibited when it is intended to confer a gratuitous benefit on the beneficiary. A structure whose entire purpose is to circumvent a statutory restriction is exactly the structure that a court may decline to respect.

What is accepted: an Israeli registers the building in their own name, and the land is held through one of two recognised routes. The first, a right of superficies (Superficie, a right to build and hold a building on another's land) registered in your name in the land book. The second, a Romanian company (SRL) that you own and that owns the land.

6Six questions to ask when you are offered a "trust"

1. In whose name is each component registered: the building, the land, the parking space?
2. Is there a notarial fiducie contract? Ask for its number and the confirmation of registration with the tax authority.
3. Who is the fiduciary, and is it a bank, an investment or insurance company, a notary or a lawyer?
4. What is registered in your favour in the land book extract: a right, a notation, or nothing? Check in a current extract.
5. What happens if the registered person dies, disappears or goes bankrupt?
6. What does an independent Romanian lawyer, and not the seller's lawyer, say about the structure?

7What needs to be checked on the Israeli side?

In Israel trusts have a separate taxation and reporting chapter in the Income Tax Ordinance, and a structure defined as a "trust" may give rise to reporting obligations. If another party holds a property abroad for you, find out with a tax adviser how it is reported, and to whom the income belongs in the eyes of the Israel Tax Authority.

8Before signing: how we check a holding structure

When a buyer is offered a structure in which a property or land is registered in another's name, we start with the current extract and the question of what is registered in their favour, continue to the structure documents, and check the implications on the Israeli side. An opinion on the validity of the structure under Romanian law, and any registration act, are carried out by a lawyer or notary licensed in Romania.

Read next · 7 min readA Will for an Israeli With Property in Romania: Choice of Law, Form of the Will and Coordination With the Will in IsraelHow to write a will that works for property in Romania: Regulation 650/2012 and choice of law, notarial or handwritten wills, reserved shares, the Israeli will.Read the guide

The information in this guide is general in nature and does not constitute legal or tax advice on any specific transaction. Every transaction is assessed on its own facts.