Wealth Management
Swiss trust – quo vadis?

Trusts have become an integral part of international wealth structuring and estate planning. Switzerland does not yet have its own trust law. Nevertheless, in 2018 the Federal Council was mandated to create the legal basis for a Swiss trust to strengthen Switzerland as a financial centre. But what is the situation today and what does the future hold?

June 3, 2022

The USA and Commonwealth countries are some examples, what other foreign trusts are there?
Dr. Roderik J.P. Strobl:
 The trust can be described as a legal relationship under private law. It is an independent legal concept that has historically evolved from common law. There are over 30 trust jurisdictions worldwide, and Leo Trust has client-relevant trust jurisdictions «on its radar». These include, among many others, the trust jurisdictions of Liechtenstein (EFTA) and Cyprus (EU).

Why has «Mother Helvetia» only recently come up with the idea of a Swiss trust law?
The Hague Convention on the recognition of trusts has been in force in Switzerland since July 1st, 2007. This means that foreign trusts are recognised in Switzerland. In addition, we have an accepted cantonal circular on the taxation of trusts in Switzerland. Since 2016 has «our» parliament adopted three motions that essentially requested the introduction of a Swiss trust. In the meantime, several years have passed. However, the first idea of a Swiss trust goes back to the 1950s.

To what extent does a Swiss trust contribute to strengthening the local financial centre?
Properly set up, it would allow Swiss trustees to apply Swiss trust law to structures. This could reduce the current dependence of Swiss trustees on foreign trust jurisdictions. Whether we will have Swiss trust law and in what form is still open at this point. Moreover, it would be a trust 
sui generis, i.e. a completely new legal institute, in the diverse world of existing trust jurisdictions. As the legal institute of the trust is becoming increasingly important, the Swiss trust could open new planning possibilities.

 

How does the preliminary draft of a trust under Swiss law differ from other trusts?
As explained above, the new Swiss trust would be a new legal institute sui generis. A significant difference is that Switzerland does not have the law of equity and trusts as it exists in common law countries whereby the trustee retains the legal ownership in the trust property and holds the equitable ownership for the beneficiary of the trust. Consequently, concepts of common law, such as the distinction between legal ownership and equitable interests, are not adopted in the preliminary draft.

Does the world or your clients need a Swiss trust?
There are already many other trust jurisdictions that can be best used for asset structuring and estate planning. Our contacts and colleagues in Italy, for example, are very interested in the introduction of a Swiss Lex Trust, because the trust deed could also be drawn up in Italian and would thus be legally binding, Italian being one of the four official languages in Switzerland. In addition, Switzerland is known to have a strong network with Italy, so cooperation in these matters would be facilitated – and there would be a new legal statute for asset management and estate planning.  

The Swiss Trust was topic at this year's STEP Alpine Conference. Insights?
Among other things, the maximum perpetuity period of 100 years (Art. 529u VE-OR) was discussed. Some foreign legal experts consider this as being too short. For instance, the perpetuity period for an English trust is 125 years. The preliminary draft law was also discussed. The presented draft is kept short and concise, which is not the case in many other trust jurisdictions.

Why is «short and concise» rather disadvantageous here?
As mentioned, if introduced, Swiss trust law could serve as the legal basis of a trust. But to answer your question: the proposed tax approach of an irrevocable discretionary trust (option 1) in the preliminary draft is clearly unfavourable, which has already been addressed by the various stakeholders in their respective submissions.

From the here and now to the future: Where is the journey heading?
This is the central question. The consultation on the corresponding amendments to the law closed on April 30th, with 78 written responses running 474 pages. The interest is high. Next, it is expected that the submissions made in good time will be taken into consideration by the Swiss Federal Office of Justice – and a report will be drawn up from this. A precise timetable is not known, but when the report is in place, the Swiss Federal Council will communicate more details as appropriate.The journey remains exciting.

Do you have any inquiries? Dr. Roderik J.P. Strobl, Relationship Manager Key Clients, will provide you with the information you need.

This article is aimed at providing a general overview and summary of the issue. It is non-binding, and does not and should not be taken to constitute legal advice.

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