During the 12th and 13th centuries, during the Crusades, the trust law and the trust in England came into being. This was because a landowner participating in the Crusades needed a representative and an agent with power of disposal during his absence. This temporary transfer of his property to a trustee included the binding requirement of a retransfer of ownership to the landowner after his return. The previous owner, who participated in the crusade, thus became the beneficiary under this agreement and arrangement. Friends of the landowners were usually appointed as trustees.
At that time, English law (Common Law) did not recognise any legally enforceable claim (writs) for the re-transfer of property based on such a legal relationship. If the trustee refused to transfer ownership, the previous owner (beneficiary) could not take legal action. By petitioning the Lord Chancellor (Court of Chancery), the former owner could nevertheless obtain a decision based on law and equity. This was the origin of equity jurisdiction in English law.
Over the centuries, trust's purpose has become detached from family law and can now be found in many forms.
A trust is a legal agreement whereby one party, such as a professional trustee, holds and manages assets to benefit another party or beneficiaries. The person setting up the trust is referred to as the settlor. Trusts are typically used for estate planning, asset protection and charitable purposes. In Switzerland, trusts are not part of the national legal system, as they are in common law countries such as the UK or the US. However, Switzerland recognises trusts that have been set up under foreign law. This recognition is based on the fact that Switzerland has ratified the Hague Trust Convention, thus enabling the recognition and administration of foreign trusts in Switzerland.
Setting up and managing a trust in Switzerland
Choose a foreign jurisdiction
Since Switzerland has no trust law of its own, the trust must be established under the law of another country. The usual jurisdictions are Jersey, Guernsey or the Cayman Islands.
Appoint a professional trustee.
A professional trustee or trust company must be appointed to administer the trust by the terms of the trust deed.
Drafting the trust deed
The trust deed is a legal document that sets out the terms of the trust, including the powers, duties and responsibilities of the professional or trust company and the rights of the beneficiaries.
Transfer of assets to the trust
The settlor transfers the assets to the trust, managed by a professional trustee or trust company to benefit the settlor or the beneficiaries.
Legal and tax considerations
Legal and tax advice is essential to understanding the implications of establishing a trust, including any reporting requirements and tax liabilities in Switzerland or the country where the trust is established.
Trust Administration
The ongoing administration of the trust includes asset management, record keeping, and compliance with the laws of the chosen jurisdiction. When considering setting up a trust with assets in Switzerland or with Swiss residents, it is essential to seek advice from a legal and financial advisor experienced in international trust law. This will ensure compliance and optimise the structure for the individual's desired purposes.
The trust is a flexible instrument that originated in Anglo-Saxon law. In a family context, it is often used for estate planning and the transfer of assets over several generations. Trusts are also used in business life to preserve, manage, or secure assets, such as financial investments and transactions. Since the entry into force of the Hague Trust Convention (HTÜ) in 2007, trusts established abroad are recognised in Switzerland. This means that this legal institution has gained in importance in practice.
Situation in Switzerland
Parliament instructed the Federal Council with Motion 18.3383 to create a Swiss trust in the Swiss Code of Obligations to prevent stakeholders in Switzerland from resorting to foreign jurisdictions. The Federal Council had then submitted a proposal for consultation. However, the results of the consultation, which the Federal Council noted at its meeting on 15 September 2023, made it clear that introducing a Swiss trust was not currently capable of winning a majority. The majority did not want any tax law regulations for the trust.
The Federal Council suggested that the taxation of trusts should be regulated by law. However, most of the participants in this consultation criticised the regulation proposed by the Federal Council and primarily called for continuing the previous practice of taxing trusts.
Great scepticism regarding a Swiss trust
Although widespread agreement exists that Switzerland needs an asset and estate planning instrument, many participants in this consultation think a trust is not a suitable legal institution under Swiss law. Based on the consultation results, the Federal Council concluded that a majority still needed to support the introduction of a Swiss trust. Given this situation, the Federal Council decided not to draft a message and requested that Parliament write off the motion.
