Can I Create A Trust Under Swiss Law?
Switzerland does not have a law relating to trusts. However, it ratified the Hague Convention regarding trusts and agreed therefore to recognise trusts that are created in accordance to the convention.
Switzerland, as a civil law country, does not have a law relating to trusts. The creation of a trust under Swiss law is, therefore, not possible. It is noteworthy, however, that in 2018 the Swiss parliament mandated the Federal Council to create the legal basis for a Swiss trust and since then an expert group has been drawing up corresponding proposals for regulations.
Nevertheless, at the time of writing it is too early to say whether Switzerland will implement a law relating to trusts in the foreseeable future and how this law might look like. Thus, in the following it is described what Swiss alternative to the trust is available to a decendent under existing law and how he or she might arrange for the establishment of a trust to be governed by the law of another jurisdiction.
The Swiss Usufruct
The so-called usufruct, a limited right in rem that can be created for a maximum term of 100 years, is the closest that Swiss law comes to the concept of dual property rights as recognised in common law jurisdictions. The beneficiary of the usufruct is entitled to possess, enjoy and use the property during his or her lifetime. The right of disposition, however, is restricted in so far as it would affect the rights of the owner of the bare property.
Recognition of Foreign Trusts
Switzerland has ratified and put into force per 1 July 2007 the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1 July 1985. Even though Swiss law still does not provide for trusts to be established under Swiss law, the Hague Convention permits to create a trust choosing a law—other than Swiss law—which recognises the trust. A trust created in this way is – as consequence of the ratification of the Hague Convention – also recognised in Switzerland.
As a second consequence of the ratification of the Hague Convention and in order to codify the concept of property separation between trust and trustee property in Swiss law, Switzerland made the corresponding amendments to the Swiss Debt Collection and Bankruptcy Act. Thus, trust property will be protected from personal creditors of the trustee.
However, Swiss succession law and especially the provisions protecting the compulsory portion of statutory heirs may conflict with the settlement of assets into a trust. The heir whose rights to a compulsory portion are infringed can file an action in court for reduction.
The Foundation of a Trust in a Last Will or Contract of Succession
Even though trusts that are created in accordance with the Hague Convention are recognized in Switzerland, it is controversial whether a testator can provide for the constitution of a trust in a last will or in a contract of succession. The common advice is to establish a trust during lifetime with a nominal trust fund and to bequest additional funding by testamentary dispositions.
Switzerland does not have a law relating to trusts but recognizes trusts that are created in accordance to the Hague Convention on the Law Applicable to Trusts and on their Recognition. Nevertheless, due to the controversy around testators providing for the constitution of a trust in a last will or in a contract of succession and the additional possibilities the Swiss usufruct offers, it is advisable to address the subject in good time and seek the advice of a professional.
About the author: Dr Edgar Paltzer works as an attorney-at-law in Switzerland and counts estate planning among his specialist areas of expertise.