On a governmental level, the introduction of a Swiss law on trusts is currently being reviewed as Switzerland does not provide for a suitable instrument to be used for estate planning or asset protection purposes.
Arguments for the introduction of a Swiss Trust Law
It is argued that an introduction would have various advantages, for example citizens would be offered an instrument that is subject to the domestic legal system being more accessible and easier to understand, and providing clarity, leading to greater transparency and legal certainty. In addition, new areas of activity would be created for Swiss professionals to advise on trusts, to set up trusts and to manage trusts and their assets.
Is a Swiss Trust a suitable instrument?
Many scholars and practitioners take the view, that a common-law trust is not a suitable instrument and that therefore it would be more advisable to review the existing instruments, such as the Swiss family foundation or the fiducie (Treuhand), and to amend them accordingly.
One of the main concerns is that ownership cannot be split into legal and beneficial ownership. To be the owner, a trustee must have all property rights in the assets while the beneficiaries have personal rights against the trustee only. Thus, the common law trust concept would need to be amended in order to fit into the Swiss legal system.
What would be the tax implications?
So far, most foreign trusts are treated tax transparent for Swiss tax purposes based on an economic assumption that the settlor has not given the assets fully away if he is either a beneficiary or retained certain rights such as amending the trust deed, appointing and/or removing a trustee or changing the beneficiaries. In this case, the funds and the income therefrom are still allocated to a Swiss resident settlor with the respective tax consequences.
This transparent tax treatment can be advantageous as no transfer tax is levied when settling the trust.
With the introduction of Swiss trust law it is not clear yet whether such transparent treatment would remain. There is currently an expert group analysing if a Swiss trust could become subject tax in Switzerland. If this was the case, it is likely that no Swiss trust law will be introduced.
If and when a trust law will be introduced is not clear yet. However, it will take at least another 3 to 4 years for an implementation. As the already existing family foundation could be a suitable civil law instrument, it would be feasible to analyse the existing obstacles for the use of Swiss family foundations and to amend these provisions at the same time.
Dr. Natalie Peter works as an attorney-of-law in Zurich and is heading the private client practice of Blum & Grob Attorneys-at-law.