The Use of Swiss Family Foundations in Estate Planning
The Family Foundation is used hesitantly in Swiss succession and estate planning, although in recent years, the establishment of a foundation has been increasingly evaluated again.
A robust estate planning ensures a reliable regulation and avoidance of conflicts amongst heirs. In each case, a tailor-made structure must be determined. While a testator may want to commit family assets over several generations to his family, another may seek avoidance of long inheritance proceedings or high inheritance taxes. Yet, other families seek anonymity and asset protection. A foundation may also be used in cases where an entrepreneur has no descendants suitable for succession or if he wants to ensure long-term continuity of his company.
The use of a Family Foundation
A Swiss testator is faced with narrow rules limiting his or her estate planning options. Relatively high compulsory portions (forced heirship rules) encumber a free transfer of assets to heirs of the testator’s choice. Therefore, the use of a family foundation has rarely been considered in a pure Swiss family situation. However, since families are often spread over different countries and continents and assets are located in various jurisdictions, contributions of assets to foundations maybe an optimal solution.
The main purposes of a Swiss Family Foundation
The Swiss Civil Code permits the establishment of family (maintenance) foundations “to meet the costs of education, equipment or support of family members or similar purposes“. The purposes have in common that assistance is to be provided to family members in certain situations, such as in adolescence, when setting-up their own household, or live on their own, and in case of need.
Educational costs include both the cost of basic and of continuing education at universities, apprenticeship schools and other educational institutions. The term equipment as of today includes payments that serve to establish, secure or improve a livelihood, in particular when starting a household, getting married or taking up self-employment. The concept of endowment is to be interpreted broadly and understood to be an allocation of assets of a certain size and value. As is the case for benefits under the title “education”, distributions do not require an actual need or emergency situation of a beneficiary. The support of family members finally requires a situation of need of the beneficiary.
Beneficiaries are individually determined family members
The Civil Code prohibits the permanent confinement of assets in favour of a particular family combined with unconditional distributions for an indefinite period. Thus, a Family Foundation may grant a special right to receive benefits to an individual or to individually determined family members instead of family members in general. A founder may reserve for himself or for certain individuals rights to use, enjoy or exploit the assets contributed to the foundation and/or its earnings. These individuals may include heirs who are willing to renounce their compulsory portion in favour of the foundation or other related persons such as cohabiting partners, relatives, or friends.
Special rights my include a usufruct on all or part of the foundation’s assets, residential rights or payments in favour of a specific person. Although family members cannot receive an unconditional benefit in their capacity as a beneficiary, it is possible to provide the spouse, the descendants or grandchildren with general distributions for their cost of living, if they are individually determined in a special right.
A Business or Holding Foundation is a special form developed by practice and not explicitly regulated by law. A business foundation is characterized by its proximity to the economy. If an entrepreneur has no descendants suitable for succession, the settlement of a Business Foundation could be a temporary bridging measure until the succession is settled. The establishment of a Business Foundation can on the other hand ensure the long-term continuity of the company.