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Trusts and Foundations as Instruments for Asset Management and Estate Planning


Preliminary Remarks

Trusts and foundations are instruments for asset management and are particularly helpful for wealthy families who are planning their estates. Often, there is a legitimate need to transfer a family’s assets to its heirs in stages to preserve it for future generations. This is in order to prevent a single generation from consuming all of the family’s wealth.

In order to provide a general overview and for ease of comprehension, the subject matter is simplified and therefore not comprehensive. This article does not cover the tax implications; however, it’s essential to include them in careful planning.

  • The Family Foundation Under Swiss Law

In addition to the well-known charitable foundation, the family foundation also exists under Swiss law. The family foundation, which protects families who are in financial distress, is not widely used due to tax disadvantages and a purpose which is too narrowly defined.

The following purposes are permitted for a Swiss family foundation:

  • Education of family members;
  • Endowments for family members;
  • Support for family members;
  • Similiar purpose formulations.

On the other hand, the old-style family estates (pure maintenance or profit foundations) are expressly forbidden. 

The Swiss foundation is therefore rarely used as an instrument for cross-generational estate planning.

  • The Family Foundation Under Liechtenstein Law

The Lichtenstein family foundation has numerous advantages over the Swiss family foundation:

  • The formation is already possible with a capital of CHF/USD/EUR 30‘000.00 or more;
  • A private-benefit purpose is possible (maintenance benefit);
  • Possibility for the founder or beneficiaries to exert influence;
  • The founder may remain a beneficiary during his or her lifetime and may be a member of the foundation board;
  • Distributions do not have to be made in equal shares;
  • The foundation is a legal entity and can therefore acquire ownership;
  • The assets of the foundation are generally protected against access by third parties, depending on the specific structure of the foundation;
  • In principle, the beneficiaries have comprehensive rights to information and disclosure. The founder can restrict or completely exclude these rights by either appointing an internal controlling body or by voluntarily submitting the foundation to the foundation supervisory authority (FL).
  • The Trust Under Liechtenstein Law

Swiss law does not know the institution of the trust but recognizes it. Liechtenstein has adopted the trust from Anglo-Saxon law in a modified form.

  1. What is a Trust?

A trust exists when a natural or legal person (settlor) transfers assets to a trustee with the agreement that the trustee is to administer or use the assets in his or her own name as an independent legal entity for the benefit of third parties (beneficiaries). The trust may be established for any purpose, provided that it is not illegal, immoral or impossible under Liechtenstein law. A trust can be established for an indefinite period of time and is, in principle, irrevocable. Capital is required for the establishment of a trust, although the law does not prescribe a minimum capital.

  • Organisation Possibilities

The settlor is entitled, within the framework of the statutory provisions, to freely structure the trust in the articles of incorporation. However, the settlor cannot include a provision according to which the trustee must continuously comply with new instructions from the settlor. However, the settlor may, for example, determine that the trust’s assets are to revert to him or her or his or her legal successors or third parties after a certain period of time. In the deed of incorporation, the settlor may also designate himself or herself as the beneficiary of the trust.

  • Protection of the Trust’s Assets

The trustee is bound by the deed of incorporation, i.e. he or she must administer and use the assigned assets in accordance with their purpose. The trustee is personally liable with all his or her assets (under Liechtenstein law).

The settlor may appoint a protector to ensure that the dedicated assets are used by the trustee in accordance with the purpose. In most cases, this involves a supervisory function in which the protector must give his or her consent to certain decisions of the trustee.

The trust is protected from the trustee’s creditors in the event of its bankruptcy because it is a third-party asset. The trustee’s creditors can only claim the trust’s assets within the scope of the provisions on avoidance (gift or bankruptcy law). Heirs of the settlor who are entitled to a compulsory portion are in principle protected in their claims, but the creation of such claims entitled to a compulsory portion can largely be prevented by suitable structuring of the trust.

The creditors of the beneficiaries may only assert a claim against the trust if the beneficiary itself has an enforceable claim against the trust and the instrument of incorporation of the trust does not expressly exclude the assertion of claims by creditors of the beneficiaries against the trust.

Armin Gilg is an Attorney at Law and Partner at Studhalter & Pfister Rechtsanwälte AG, ag@stu-law.ch

For further information regarding our services: www.stu-law.ch

info@livinginluzern.swiss

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