The Swiss Federal Council published, on 12 January, a draft Bill aimed at introducing trusts into Swiss law. The proposed provisions, which will be included in a new chapter of the Code of Obligations, will enable trusts to be used both to structure private assets and for commercial transactions.
Foreign trusts have been recognised in Switzerland under the Hague Trust Convention since 2007 but, despite several previous attempts to introduce Swiss trust legislation, Swiss law has never previously provided for specific trust rules, and it has not been possible to establish a trust under Swiss law.
The impetus for the Bill came from the Swiss parliament, which approved a motion instructing the Federal Council to create the legal basis for the introduction of trusts into Swiss law. A regulatory impact assessment confirmed that trusts responded to a need among clients for structuring their succession and inheritance.
According to the Swiss Federal Council, trusts are playing an increasingly important role in wealth structuring and estate planning practice, and it wants to provide Swiss clients with an alternative to foreign countries to set up trusts. It also notes that establishing a Swiss trust will give rise to new business opportunities and that trusts will not compete with the legal form of the foundation.
According to the draft Bill, the Swiss trust will be a specific legal instrument and will not be considered as a contract or a legal entity and will have a maximum duration of a trust of 100 years. The creation of charitable trusts and other purpose trusts will be expressly excluded but the draft Bill does not provide for any limitation as to the purpose of the trust. In particular, the establishment of commercial trusts will be permitted.
The draft bill does not provide for any modification or derogation from the rules of the Civil Code in matters of ownership rights. The trustee will hold full ownership rights to the assets of the trust. Beneficiaries will only have personal rights, reinforced by a bankruptcy privilege in the event of forced execution against the trustee and a tracing right where trust property has been disposed of in breach of the trustee’s obligations.
The Bill provides that the trust assets and liabilities constitute a separate fund from the trustee’s own estate and the trust assets are not part of the trustee’s matrimonial property or their estate on death.
Swiss trusts will have to meet international reporting and documentation requirements; trustees will be required to identify the beneficiaries for anti-money laundering and tax transparency purposes. The trust instrument can designate the beneficiaries either by name or by a particular relationship with the settlor or with another person, or by other criteria capable of establishing the status of beneficiary at the time of a distribution.
To ensure the effective implementation of transparency rules, the draft bill provides for a new criminal provision which punishes the breach of identification and documentation duties by the trustee.
Switzerland’s existing tax principles will apply to trusts and irrevocable discretionary trusts – without fixed interest of beneficiaries resident in Switzerland – are to be taxed in principle in the same way as foundations.
The consultation process on the draft Bill will remain open until 30 April. Depending on the outcome, a final draft will then be prepared for debate in the Swiss Parliament.