Treatment Of Trusts In Switzerland

Author:Dr. Iur. Kinga Weiss
Profession:Walder Wyss Ltd
  1. Trusts under Swiss Law

    1.1. Lack of Substantial Swiss Law on Trusts

    The anglo-saxon trust law has not (yet1) been adopted into the Swiss legislation. There is no Swiss substantial law on trusts and no such thing as a Swiss domestic trust. Therefore, a trust can only be established according to foreign law, whereby the settlor may choose the governing law. However, despite the lack of substantial trust provisions, Swiss courts have been dealing with trusts for many years. Until June 2007 the trust structure was not recognized in Switzerland and therefore was partly attributed to contractual law and partly to corporate law. The leading case of that time is the Harrison Trust case of 19700 2, whereby a family trust was classified as a contractual relationship in favour of a third party combined with a donation, and was subject to the private international law rules on contracts. Once the Swiss Private International Law Act (SPILA) came into force in 1989 trusts were, as a general rule, attributed to the rules of corporations, foundations and similar entities, such as so-called "organised units of assets". This new regime was quite favourable for the recognition of trusts, but still left quite many questions unresolved.

    1.2. Recognition of Trusts

    Switzerland being one of the largest trust administration centers in the world recognized eventually the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1st of July 1985 with effect as of 1st of July 2007 (the "Hague Convention"), resulting in the recognition of trusts as a legal structure sui generis and in the enforcement of foreign trusts.

  2. Ratification of the Hague Convention

    2.1. Choice of Trust Law (art. 6 HTC)

    Pursuant to art. 6 HTC and art. 149c SPILA the trust shall be governed by the law chosen by the settlor. It is highly recommendable to provide for such a choice of law rule in the trust deed, where the trust is closely connected to Switzerland (residence of trustee, location of assets, etc.), because if there is no choice of law rule the trust shall be governed by the law with which the trust is most closely connected (art. 7 HTC). Again, under Swiss law there is no trust law and therefore, the trust would not be recognized.

    2.2. Preliminary Issues (art. 4 HTC)

    Preliminary issues relating to the validity of wills or of other acts by virtue of which assets are transferred to the trustee are excluded from the scope of the Hague Convention and consequently from the law chosen by the parties in the trust deed (art. 4 HTC). Preliminary issues are governed by the law designated by the conflict of law rules of the respective forum. Hence, the acts by which property was transferred need to be valid under the law applicable to those transfers. The asset transfer into trust might be invalid for example for reasons of incapacity of the settlor, missing the formal requirements or the validity of the underlying contract.

    2.3. Swiss Inheritance Law and Swiss Matrimonial Property Law (art. 15 HTC)

    Swiss matrimonial property law and Swiss inheritance law (forced-heirship rules) provide for provisions, which have to be followed for a valid and incontestable disposal of assets. These provisions in the Swiss law cannot be derogated by voluntary acts (art. 15 HTC). The same is true with regard to the pro-visions in the Swiss law on the protection of creditors in matters of insolvency. Consequently, by setting up a trust the question whether heirs, husband, wife creditors, etc. can contest a contribution made to the trust needs to be consid-ered carefully as the trust is submitted to the Swiss International Private Law Act and to Swiss substance law.

    2.4. Lois d'Application Immédiate and Ordre Public (art. 16 HTC and 18 HTC)

    The Hague Convention does not prevent the application of those provisions of the law of the forum which must be applied, irrespective of rules of conflict of laws (lois d'application immédiate). In Switzerland, in particular, the law on the Acquisition of Real Estate by Persons Abroad (Lex Koller)3, the Cultural Proper-ty Transfer Act (CPTA)4 and the provisions in the special field of farm land law (BGBB)5 fall under these mandatory provisions and will be applied no matter which foreign trust law is applicable. The ordre public6 is also subject to reservation.

    2.5. No Taxation Rules

    It should be noted that the Hague Convention does not deal with taxation is-sues and that in Switzerland 26 cantons have competencies to levy taxes and to develop their own practices. In order to harmonize the practice on taxation of trusts the Swiss Tax Conference issued a Circular No. 30 in August 2007 on the taxation of trusts for cantonal/communal income tax purposes. A more de-tailed overview on the Circular No. 30 is given below in Section 5.

  3. Introduction of New Provisions in the Swiss Law

    3.1. Swiss Private International Law Act (SPILA)

    The recognition of the Hague Convention is accompanied by amendments to Switzerland's domestic law which are meant to facilitate the interplay of the domestic law with the Hague Convention. A new Chapter has been adopted in the SPILA which is dedicated to trusts (art. 149a-e SPILA, art. 21 SPILA). These amendments lead to a full and complete recognition of foreign trusts as de-fined in the Hague Convention in Switzerland (art. 11 HTC).

    3.2. Swiss Federal Debt Enforcement and Bankruptcy Act (SFDEBA)

    The Swiss...

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