The Liechtenstein trust as a model for a possible Swiss trust, including tax aspects
Since 2018, a special group of experts has been negotiating the introduction of a Swiss trust in Swiss law. Considering the introduction of a Swiss trust, the treatment of trusts under Swiss tax laws shall be clarified by a working group of the Federal Tax Administration with representatives from the federation, the cantons and universities. Liechtenstein has acknowledged the right of the trust and the trust companies since 1926.
The Liechtenstein trust is not a legal person, but a contract between the settlor and the trustee on management of assets for the beneficiaries nominated by the settlor. The Liechtenstein trust is established by a written agreement between the settlor and the trustee. The trustee is the person to whom the settlor transfers movable or immovable property or a right as trust property with the obligation to manage or use these assets in his/her own name for the benefit of one or more beneficiaries (Art 897ff PGR).
The main purposes of the Liechtenstein trust are asset protection and succession planning. It is a flexible structure for the transfer of assets under asset management by the trustee during the existence of the trust. The Liechtenstein trust is suitable for succession planning due to the possibility of regular contribution of assets by the settlor or distributions to beneficiaries in accordance with the trust deed. Further principles of the trust can be laid down in the letter of wishes of the settlor without obligations for the trustee.
The trust deed regulates the rights of the settlor, the trustee and the beneficiaries. The purpose of the Liechtenstein trust can be set out in detail by the settlor. According to the trust deed, the trustee is obliged to manage the investments efficiently. The settlor, trustee, beneficiary and any other organs are deemed to be participants in the trust. The settlor transfers part of his assets to the trustee on the terms set out in the trust deed. The settlor can reserve a right of withdrawal. A right of revocation, however, means that the trust remains contestable after its formation.
According to the current state of knowledge, the Swiss trust is to be regulated in Sections 529a et.sequ. of the Swiss Code of Obligations (OR). To the extent publicly known, the contents of the Swiss trust will correspond to the Liechtenstein trust. In contrast to the Liechtenstein trust, the purpose of the trust is exclusively intended to serve private benefit purposes. The rights of the trustee, the settlor and the beneficiaries are designed in accordance with international treaties. Beneficiaries have a comprehensive right to information about the management of the trust. An arbitration tribunal can be provided to settle legal disputes. In contrast to the Liechtenstein trust, but in accordance with the Anglo-Saxon principle of “rule against perpetuity”, the Swiss trust is set up for a limited period, up to 100 years.
For tax purposes, a formation tax of 2 ‰ of the capital, but at least CHF 200.00, is levied at the set-up of the Liechtenstein trust (Art 66 Tax Act). The calculation basis for the tax is the statutory capital, not the entire assets of the Liechtenstein trust. As a rule, CHF 30,000.00 is contributed as statutory capital. The taxation of the existing trust is usually CHF 1,800.00 as a so-called private asset structure (Art. 64 SteG).
Switzerland treats the Liechtenstein trust as tax-transparent due to the lack of legal capacity. This means that the Liechtenstein trust does not itself become the bearer of the assets in the trust, but that the assets are assigned to persons affiliated with the trust, either the settlor or the beneficiaries. A distinction is made between the revocable and the irrevocable trust and between the discretionary and the non-discretionary (fixed interest) trust.
Revocable trust means that the settlor retains economic control over the trust assets, such as the right of appointment and recall, the naming of beneficiaries or the right to amend and revoke the trust deed. As a result of the control, the Liechtenstein trust is considered transparent from a tax point of view and the trust assets being assigned directly to the settlor. An irrevocable trust exists when the settlor irrevocably transfers the trust assets. The settlor has no ability to influence the trust, e.g. to dissolve the trust or cause the assets to revert to oneself. The tax authority assumes existence of a discretionary trust if it is at the discretion of the trustee to determine the time and amount of the donation to a person from the group of beneficiaries. The tax authority assumes existence of a fixed-interest trust if the beneficiaries as well as the extent and the time of the respective donation are precisely determined.
The Swiss tax administration allocates the trust's assets to the settlor or beneficiaries. An exception is the irrevocable discretionary trust. From a Swiss perspective, this can only be the case if the settlor was not domiciled in Switzerland at the time of establishment. If the settlor was resident in Switzerland at the time of establishment, the trust is generally treated as transparent for tax purposes. The irrevocable discretionary trust is to a certain extent the only form of trust which could be described as a separate legal structure, since in this form the trust assets cannot be attributed to either the settlor nor the beneficiary.
The tax consequences of the introduction of the Swiss trust should be kept in mind. Due to its peculiarities, the Liechtenstein trust is a sought-after legal institution. It remains to be seen what consequences the introduction of the Swiss trust will have.