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Swiss Trusts

Swiss Trusts

Swiss Trusts rejected by Federal Council

In a blow to those who may want to see more flexibility in estate planning in Switzerland, the idea of a Swiss trust has been shelved for the foreseeable future.

At its meeting on September 15, 2023, the Federal Council took note of the results of the consultation on the introduction of trusts into Swiss law. It concludes that there is currently insufficient political consensus for the introduction of a Swiss trust. The proposed tax rules were clearly rejected by the participants in the consultation. In view of this, the Federal Council has decided not to prepare a dispatch and proposes that Parliament reject the motion.

The trust, which originates in Anglo-Saxon law, is a flexible instrument: in the family context, it is often used to plan inheritance and pass on wealth over several generations; in the economic sphere, it is also used to preserve and administer assets, for example with a view to financing investments and transactions. Since the entry into force of the Hague Trust Convention in 2007, trusts set up abroad have been recognized in Switzerland, and this legal institution has become increasingly important in Switzerland.

To ensure that Swiss players do not have to resort to foreign trusts, Parliament mandated the Federal Council in motion 18.3383 to introduce the Swiss trust into the Code of Obligations. The Federal Council sent out a draft for consultation. The opinions expressed, which the Federal Council took note of on September 15, 2023, clearly show, however, that the project currently has no chance of gaining a political majority.

The Federal Council proposed to regulate the taxation of trusts in law. However, most participants in the consultation are critical of the proposed solution and are essentially calling for current taxation practice to be maintained.

Although a majority of respondents agreed that Switzerland lacks an instrument for wealth management and estate planning, many were skeptical about the idea of creating a Swiss trust. In view of the results of the consultation, the Federal Council has come to the conclusion that the introduction of the trust into Swiss law is unlikely to command a political majority at present. In these circumstances, the Federal Council has decided to dispense with the drafting of a dispatch and proposes that Parliament shelve the motion.

Swiss Trusts

None of this, however, prevents foreign nationals’ resident in Switzerland from using trusts where appropriate.

Inheritance laws differ from country to country, especially within Europe, and without careful and prior planning, expatriates who have pensions, property and assets in more than one country may inadvertently pay tax twice or become trapped in probate in multiple tax jurisdictions.

One example of this is the issue of testamentary freedom, or the ability to pass your entire estate to whoever you wish, including your spouse. Many European countries do not allow full testamentary freedom, however recent changes in legislation offer much greater flexibility for foreign nationals on the choice of tax law that would apply on death.

So, whilst estate planning is sometimes thought of as only being relevant for the very wealthy, in practice it is relevant for anyone who has a family and /or is concerned about what would happen in the event of their death. Proper estate planning involves ensuring that your assets are held tax efficiently and will be distributed in line with your wishes, and planning should take place throughout life and not just on death.

Typical measures may include:

  • Writing a will
  • Appointing executors of your estate, and guardians for younger children
  • Establishing a life insurance contract
  • Creating a trust

What is clear is that the consequences of inaction can be significant, and often expensive and it is therefore essential to ensure proper planning is in place. For an accurate assessment of your own situation in this regard, contact us.

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For further information on this or any other portfolio management questions, contact us by phone, +41 22 755 0800, by e mail info@blackdenfinancial.com or complete our Contact Form here

One of our team will contact you and arrange a suitable time to discuss how our service can work for you, and how to get the ball rolling.

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