Switzerland launches consultation on new trust law

Thursday, 13 January 2022
The Swiss Federal Council has published a draft Bill aimed at introducing trusts into Swiss law.
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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.

Switzerland already recognises trusts established abroad under the terms of the Hague Convention on the Law Applicable to Trusts and on their Recognition (the 2007 Hague Trust Convention), although Swiss law does not provide specific rules regarding trusts. According to the Swiss Federal Council, trusts are playing an increasingly important role in practice and it wants to provide Swiss clients with an alternative to turning to foreign countries to set up trusts.

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. The Federal Council notes that establishing a Swiss trust would give rise to new business opportunities to boost Switzerland's economic position and enable the country to follow the international trend.

Under the Bill, trusts will consist of the assignment of an estate in favour of beneficiaries and will be managed by a trustee. The maximum duration of a trust will be 100 years, but it can be revoked before term. Switzerland's existing tax principles will apply to trusts and an irrevocable trust that does not give any justiciable rights will be treated in principle as a foundation.

Trusts will have to meet international reporting and documentation requirements; in particular, trustees will have a duty 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.

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. Trust assets are liable only for the obligations set out in the trust instrument and for those incurred by the trustee in the due exercise of their office. Trust property is precluded from debt enforcement proceedings for any other obligations. However, the trustee cannot be the sole beneficiary.

The provisions offer a 'high degree of flexibility', said David Wallace Wilson TEP, a partner at law firm Schellenberg Wittmer. They will also allow the settlor to specify arbitration as a dispute resolution mechanism.

The consultation is open until 30 April.


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