The Swiss Federal Council recently published a draft bill aimed at introducing trusts into Swiss law after its parliament approved a motion to create a legal structure for the wealth planning tool.
The proposals will allow trusts to be used to structure private assets and for commercial transactions.
Switzerland does not have its own trust law, which means it is not currently legally possible to have a Swiss trust.
But in 2007, Switzerland ratified the Hague Convention on Trusts in 2007, which allowed the country to recognise trusts established abroad.
This means that it is legally possible to provide a Swiss trustee for a trust governed by laws of a jurisdiction which has its own trust law (e.g. Cayman or BVI).
Vadim Neumann, managing director, Zürich and Zug at Zedra, said: “It is expected that Swiss Trust law should be accepted and implemented in Switzerland in the coming years. This should strengthen the position of Switzerland as a stable and reputable jurisdiction for structuring of private assets.
“Additionally, it will attract more high net worth individuals looking for a long-term solution for their inheritance planning or asset protection using a Swiss trust solution, fully compliant with international reporting and documentation requirements.”
Details of bill
Law firm Schellenberg Wittmer translated the bill into English and said that the trusts will consist of the transfer of an estate to beneficiaries and will be managed by a trustee.
The maximum duration of a trust will be 100 years, but it can be revoked before the term finishes.
The trusts will have to meet international reporting and documentation requirements; such as anti-money laundering and tax transparency compliances.
The consultation is open until 30 April 2022.
Robert Payne, managing associate in the private wealth team at Ince, said: “The new law could be a very useful and flexible tool for the Swiss trust industry; allowing trustee services to be offered more broadly and efficiently, benefitting families that set up trusts and the trust beneficiaries. It may provide greater certainty to Swiss based trustees, who may currently need to have awareness of a number of different foreign trust laws.
“It could also reduce on-going costs for trustees; for instance, if the law is clear and easily understood the trustees may no longer need to take legal advice on foreign trust laws. The new law is in line with other jurisdictions that are broadening the ways in which they cater for various situations.
“This is apparent in Guernsey and Jersey’s foundation laws under which foundations, a ‘civil law’ concept commonly used in European jurisdictions such as Switzerland and Liechtenstein, are now used alongside already widely used ‘common law’ concepts such as trusts.
“Having lived in Switzerland and had experience of assisting clients in tax and trust matters, it may add credibility and avoid the need to explain why the country is at the forefront of the trustee services industry but has no trust law of its own.
“Some questions remain, including how the new trust law will fit within a legal system based so heavily on civil law concepts and whether it will be widely accepted and used. We will need to watch this space, but this is an exciting development with potential benefits for trustees and those wishing to establish trusts.”
Local use first
Luc Thévenoz, board member at Mirabaud Group, said: “There is something missing in Switzerland in terms of wealth structuring. We have a good financial services sector, but in terms of wealth structuring, it is quite an old-style civil law system.
“I would say, for international clients, it’s not going to change much for a while. This is because if you’re an international client, you will want to use a trust law which is well tested.
“For Swiss clients, who are still 50% of the financial centre in terms of positive assets, it is attractive. In several years, the learning process about trusts will probably increase the quality of advice that you get in Switzerland, and it will show that a Swiss trust is also an option for individuals.
“At first, I’m not thinking of this as an export product. I think it’s very much geared at the Swiss market.”