Trusts and foundations as instruments for intergenerational estate planning

Estate planning is a topic that will concern everyone over time. Because of this, it is of great importance to look into the various options for estate planning. The law contains detailed provisions on inheritance and regulates the estate if nothing has been stipulated by the deceased. However, the question arises as to whether these regulations also meet one’s own needs. If this is not the case, there are various possibilities with which one can better adapt the estate to one’s own needs.

Internationally, the instruments of the foundation and the trust often come into play. Under certain circumstances, these can help to distribute the inheritance over several generations, which can be very attractive, especially in the case of substantial assets. The terms foundation and trust are not unknown in Switzerland either. Whether they can be used for cross-generational estate planning depends on the individual case. A general overview of these two instruments is given below.

Foundations in Switzerland

Switzerland has its own legal framework for foundations. The main feature of a foundation is its charitable purpose. They are also easy to set up and benefit from preferential tax treatment. The basic principle of Swiss foundations is as follows: If a founder has the wish to use assets for a charitable purpose in the long term, he or she can transfer these assets to a foundation with this purpose. Depending on the founder’s preference, a wide variety of charitable purposes can be promoted, such as educational or environmental causes.

In addition to the common types of charitable foundations, there is also the family foundation in Switzerland. In this case, the circle of beneficiaries is limited to family members, and it does not have to pursue a charitable purpose. Unfortunately, the purpose description of the family foundation is very narrow, and it is – in comparison to ordinary foundations – not favoured under tax law. Only very limited distributions can be associated with the family foundation, such as the education of a family member. This has led to a situation in which almost no more family foundations are being established in Switzerland.

Foundations in Switzerland therefore offer a testator the possibility of dedicating his or her assets to a specific charitable purpose after death. However, Swiss foundations are not used for intergenerational estate planning.

Trusts in Switzerland

Trusts are a very popular instrument for intergenerational estate planning in the USA. However, Switzerland does not currently have its own trust law. Therefore, a Swiss trust is – logically – not available for intergenerational estate planning. However, it is possible to resort to foreign trusts. This possibility is offered by the Hague Trust Convention. This states that foreign trusts are recognised in Switzerland.

There are various countries that have a trust law that can serve intergenerational estate planning. The Liechtenstein trust, for example, offers the possibility that the trust assets should flow to the beneficiary’s heirs or even their legal successors after a certain period of time. Depending on the personal intentions, it is necessary to clarify exactly which national trust law best suits the purpose. Finally, it should be added that Switzerland is currently planning its own trust law. It is therefore possible that in the foreseeable future Swiss trusts will also be able to be used for customised estate planning.