Philippe Kenel, Attorney-at-Law in Lausanne, Geneva and Brussels, PYTHON
Marc Angst, CEO, Gestrust SA, Geneva
While Swiss law still does not have its own regulations on trusts, this institution nevertheless plays a major role in our country. Swiss banks manage a significant amount of assets held by trustees. Switzerland, particularly Geneva, is also home to many companies whose main activity is acting as a trustee or administering trusts. Finally, clients are increasingly contacting us to set up trusts, not for tax reasons, but as part of inheritance planning.
The trust in civil law
CAs indicated above, strictly speaking Switzerland still does not have trust laws of its own. However, the Swiss Parliament has tasked the Federal Council with establishing the legal bases to enable trusts to be enshrined in Swiss law and a group of experts commissioned by the Federal Office of Justice has been working on regulatory proposals since June 2018.
However, to ensure a certain degree of legal clarity fort he economic actors involved, the Swiss authorities decided to ratify the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition (subsequently referred to as ‘the Convention’). It entered into force in Switzerland on 1 July 2007.
The Convention defines a trust as legal relationships established by a person, the settlor – inter vivos or upon death – where assets are placed under the control of a trustee in the interests of a beneficiary or for a specific purpose. As a result of this qualification, the characteristic features of a trust are the separation between the assets of the trust and of the trustee, the ownership of the assets in the name of the trustee and the obligation of the trustee to administer, manage or dispose of the assets according to the terms of the trust. The Convention, which only covers trusts created voluntarily – in other words express trusts as opposed to implied trusts, has two objectives. Firstly, it determines the law applicable to the trust by favouring the law chosen by the parties. Otherwise the trust will be governed by the law of the place with which the trust has the closest links. Secondly, the Convention stipulates that a trust established in line with the law determined according to the above-mentioned provisions will be recognised as a trust. This means that if the parties establish a trust by applying the law of the British Virgin Islands, Switzerland will recognise that it is a trust governed by the law of this state. However, the ratification of the Convention has not resolved all the issues that a trust can present in civil law. In particular, this applies to the validity of the legal instrument (gift or instrument taking effect upon death) according to which the assets are transferred by the settlor to the trustee. Likewise, the Convention does not address the issue of compulsory share in inheritance law, a matter we will look at below.