Foreign Trust Recognition in Switzerland

The 1985 Hague Convention

Switzerland ratified the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition, which entered into force on its territory on 1 July 2007. This convention constitutes the legal foundation for the recognition of trusts in Switzerland. It applies to trusts created voluntarily and evidenced in writing, regardless of the jurisdiction under which they were established.

The Convention provides that the trust is governed by the law chosen by the settlor. In the absence of an express choice, the applicable law is that of the jurisdiction with which the trust has the closest connection, taking into account the place of administration, the location of assets and the residence of the trustee.

Absence of a Swiss domestic trust

It is essential to understand that Swiss law does not recognise the institution of the trust as such. Unlike Liechtenstein, Malta or San Marino, which have adopted domestic trust legislation, Switzerland has chosen to recognise foreign trusts without creating a domestic trust. Several bills aimed at introducing a Swiss domestic trust have been debated in the Federal Parliament, but none has been adopted to date.

Consequently, any trust administered from Switzerland is necessarily a trust established under the law of a foreign jurisdiction, typically the law of Jersey, Guernsey, the Bahamas, New Zealand, English law or another recognised common law jurisdiction.

Effects of recognition

The recognition of a foreign trust in Switzerland produces significant legal effects that give the trust an effective existence within the Swiss legal order:

• Asset segregation: Trust assets are separated from the personal estate of the trustee. They do not form part of the trustee's estate on death, matrimonial property regime or bankruptcy. This segregation is enforceable against third parties and the trustee's personal creditors.
• Bank account opening: Swiss banks open accounts in the name of the trust, enabling separate management of assets. The trustee acts as account holder with a notation of fiduciary capacity.
• Land registry registration: A trust may hold real estate in Switzerland. The trustee is registered at the land registry with a notation of fiduciary capacity, in accordance with Article 149d PILA.
• Tax recognition: The Federal Tax Administration and cantonal tax authorities recognise the trust as a separate entity for tax purposes, according to the applicable rules (transparent or opaque taxation depending on the circumstances).

Most common jurisdictions of establishment

Trusts administered from Switzerland are most commonly established under the law of jurisdictions offering a modern and flexible legislative framework:

• Jersey: The Trusts (Jersey) Law 1984 (as amended) provides a particularly well-developed framework with clear rules on reserved powers, trusts of indefinite duration and protection against forced heirship claims.
• Guernsey: The Trusts (Guernsey) Law 2007 is similar to that of Jersey with certain specificities, particularly regarding charitable trusts.
• Bahamas: The Trustee Act 1998 (as amended) is particularly used for international succession planning trusts.
• New Zealand: The Trusts Act 2019 provides a modern codified framework, frequently used for structures involving beneficiaries in the Asia-Pacific region.

Limits of recognition

The recognition of a foreign trust in Switzerland is not absolute. Article 15 of the Hague Convention provides that recognition may be set aside where its application would be manifestly incompatible with mandatory provisions of Swiss law. In practice, the main limitations concern:

• Rules protecting forced heirs (reserved portion) under Swiss succession law
• Creditor rights in the case of fraudulent transfer (actio pauliana)
• Lex Koller rules on the acquisition of real estate by persons abroad
• Mandatory provisions of matrimonial law in the case of divorce

These limitations make an in-depth analysis of the applicable legal framework essential before establishing a trust, particularly when the settlor or beneficiaries have ties to Switzerland.