At its meeting of January 12, 2022, the Federal Council opened the consultation procedure on the introduction of the trust into Swiss law.
The trust is an institution with strong roots in the Anglo-Saxon countries, the so-called common law countries. It is difficult to describe or to assimilate it to concepts known in countries governed by a civil law system. Even in countries where the trust culture is very present, there is no proper legal definition of this institution. Rather, the trust is described by its characteristics: it is acknowledged that it is a combination of legal relationships, under private law, the effect of which is that property is entrusted by the settlor to a person (the trustee), who must administer and dispose of it in the interests of the beneficiaries, who are defined or identifiable. In addition, each trust is different in the way it is created, the mechanisms it puts in place for the administration of its assets, the purposes it pursues, etc.
Trusts are widely used, in particular for the purposes of holding and transferring assets and, more specifically, for estate planning. Their flexibility make it possible to ensure the protection and proper use of assets, sometimes over several generations, in a manner adapted to each situation.
As the law currently stands, Switzerland does not provide for trusts in its legal system. However, aware that they are an economic and legal reality, including for people residing on its territory, it has recognized the existence of foreign trusts since the entry into force of the Convention on the Law Applicable to Trusts and on their Recognition in 2007.
In recent years, several parliamentary interventions have called for the introduction of a trust under Swiss law, including the motion CAJ-CE 18.3383 which requested the Federal Council to draft the legal basis for the introduction of a Swiss trust and which led to the consultation procedure launched on January 12, 2022.
In the current context, we can only welcome this step forward in this field, which will, if implemented, strengthen the attractiveness of Switzerland, in particular in the area of asset management, and as a financial center in the broadest sense.
It also provides security and solutions for a wealth planning instrument whose foreign “versions” are widely used. Indeed, and in contrast to the latter, the trust under Swiss law as proposed by the Federal Council is based on principles already anchored in our national law, thus guaranteeing first-rate legal certainty and respect for our norms and values, in particular in matrimonial or inheritance matters, or even in contractual matters or enforcement.
As the Federal Council points out in its report, this would be a real alternative for people who do not want to (or cannot) have recourse to a foreign legal institution or to another existing institution under Swiss law (e.g. the conclusion of an inheritance agreement, the creation of a foundation, the drawing up of a will or advance directives, etc.).
Thus, whether the trust is private or commercial, set up for wealth and estate planning purposes, for security purposes or for holding assets, Switzerland would have an efficient instrument that meets the needs of many people.
The draft bill excludes the creation of charitable trusts or purpose trusts (created for the realization of a purpose and not for beneficiaries), because Swiss law already knows the legal form of the foundation, which is perfectly adapted to these purposes, and whose existence in parallel with the trust completes the range of available solutions.
Finally, this draft bill does not forget the tax aspects related to trusts, which remain central and essential to the proper adoption of the trust in Switzerland.
First of all, it ensures that the envisaged provisions of Swiss law are compatible with Switzerland’s commitments in the field of international taxation (as well as respecting the transparency requirements of international standards, in particular with respect to the fight against money laundering and terrorism financing).
But it also addresses the tax issues related to the various parties involved, in particular the settlor and beneficiaries.
Indeed, nowadays, trust relationships are not subject to any specific legal provision in Swiss law; they are therefore taxed in accordance with the general principles of tax law and two circulars (one issued by the Swiss Tax Conference – STC – and the other issued by the Federal Tax Administration – FTA -, reproducing the STC’s circular). This current situation can lead to dissatisfaction, in particular when a person (i.e. a Swiss resident) entrusts his assets to an irrevocable and discretionary trust, without retaining any right over them, and the tax authorities deny their divestiture (and consequently continue to tax the assets and income in the hands of the settlor). This will change if the draft bill is accepted.
Thus, the tax law regulation proposed by the draft bill, which introduces new provisions in the Federal Direct Tax Act, in the Act on the Harmonization of Direct Cantonal and Communal Taxes and in the Withholding Tax Act, is based on existing practice, while adding some welcome considerations, in particular in connection with irrevocable and discretionary trusts.
The main new feature would be that irrevocable and discretionary trusts would be taxed, under certain conditions, in the same way as foundations. They would then be separate tax subjects and both assets and income would be taxed directly in their hands, whereas they are currently imputed to the settlor when he/she is an ordinary Swiss taxpayer. In other words, the divestment of him/her in favor of the trust would – at last – be fiscally recognized even when the he/she is a Swiss taxpayer.
In conclusion, if we can see today that trusts are an efficient asset and estate planning instrument, we can only regret that they remain unknown in the Swiss legal system – obliging the interested parties to resort to foreign law – and that the tax considerations regarding them are only based on practices (admittedly partially harmonized for several years thanks to the circulars of the STC and the FTA).
Thus, if the development of a trust under Swiss law is confirmed, the Swiss financial center will have at its disposal this flexible instrument, adapted to a large number of situations, in a clearly defined manner in the civil laws, and with uniform tax standards, scrupulously respecting the tax compliance commitments made by Switzerland at the international level.
The specialists at AEGIS will be pleased to discuss this matter with you.
 Convention on the Law Applicable to Trusts and on their Recognition concluded at The Hague on 1 July 1985 and entered into force for Switzerland on 1 July 2007 (RS 0.221.371), available online: https://www.fedlex.admin.ch/eli/cc/2007/375/fr (French) or https://www.hcch.net/en/instruments/conventions/full-text/?cid=59 (English)
 In particular, the requirements of the FATF and the Global Forum on Transparency and Exchange of Information for Tax Purposes.
 Swiss Tax Conference, Circular 30 of August 22, 2007 – Taxation of Trusts, available online: https://www.steuerkonferenz.ch/downloads/kreisschreiben/ks030_f.pdf
Federal Tax Administration, Circular No. 20 of March 27, 2008 – Taxation of Trusts, available online: https://www.estv.admin.ch/dam/estv/fr/dokumente/dbst/kreisschreiben/2004/1-020-DV-2008.pdf.download.pdf/1-020-DV-2008-f.pdf
 Federal law on direct federal tax of December 14, 1990 (LIFD, RS 642.11), available online:https://www.fedlex.admin.ch/eli/cc/1991/1184_1184_1184/fr
7]Federal law on the harmonization of direct taxes of the cantons and communes of December 14, 1990 (LHID, RS 642.14), available online: https://www.fedlex.admin.ch/eli/cc/1991/1256_1256_1256/fr
 Federal law on withholding tax of October 13, 1965 (LIA, RS 642.21, available online: https://www.fedlex.admin.ch/eli/cc/1966/371_385_384/fr