How to Open a Trust in Switzerland

What Swiss law allows for trusts

A trust created under foreign law can be recognised in Switzerland under the Hague Convention on the Law Applicable to Trusts and on their Recognition (SR 0.221.371), which entered into force for Switzerland on 1 July 2007. The Convention identifies the law applicable to a trust and sets out the conditions for recognition. Swiss private international law addresses trusts in Articles 149a–149e of the Federal Act on Private International Law (PILA, SR 291).

Recognition does not turn the trust into a Swiss company or foundation. The trust remains governed by its chosen foreign law and its trust instrument. The settlor transfers or settles assets on a trustee, who holds and administers them for the beneficiaries or a defined purpose. The governing law determines matters such as trustee powers, amendment, termination and the beneficiaries' rights.

Switzerland's recognition rules answer a civil-law question. They do not settle taxation, creditor claims or reporting obligations, each of which must be considered separately. A comparison with the domestic foundation form is set out in our guide to the Swiss foundation and foreign trust.

Choosing the trust type and governing law

A foreign-law trust should be chosen by reference to its purpose, the settlor's wishes, the beneficiaries' position and the places where assets are held. The governing law must support the intended powers and provide a workable process for replacing a trustee or resolving a dispute.

Revocability and discretion are terms in a legal arrangement, not guarantees of a particular tax or asset-protection result. Their effect must be assessed under the chosen governing law and in every country connected with the settlor, beneficiaries and assets.

How to establish and administer a trust

A trust is established through a trust instrument under the selected foreign law, followed by the transfer or settlement of assets in the manner that law requires. A sound setup resolves these points before the deed is signed:

• Write down the purpose, intended beneficiaries, assets and distribution principles.
• Select a governing law and confirm that the deed supports the required trustee powers and governance.
• Appoint a trustee with the capacity and authorisation needed for the place where it will work.
• Review tax, inheritance, creditor and reporting consequences in the relevant jurisdictions.
• Prepare the deed, complete due diligence and transfer assets with appropriate records.

If administration will be carried out from Switzerland, the appointment must be checked against Swiss licensing rules before the trustee accepts the mandate. Goldblum and Partners can coordinate foreign-law drafting and Swiss trust and trustee services with the relevant advisers and authorised trustee.

Trustee authorisation in Switzerland

If a trust is administered from Switzerland by a trustee acting on a commercial basis, the trustee needs FINMA authorisation under the Financial Institutions Act (FinIA, SR 954.1) before starting the regulated activity. FINMA's requirements address the trustee's organisation, financial resources, management and controls; the trustee must also show affiliation with an authorised supervisory organisation for ongoing supervision. The regulator's current overview is on its page about trustee authorisation.

Trustee authorisation is distinct from recognition of the trust itself. A trust governed by foreign law does not grant its trustee permission to carry on a regulated activity in Switzerland. Conversely, a trustee's FINMA authorisation does not decide whether a particular trust deed is effective under its governing law.

Tax and compliance questions

A trust's Swiss tax treatment must be analysed from the deed and the facts, rather than inferred from the labels “revocable” or “irrevocable”. The settlor's and beneficiaries' residence, the trust powers, the source and location of income, and the timing and character of distributions can all matter. An advance discussion with the relevant cantonal tax authority can reduce uncertainty before assets are transferred.

Trustees and other service providers must also check applicable anti-money-laundering duties, client due diligence, source-of-funds evidence, record keeping and cross-border reporting. The scope depends on the role and activity. The trustee should document the parties, beneficial interests, assets and decision-making in a way that can be explained to banks and authorities.

When this does not apply

A trust is not the right answer where the objective requires a Swiss-law entity, such as a Swiss foundation or company, or where the proposed trustee cannot meet the authorisation requirements for professional activity in Switzerland. A non-professional or family arrangement may raise different questions, but that does not remove the need to check the foreign governing law, Swiss tax position and any regulatory duties before acting.