Swiss Foundation vs Trust: Which Structure Fits Your Situation?

What Swiss Law Actually Allows: Foundations and the Art. 335 Limit

A Swiss foundation (Stiftung) is an independent legal entity governed by ZGB Art. 80-89c. It acquires legal personality on entry in the commercial register and must be dedicated to a defined purpose that binds the foundation board. The founder transfers assets to the foundation irrevocably; once transferred, those assets no longer belong to the founder and cannot be retrieved. The foundation board administers the assets in accordance with the foundation deed and the stated purpose, under the supervision of the competent authority.

The range of permissible purposes is wide for ordinary foundations: charitable, cultural, ecclesiastical, social and family-related objects all qualify, subject to the requirement that the purpose is lawful and not contrary to public policy. Foundations with supra-cantonal or international purposes are supervised by the Federal Supervisory Authority for Foundations (Eidgenössische Stiftungsaufsicht, ESA); those with a locally focused scope fall under cantonal supervisory authorities. A revision of Swiss foundation law entered into force on 1 January 2024.

The Familienstiftung, governed by ZGB Art. 335, operates under stricter purpose restrictions. The provision permits family foundations established for the costs of educating family members (Erziehung), providing them with a dowry or equipment (Ausstattung), or supporting them (Unterstützung), and for similar purposes of the same qualitative character. Ongoing maintenance, meaning the provision of general living costs to family members, is not a permitted purpose. The Federal Court has held consistently in its standing case law that maintenance (Unterhalt) does not fall within Art. 335 Abs. 1, even where the text uses the phrase "or similar purposes." Familienstiftungen must register in the commercial register but are exempt from state supervisory authority oversight (ZGB Art. 87 Abs. 1); disputes over their administration are resolved by the courts. ZGB Art. 335 Abs. 2 separately prohibits family entails (Familienfideikommisse) entirely.

Parliament has signalled that this restriction may change. Motion 22.4445, submitted by Council of States member Thierry Burkart on 15 December 2022, instructs the Federal Council to draft legislation abolishing the maintenance prohibition. The Council of States adopted the motion on 12 December 2023; the National Council followed on 27 February 2024. The Federal Council is now obliged to prepare a bill. As of mid-2026, no bill has been published and the restriction on maintenance foundations remains fully in force. Those planning family wealth structures today cannot rely on a future change in the law that has not yet occurred.

For those considering establishing a Swiss foundation, the purpose restrictions are the first question to settle, because they determine from the outset whether a foundation is the right instrument for the intended use.

Why Switzerland Has No Domestic Trust Law

Switzerland's attempt to introduce a domestic trust law reached a clear conclusion in 2023: the project was shelved. Motion 18.3383 prompted the Federal Council to open a consultation on a proposed Code of Obligations amendment on 12 January 2022; the consultation period closed on 30 April 2022. Results showed insufficient political consensus. Objections focused on the proposed tax rules, which consultation participants widely rejected, and on the absence of agreement on how a domestic Swiss trust would integrate with existing succession, tax and creditor protection law.

On 15 September 2023, the Federal Council announced it would not proceed with draft legislation. The Council of States archived the motion on 12 December 2023; the National Council did so on 27 February 2024. There is no pending legislative project to create a Swiss-law trust. Articles published before September 2023 that described a domestic trust law as imminent should be treated as outdated on this point.

Switzerland does, however, recognise foreign trusts. The Hague Convention on the Law Applicable to Trusts and on their Recognition (SR 0.221.371) entered into force for Switzerland on 1 July 2007. Parliament approved ratification on 20 December 2006; the instrument of ratification was deposited on 26 April 2007. Domestic implementation sits in the Federal Act on Private International Law (IPRG, SR 291), Articles 149a-149e, covering recognition, jurisdiction, applicable law and the registration of trust relationships in public registers.

Recognition under the Hague Convention is civil in character. It means Swiss courts and authorities give effect to a foreign trust as a legal arrangement and do not re-characterise its assets as belonging to the settlor purely because Swiss domestic law knows no such institution. Recognition does not automatically determine tax treatment: Swiss tax authorities apply their own rules, which can attribute trust assets to the settlor or beneficiaries for Swiss tax purposes regardless of how the trust is characterised under civil law.

Because there is no Swiss trust law, clients who want a trust structure must choose a foreign governing law. Jersey, Guernsey, Cayman Islands, Liechtenstein, Cook Islands and English and Welsh law are among the most commonly used for Swiss-connected trust structures. Each jurisdiction carries its own regulatory framework for trustees, its own approach to protectors and letters of wishes, and its own relationship with Swiss civil and tax law. Where a Swiss-based professional is appointed trustee, the licensing requirements described below apply. For a full picture of the options, Swiss trustee services is the starting point.

How Each Structure Is Taxed in Switzerland

A Swiss foundation is an independent taxpayer (Steuersubjekt) for both federal and cantonal income tax purposes. The federal income tax rate for foundations, associations and other legal entities is 4.25% on net profit (DBG Art. 71, as of 2026); profits below CHF 5'000 are not taxed, and corporations pay 8.5% by comparison. Cantonal and communal taxes for foundations follow separate cantonal tariffs, so the effective total depends on the canton of domicile; capital tax applies additionally at cantonal level. A charitable or religious foundation can apply to the cantonal authority for exemption from profit tax, capital tax, inheritance tax and gift tax, where its purpose qualifies under cantonal criteria. A Familienstiftung under ZGB Art. 335 is not eligible for charitable tax exemption; it is taxed as a regular foundation. Distributions to beneficiaries may be treated as gifts or as income under cantonal law depending on the legal basis of the payment.

Foreign trusts are not independent tax subjects in Switzerland. The applicable framework is set out in SSK Circular 30 (22 August 2007) and ESTV Circular 20 (March 2008). The core principle is look-through: Swiss tax authorities attribute trust assets and income to the settlor or beneficiaries rather than to the trust itself. The applicable rule depends on the type of trust.

Pre-immigration planning is the clearest area where a foreign trust offers a tax advantage over a Swiss foundation. A person who establishes an irrevocable discretionary trust abroad before becoming a Swiss tax resident can, in principle, prevent the trust capital from being subject to Swiss wealth tax once residency begins. Distributions from that trust to the Swiss-resident beneficiary are then taxed as income only when actually paid. Once Swiss tax residency is established, this planning window closes; a trust created after that point cannot achieve the same result. Given the complexity and the variation across cantons in how tax authorities apply these rules in practice, obtaining an advance tax ruling from the relevant cantonal authority before relocating is an essential step.

Cantonal inheritance and gift tax can also affect trust distributions. Distributions made during the settlor's lifetime may be characterised as gifts; on the settlor's death, inheritance tax at the rate applicable in the settlor's last canton of residence can apply, with rates varying according to the relationship between settlor and beneficiary. Schwyz and Obwalden are the only Swiss cantons that levy no inheritance tax at all. Swiss withholding tax (Verrechnungssteuer, 35% as of 2026) applies to Swiss-source income. For a revocable trust, the settlor can generally claim a refund. For an irrevocable discretionary trust, recovery of withholding tax is in most cases not possible, because the beneficial ownership cannot be attributed to a specific person with sufficient certainty.

Asset Protection: Limits and Risks for Both Structures

The Swiss foundation's asset protection effect rests on the irrevocability of the asset transfer. Once the founder dedicates assets to the foundation, those assets no longer form part of the founder's estate and are generally beyond the reach of the founder's personal creditors. This separation takes effect on transfer and does not depend on any minimum holding period. The principal legal limit is the Swiss debt-enforcement law: challenge actions under SchKG Art. 285 ff. allow creditors to attack transfers with periods of up to five years where a transfer was made to the detriment of creditors. A foundation established well in advance of any financial difficulty and with a genuine purpose carries a low risk of successful challenge. One established in the period immediately before a creditor difficulty does not.

A properly structured foreign irrevocable trust also separates assets from the settlor's estate. Swiss courts may, however, look through a trust if they conclude it was established to defraud creditors or if the settlor has in substance retained control despite formal irrevocability. A revocable trust offers no asset protection at all: assets in a revocable trust remain attributed to the settlor for both tax and civil law purposes and can be reached by the settlor's creditors as if the trust had not been created.

Forced heirship is a constraint on both structures that cannot be avoided through either instrument. Since 1 January 2023, the Swiss Pflichtteil reform reduced the mandatory portion for descendants to one half of their legal share, and abolished the mandatory portion for parents entirely. Spouses and registered partners retain a mandatory portion of one half of their legal share. Neither a Swiss foundation established inter vivos nor a foreign trust reliably excludes forced heirship claims under ZGB Art. 522 ff. when Swiss parties are involved. Swiss courts apply Swiss inheritance law in cross-border contexts involving Swiss domiciliaries, and structures built primarily to defeat forced heirship are at particular risk of challenge.

Where Swiss real estate is involved in either structure, the Federal Act on the Acquisition of Real Estate by Persons Abroad (Lex Koller) applies to non-residents. This analysis runs separately from the foundation or trust structure question and must be completed before any property is transferred into either vehicle.

Cost and Administration: The Full Picture

A Swiss foundation requires a minimum initial capital of CHF 50'000 according to the practice of the Federal Supervisory Authority for Foundations, though this figure is not set by statute. Set-up costs in practice include notary fees, commercial register charges and legal drafting fees, typically totalling CHF 10'000-15'000 (2026, multiple market sources; individual cases will vary). The ESA annual supervision fee averages CHF 1'200, varying by foundation activity (as of 1 January 2024). Ongoing administration, accounting and audit costs add approximately CHF 10'000-15'000 or more per year (2026 market estimate); this range does not include the supervision fee.

A foreign trust involves no Swiss minimum capital requirement and no Swiss supervisory fee. Set-up costs depend on the chosen jurisdiction and trustee but typically fall in the range of USD/GBP 10'000-25'000 for a professionally drafted trust deed (market range, 2026). Annual trustee fees are typically in the range of 0.5%-1.5% of assets under management, with minimum annual retainers in practice often in the range of CHF 15'000-25'000 for smaller structures (2026, market range; exact figures vary by jurisdiction and trustee). Additional compliance costs arise from CRS reporting (annual deadline 30 June), FATCA obligations for US persons (annual deadline 31 May), and Anti-Money Laundering Act (GwG) obligations if the trustee operates in Switzerland. Professional trustees operating in Switzerland must hold FINMA authorisation as trustees under FINIG.

Decision Matrix: Matching Structure to Scenario

The Swiss foundation is the right starting point for situations involving a clearly defined charitable, cultural or family educational purpose under Swiss law, where the founder is content to relinquish full and irrevocable control, and where commercial-register transparency is acceptable. A foreign trust is the starting point where the aim is ongoing family maintenance, multi-generational flexibility, high privacy, or pre-immigration asset planning. Neither structure belongs in an estate plan designed primarily around circumventing forced heirship rules: that aim cannot be achieved reliably through either vehicle under Swiss law.

When Each Structure Is Not the Right Choice

A Swiss foundation is not well suited where the founder's primary goal is to provide ongoing living expenses to family members. Until Parliament's Motion 22.4445 results in enacted legislation, which had not occurred as of mid-2026, any foundation deed drafted to cover Unterhalt will be refused registration or declared inadmissible. A foundation also fails to meet the need where the founder requires flexibility to change the identity of beneficiaries after establishment, to instruct the board on particular investments, or to recover assets in changed circumstances: the foundation board is bound by the deed and the supervisory authority, not by the founder's subsequent wishes. Once a foundation is in existence, the founder has no power to dissolve it or reclaim assets outside the narrow statutory grounds. The minimum administration burden of approximately CHF 10'000-15'000 per year (2026) means a foundation is proportionate only where the asset pool is substantial enough to justify that recurring cost; the sensible minimum depends on the foundation's purpose and expected activity.

A foreign trust structure does not achieve the intended result where the critical tax-planning steps are not completed before the settlor becomes a Swiss tax resident. An irrevocable discretionary trust established after a person has already taken up Swiss residency cannot achieve the same exclusion of the trust capital from Swiss wealth tax. Timing is therefore not an administrative detail but a threshold condition: miss the window and the primary tax advantage is lost permanently. A revocable trust offers no asset protection and no wealth tax advantage by definition: revocability means the settlor retains control and the assets are attributed to the settlor in full under Swiss look-through rules.

Offshore asset protection trusts established with the evident purpose of placing assets beyond the reach of specific known creditors carry a high risk of challenge under SchKG Art. 285 ff. and may be disregarded by Swiss courts. Swiss banks do not onboard all trust structures without extended due diligence. Jurisdictions and structures unfamiliar to a particular bank's compliance team can result in refusal or multi-month delays in account opening, affecting the operational viability of the trust regardless of its legal validity.

Neither a foundation nor a trust gives reliable protection against forced heirship claims in a Swiss-connected estate. Legitimate heirs with a Pflichtteil entitlement retain the right to challenge both structures under ZGB Art. 522 ff. Swiss courts routinely apply Swiss inheritance law even when the structure is governed by foreign law and administered abroad. The 2023 reduction in mandatory portions reduced the risk at the margin, but it did not remove it. Any structure whose principal rationale is to exclude a forced heir from their statutory share should be assessed by qualified Swiss inheritance law counsel before any assets are transferred.