The high level of political and economic stability of both Switzerland and Liechtenstein makes these two countries very attractive places for investment and asset succession. Nevertheless, the desire to transfer property to future generations through a family foundation is subject to strict restrictions.
In this article, we will focus on identifying the specific differences between a Swiss family foundation and a family foundation located in Liechtenstein, and on which of them is more appropriate in a particular situation.
The Swiss legal system by statute restricts the potential uses of the Swiss family foundation. According to local regulations, such a entity may be used for the following activities: educational purposes, endowment as well as the support of family members, and for similar purposes (Article 335 (1) of the Swiss Civil Code). From these provisions, it is entitled to draw the conclusion that family members may be beneficiaries of financial benefits from the foundation. At this point, however, it should be mentioned that the Swiss Supreme Court expressly forbade such an interpretation of legal provisions in 1949. According to the judgment cited above, the creation of family foundations whose purpose is unconditional financial contribution to the family or its individual members as a kind of purely maintenance or charitable foundations is prohibited in Switzerland. The Swiss Supreme Court justifies its position by arguing that it is the family itself that is responsible for meeting the immediate life needs of its members and that dedicated financial vehicles should not be established in this regard. It follows that grant payments by the foundation are allowed only in the case of particularly justified life events. Such events may include events like a wedding, the birth of a child or the education of a family member. On the other hand, significant unconditional benefits, such as, for example, periodic maintenance payments to individual family members, are not allowed.
Similar regulations apply in Switzerland regarding the so-called fee tails. This means that it is unacceptable to introduce into the foundation property which is permanently tied to the family under private regulation, and which remains at the disposal of individual family members, and which will ultimately be divided according to a specific sequence of inheritance.
It follows from the above considerations that the spectrum of possibilities for the use of a foundation in Switzerland is limited due to the purposes that the foundation may serve, as well as due to restrictive court practice.
All those who plan to establish a family foundation in Switzerland cannot ignore the concept of family foundations in Liechtenstein. This is because the Principality of Liechtenstein provides a much more flexible model for the establishment and operation of family foundations than in Switzerland. A Liechtenstein family foundation (Art. 552 ff. of the Liechtenstein Persons and Companies Act) is like a Swiss one, but has several advantages compared to the Swiss family foundation. These advantages include:
2.1 No limitation of purposes
In the case of a family foundation in the territory of the Principality of Liechtenstein, unlike in Switzerland, it is possible to create such legal structures for regular financial benefits for individual family members. The law of Liechtenstein does not impose any restrictions in this area and it can often be a decisive factor in making the Principality of Liechtenstein the target place of establishing the foundation.
2.2 Asset protection
The founder has the option of introducing a provision that prevents the creditors of the foundation's beneficiaries from judicial claims of the beneficiaries against the foundation (although it is not possible to exclude enforcement from the private property of the foundation's beneficiaries). The heirs who are entitled to a lump-sum share in the founder's estate have a legal right to challenge the transfer of property by the founder to the foundation only during the last two years before the death of the founder.
2.3 Full anonymity
In the territory of the Principality of Liechtenstein, it is possible to establish a foundation on a trust basis. In addition, a family foundation does not have to be registered in the public register, which ensures the highest possible level of confidentiality. The only action that must be performed in accordance with local regulations is the submission of a notification of establishing a foundation in which the management board of the foundation is indicated, but not the founder himself and the foundation's assets.
2.4 Mixed family foundation
In accordance with the legal regulations in force in the Principality of Liechtenstein, it is permissible for a foundation to be active both at the charity and private level at the same time.
2.5 Broad possibilities of structuring and controlling the foundation
In this case, the founder has full control over the foundation. It is manifested, for example, by the possibility for the founder to reserve the right to unlimited dismissal or change of the foundation's management board. Another very important element is that it is permissible for the founder to conclude a trust agreement with the foundation's management board.
2.6 Taxes
A family foundation that is registered in Liechtenstein can be an interesting alternative as Swiss foundations are relatively ineffective from a tax point of view. Although the structure of the Lichtenstein foundations differs significantly from Swiss foundations, under Swiss law it is permissible to operate in Switzerland through the Liechtenstein foundation. For this reason, a foundation established in the Principality of Liechtenstein can be very attractive to people living in Switzerland as it provides the opportunity to create a multi-generational family asset planning structure.
The Eberhard Advisory team provides advisory services in the field of establishing family foundations both in Switzerland and in the Principality of Liechtenstein. We will be happy to develop a family property management strategy for you, covering primarily such areas of law as foundation law, inheritance law and tax law. We look forward to hearing from you.
