What are the fundamental differences between the two types of legal instruments?
In the territory of the Swiss Federation, foundations are a very popular instruments of allocating assets to certain purposes. The most popular applications of such a legal structure include family or ecosystem-foundations. In Anglo-Saxon countries, on the other hand, the institution of trust is more common. In the near future, the Federal Council of Switzerland will conduct a legislative process to open up the legal possibility of creating trusts in the territory of the Swiss Federation.
At this point, it is necessary to consider what specific differences exist between a foundation and a trust. In addition, it should be analyzed whether they are in competition with each other or whether it is worth using them as complementary legal structures.
The following overview of the most important parameters related to a trust and foundation, prepared by us, presents the basic features of these legal entities:
Foundation
1. Foundation has an own legal personality
2. Foundation (as the legal entity) is the owner of the foundation's assets
3. Allocation of the assets for a special purpose
• Purpose may be modified restrictively
• Allocation of assets is always irrevocable
• Swiss family foundations ensuring the maintenance of the family with annual maintenance allowances are prohibited
4. A time limitation of the foundation is principally not possible
5. Rather rigid limits on the structure
6. Beneficiaries have no enforceable claim (generally)
7. Supervision by an authority
8. Foundation is an independent tax subject as a legal entity
9. Foundation must be registered in the commercial register (transparency)
10. Less flexible instrument for asset structuring and risk allocation
Trust
1. Trust has no legal personality
2. Assets are fiduciarily owned by the trustee (civil owner of the assets)
3. Allocation of the trust assets in the beneficiaries’ exclusive interest
• Power to amend trust may be provided for in trust instrument
• Allocation of assets may be made in a revocable manner (revocable trust)
• Possibility of unlimited family support and maintenance
4. A time limitation of the trust is possible
5. Different ways of structure
6. Beneficiaries have an enforceable right to proper administration
7. Supervision by a civil court (supervisory jurisdiction)
8. Trust is not an independent tax subject (depending on the structure, different tax consequences result)
9. Trust does not have to (and cannot) be registered in the commercial register (non-transparency)
10. Flexible instrument for asset structuring and risk allocation
The Eberhard Advisory team will be pleased to provide you with substantive support in all matters related to the establishment of trusts and foundations, as well as in the administration of such legal structures. We look forward to hearing from you!
