The Legal Affairs Committee of the Council of States announced in a press release dated 8 November 2023 that it supports the Federal Council's proposal to write off the motion "Introduction of trusts into the Swiss legal system". The Federal Council requested the cancellation of the motion after a corresponding preliminary draft, particularly with regard to tax law aspects, was criticised by several parties during the consultation process. The Legal Affairs Committee came to the conclusion that the proposed tax treatment would make the trust unattractive and that alternative implementation options are limited. Instead of pursuing the idea of the Swiss trust, the Commission is therefore in favour of liberalising the Swiss family foundation. Accordingly, it proposes the adoption of the motion Councillor of States Thierry Burkart "Strengthen the Swiss family foundation. Lift the ban on maintenance foundations".
In accordance with Art. 335 ZGB, the family foundation currently stipulates that no distributions may be made for maintenance purposes. Distributions may only be used for the education, endowment and support of relatives or similar purposes. Accordingly, in BGE 71 I 265, the Federal Supreme Court declared purely maintenance or profit foundations that serve to cover general living expenses to be inadmissible and upheld the prohibition in Art. 335 ZGB. This prohibition means that the family foundation is considered a dead letter in Switzerland.
Swiss law therefore lacks a suitable instrument for family wealth and estate planning that is competitive in an international context, which is why in practice a switch to foreign trusts (particularly Anglo-Saxon trusts or Liechtenstein family foundations) can often be observed. Accordingly, the position of the Legal Commission is to be welcomed in order to counteract an outflow of assets abroad and to strengthen Switzerland as a business location.
By cancelling the ban on maintenance foundations, Art. 335 of the Swiss Civil Code would only need to be amended slightly. From a tax perspective, the need for adjustment would also be manageable, as family foundations - unlike trusts - are generally considered taxable entities. It is true that the burden of cantonal inheritance or gift tax on the contribution of assets to the foundation in combination with the taxation of distributions as income can represent too high a fiscal hurdle in many cases. However, the double burden can be avoided, for example, if the cantons make the taxation of contributions dependent on the degree of kinship between the founder and the beneficiary. Some cantons have harmonised inheritance and gift taxes independent of foundations - is already made dependent on the degree of kinship. It is also conceivable that distributions of assets from the foundation would not be subject to income tax. In the case of family foundations with fixed favours, transparent tax treatment is also conceivable.
As a law firm with offices in Switzerland and Liechtenstein, we are clearly committed to this liberalisation trend in order to be able to offer Swiss private individuals flexible wealth and estate planning that is competitive in an international context.
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