The original trust concept is widely believed to have originated under Common Law in the 12th century when the English knights were leaving for the crusades and needed the ability to confer the authority to act on their behalf in respect of their assets whilst separating the legal ownership of those assets.
The concept can in fact be traced back even earlier to Roman Civil law with the concepts of fideicommissum and fiducia both of which effectively conferred title to an individual’s assets to a third party in return for obligations on the third party as to how those assets were to be applied.
The trust concept in its various forms continued as a means of passing value across the generations until the late 20th century when use of the Common Law form of trust started to branch away from pure estate-planning and the ‘trust’ became more of a tax-planning tool for (relatively) short-term gains for both corporates as well as individuals.
This particular modus operandi was embraced by certain aspects of the legal profession and the newly nascent offshore / international finance centres and the industry blossomed throughout the 70’s, 80’s and 90’s attracting the interest of the various revenue services who could see their flow of funds being diverted.
Increasing International Regulation and Exchange of Information
This in turn has led over the past twenty years to the introduction of a plethora of international tax, regulatory and automatic exchange of information (AEOI) measures. These cover base erosion and profit shifting (BEPS), common reporting standards (CRS), foreign account tax compliance act (FATCA), and mandatory disclosure rules for tax information exchange agreements and economic substance. With the most recent iteration of associated legislation being the Group of Seven’s (G7) consideration of a global corporate minimum tax as the latest of these initiatives specifically designed to ensure that multinational businesses are paying tax in the jurisdictions where their economic activity is carried out.
Guernsey – Rising to the Occasion
Throughout the introduction of these new measures Guernsey has managed through early compliance to maintain its position as one of the most well-respected and regulated of the offshore centres successfully navigating the international currents driving these initiatives, positioning itself as one of the first adopters of CRS and FATCA.
Guernsey’s willingness to proactively implement the necessary changes, coupled with its world leading financial services industry, means that the provision of fiduciary services from the Island is flourishing.
The use of a trust for financial planning is evolving once again and reverting in the main to its original concept as a means of wealth and estate-planning across generations rather than short term tax planning.
The net result of the above has been that rather than being put out of business by the increasing regulation to which international financial centres are subject, Guernsey has thrived and continues its position as a leading jurisdiction through which international families can structure their affairs.
Guernsey as a Trust Location
The increased regulation to which Guernsey (like other international financial centres) has been subject, is in fact attracting more clients to base their structures through Guernsey. They have greater confidence that their affairs will be professionally managed and that they will not face criticism for structuring through the Island.
An example of this is the increasing number of family offices based in Guernsey proactively seeking out regulation as a means of demonstrating to tax authorities, regulators, and the public, that they have nothing to hide and are fulfilling their role as good corporate citizens.
Additional Information
For more information on Guernsey and the opportunities presented please contact John Nelson at the Dixcart Guernsey office advice.guernsey@dixcart.com and visit our website www.dixcart.com
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.
In this series we will examine the key elements of Offshore Trusts, taking a particular interest in Isle of Man Trusts. This is the first of three articles, and one that lays the foundation that we will build upon. This first article is aimed at those who have no prior experience with Trusts and those who wish to develop a deeper understanding of the constitution of a Trust. With that, some of the information may seem rudimentary to professionals but can at the very least act as a refresher.
The series will initially define the vehicle itself, breaking down the constituent elements of the Trust and who the relevant parties are and their features, responsibilities and general role in the Trust. The following articles will take a more considered view of the administration of the Trust and pitfalls to avoid, followed by the types of Trust and the reasons someone may implement them in their planning.
If you would like to read the other articles in the series you can find them here:
For the sake of completeness, we will first define what we mean when we say something is ‘Offshore’.
The term Offshore refers to any activity that takes place outside of the jurisdiction of residence. The Offshore jurisdiction will have a different legislative, regulatory and/or tax regime, which has traditionally provided the Ultimate Beneficial Owners (UBOs) of any offshore structure/asset with the opportunity to take advantage the benefits of that territory.
Therefore, an Offshore Trust is one that is settled and managed in a separate jurisdiction from the home country of its UBO. Popular offshore financial centres include island nations such as the Isle of Man, the Channel Islands, British Virgin Islands, but also landlocked locations including Zurich, Dublin, Dubai etc. – It is important to select a jurisdiction in good standing, such as the Isle of Man, that appears on the OECD’s ‘whitelist’ and holds a Moody’s rating of Aa3 Stable.
What is a Trust?
A Trust is a fiduciary agreement for the transfer of beneficial ownership. At its heart, this means a Trust is a legal arrangement with the Trustees for the management of assets which are usually administered for a specific purpose e.g. family wealth preservation, asset protection, tax optimisation, corporate incentive arrangements etc.
The details of the arrangement are contained within a Trust Deed, which is the constitutional document of the Trust. Trusts are not incorporated i.e. they are not a legal entity like a company or corporation. Therefore, a Trust does not benefit from the features of a legal entity, such as separate legal personality and limited liability e.g. it cannot make contracts or create charges in its own name. Instead, legal title of the assets is transferred to the Trustees, for which duties are owed – we will cover this in more depth in the next article within the series.
For there to be a bona fide Trust, there must be three certainties present:
Intention
Did the Settlor of the Trust intend to obligate or place the duty on the Trustees? This is tested objectively having regard to the reasonable man. If there isn’t sufficient certainty of intent the Trust may be void for uncertainty.
Subject Matter
Assets must be placed in Trust from outset. The assets settled into Trust must be identifiable and clearly defined. If not, then the Trust may be void for uncertainty.
Objects
Simply put, the objectives of the Trust must be clear as far as who the Beneficiaries are or could be. If it is not clear who can benefit from the Trust, it may be void for uncertainty.
Unlike a UK Trust, which has a maximum lifespan of 125 years, since 2015, Isle of Man Trusts have been able to continue in perpetuity i.e. until the Trust prescribes, Trustees decide to wind up the Trust or the Trust fund runs out. This gives the Trust supreme flexibility, allowing advisers to plan or defer chargeable events efficiently – for example, making distributions that help with the Beneficiary’s personal tax position. Isle of Man Trusts can benefit successive generations indefinitely.
Another distinction between UK and Offshore Trusts is the requirement to register. Since 2017 it has been mandatory for UK Trusts which are liable for UK taxes to register with HM Revenue & Customs (HMRC). In the Isle of Man there is currently no comparable requirement, so long as the income is derived from non-Isle of Man sources, and there are no Isle of Man resident beneficiaries. Where these requirements are met, the income and gains can roll-up free of tax.
Where an Offshore Trust has a liability, or becomes liable to any of the following UK taxes: Income Tax, Capital Gains Tax, Inheritance Tax, Stamp Duty Land Tax or Stamp Duty Reserve Tax, there is a requirement to register with HMRC. Recent changes require Offshore Trusts to also register with HMRC in certain other situations, such as the acquisition of and interest in UK real estate. However, it is common for Offshore Trusts to hold shares in an Offshore Company, such as an Isle of Man company, which in turn owns the assets and engages in any commercial or investment activity on the Trust’s behalf – this creates further separation and facilitates further subsidiary companies as required.
Now that we’ve established the basic parameters of a Trust, we will now consider the parties of the Trust and their roles and responsibilities.
Parties of the Trust: The Settlor
The instigator of a Trust is known as the Settlor, and this is the party who places the assets into Trust – thus creating a Settlement. Any legal person can establish a Trust, meaning that the Settlor can be both a natural person or a body corporate.
The Settlor must transfer assets into the Trust for it to come into existence. Whilst it is typical for there to be one Settlor, it is possible for the Trust to have multiple Settlors who place assets into the same Trust. Furthermore, the Settlements do not need to be at the same time. Depending on the circumstances of the Settlor, this can require further consideration with regard to tax.
Within the Trust Deed, certain powers can be reserved to the Settlor; such as the appointment and removal of Trustees, and the power to appoint a Protector.
Where a Discretionary Trust is established, the Settlor can provide further guidance through producing a letter of wishes. This document guides Trustees’ decisions in their management and distributions of the Trust assets.
Not to worry if there seem to be a lot of moving parts – usually the Settlor has been advised by a qualified professional, who will work with them throughout the planning process. This ensures that the type of Trust established meets the Settlor’s objectives, helping to identify the most appropriate Trustees and who should benefit and when, configuring the operational aspects and advising of any tax considerations and/or consequences among other things. Following the planning process, if an Offshore Trust has been advised, a Trust Service Provider such as Dixcart is contacted to arrange the establishment of the Trust, and who usually provide Trustees in that Offshore jurisdiction.
Parties of the Trust: The Trustee
When the Settlor places the assets in Trust, the legal title of those assets is passed to their appointed Trustees. The Trustees have strict obligations to manage the Trust Fund in accordance with the terms of the Trust Deed – these legal obligations allow Beneficiaries to enforce equitable rights in a court.
Whilst it is possible for the Settlor to be a Trustee, it is highly unusual and would defeat any tax planning objectives. In theory a Beneficiary could also be a Trustee, but this is normally excluded by the Trust Deed and would conflict with the Trustees’ duties discussed below.
Each common law jurisdiction will have its own suite of pertinent legislation that the Trustees must abide by. In the Isle of Man, the relevant law includes the Trustee Act 1961, Trust Act 1995 and Trustee Act 2001 among other Acts. Many of these entrench and develop on previously existing common law doctrines, as well as add to them, to provide more clarity and certainty e.g. the Trustees duty of care in relation to powers of investment and the professional standards expected of them.
In fact, duty of care lies at the heart of the Trustee’s role. All Trustees are beholden to fiduciary duties, like a company’s Directors. This means that Trustees are jointly and severely liable for the actions they take (or don’t take) in respect of the Trust. These general duties are briefly summarised below:
Exercise reasonable care and skill, considering the capacity of their appointment and any specialist skill or knowledge i.e. acting as a professional or lay Trustee etc.;
To understand and carry out their obligations in line with the terms of the Trust;
To maintain and act in the interest of the Beneficiaries, keeping it separate from their own assets;
To avoid conflicts of interest e.g. situations where the Trustee may make decisions for personal gain, or gain of others by disadvantaging the Beneficiaries;
To act fairly and with impartiality towards Beneficiaries;
To exercise powers only for the purposes they have been given and in good faith
To provide an accurate account of the Trust Fund upon the Beneficiary’s request.
There is also a duty for the Trustee to act gratuitously unless otherwise stated within the terms of the Trust; but most modern arrangements make provision for reasonable remuneration.
In the UK, Trustees are not regulated and do not need to be licensed. However, in jurisdictions such as the Isle of Man, in addition to the statutory and common law protections available, Professional Trustees are regulated by the Isle of Man Financial Services Authority and licensed under the Financial Services Act 2008.
As you can see, being a Trustee can be a complex undertaking, not least due to the legal obligations and subsequent liabilities incurred by the appointment. Further to this, there can be tax implications to consider that may create further liabilities for the Trustees. In the interests of brevity, we will cover various relevant considerations and best practices relevant to the role of Trustee within our next article in this series.
Parties of the Trust: The Beneficiary
When the Trust Deed is drafted, Beneficiaries or categories of Beneficiaries must be named. In doing so, the Settlor outlines who they wish to benefit, or to be eligible to benefit from the Trust. The Beneficiaries may benefit from:
The income of the trust e.g. property rental or investment income,
The capital of the Trust e.g. getting assets distributed to them under specific circumstances, or
Both income and capital.
Remember, Trustees are normally excluded from benefitting, although as stated above, Professional Trustees can receive reasonable remuneration. There are types of Trusts where the Settlor can retain an automatic interest to the income during their lifetime, for example an Interest in Possession Trust – This will be discussed in the next article.
Choosing the Beneficiaries or categories of Beneficiary can be a tricky exercise for the Settlor, who must weigh up various considerations, such as:
Is the Settlor married?
Does the current spouse need access to the fund?
Does the Settlor have a former spouse?
Does the Settlor have children?
Does the Settlor have children from a previous relationship?
Is anyone financially dependent on the Settlor?
Does the Settlor have any vulnerable dependents?
Who does the Settlor find deserving?
Are there any not-for-profits/charities that are close to the Settlor’s heart?
The Trust Deed can also include exclusions, which can detail anyone who the Settlor does not wish to be considered.
The Trust Fund can be apportioned into a main fund and sub fund elements, ringfenced for certain Beneficiaries. in practical terms, sub funds are created for the Beneficiaries or categories of Beneficiaries which only they can benefit from.
Should the Settlor wish to amend the list of Beneficiaries or categories, depending on the type of Trust, they can make a Deed of Variation. In the instance of a Discretionary Trust, the settlor would supply an updated letter of wishes to the Trustees – remember this document is not binding upon the Trustees and is only persuasive – Depending on the powers conveyed upon the Trustees, they will then consider the actions required.
The nature of the Trust will define the rights which the Beneficiary may seek to enforce. For example Discretionary Trusts, which are now regularly used in modern Estate Planning or Succession Planning due to their flexibility. Such Trusts convey few rights upon the Beneficiary, as the management and distribution of the Trust property is at the Trustees’ discretion. However, both Settlor and Beneficiary can take comfort in these circumstances from the Trustees fiduciary duties; whereby the assets must be managed in the best interests of the Beneficiaries.
Parties of the Trust: The Protector
Whilst not a mandatory requirement, the Settlor may choose to appoint a Protector from outset. The Protector of a Trust is an independent party who is not a Trustee, but is given powers under the Trust Deed. The Protector ensures the Trustees are administering the Trust in compliance with the Trust Deed and the Settlor’s wishes.
Typically the Protector will be a trusted and qualified professional, who may already have a relationship with the Settlor or their family, such as a Solicitor or Financial Adviser.
The Protector effectively provides a backstop to Trustees abuse of powers. For example, where a Protector is appointed, it is usual for the Protector to reserve certain powers, have the power to veto specified administrative actions, or those actions can require their sign-off in order to be bona fide. The power most commonly given to a Protector is the power to appoint or remove Trustees, or to consent to a distribution.
Other than guiding particular Trustee actions, the role of Protector can provide comfort to the Settlor that the trust is being administered as intended. However, Settlors should err on the side of caution when considering whether to appoint a Protector and which powers to reserve for them, as this can lead to many issues in the effective and efficient management of the Trust.
Parties of the Trust: Third Parties
Finally, with regards to the operation of the Trust Fund, the Trustees may seek to appoint various qualified professionals to ensure the best outcome for the Trust Fund and the Beneficiaries. The nature of the settled assets will determine which professional services are required, but these can typically include:
Investment Managers
Property Managers
Tax Advisors
Working with a Trust Service Provider
Dixcart have been providing Trustee Services and guidance for 50 years; assisting clients with the effective structuring and efficient administration of Offshore Trusts.
Our in-house experts and senior employees are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for the Offshore Trust, acting as Trustee and providing specialist consultancy services where appropriate. If required, the Dixcart Group can also assist individuals who require tax and wealth planning services.
We have developed an extensive range of offerings, which includes an array of Isle of Man structures. From pre-establishment planning and advice to the day-to-day management of the vehicle and troubleshooting issues, we can support your goals at every stage.
Get in touch
If you require further information regarding the use of Offshore Trusts, or Isle of Man structures, please feel free to get in touch with Paul Harvey at Dixcart:
The Key Difference Between a Foundation and a Trust
The main difference between a Foundation and a Trust is that a Foundation is a legal entity and owns its assets in its own right as opposed to a Trust, where the assets are legally owned by the Trustees, who hold them for the benefit of the Beneficiaries under the terms of a Trust Deed.
A Foundation creates a separate legal entity with its own legal personality, distinct from the Founder(s), Council or Beneficiaries. A Foundation has a number of characteristics that are similar to those of a company having a separate legal personality and a management board known as a Council. However, importantly, it is entirely independent and has no shares and no members, nor any concept of share capital.
Beneficiaries and a Unique Feature of a Guernsey Foundation
A Beneficiary of a Foundation is anyone who is entitled to benefit from that Foundation. Beneficiaries must be identified by name or by their relationship to another person.
A unique aspect of Guernsey Foundation Law is that it provides for both enfranchised and disenfranchised Beneficiaries.
An enfranchised Beneficiary is; entitled to a copy of the Constitution, the records and accounts of the Foundation, and can apply to the Court to change the Purposes, or to revoke or dissolve a Foundation.
Subject to the terms of the Constitution, disenfranchised Beneficiaries are not entitled to any information. This is a novel feature of Guernsey Foundations and is not found in any other jurisdiction.
The use of disenfranchised Beneficiaries may be attractive for family arrangements where there is a desire to protect the younger generation from the potentially corrosive effects of the knowledge of substantial wealth. Once the reason for a disenfranchised Beneficiary’s classification, such as age, disappears, they may then become an enfranchised Beneficiary.
Registration
A Foundation comes into being on registration of its statutory documents with the Registrar.
In order to register a Foundation the following documents and information need to be provided:
The Charter
A declaration signed by the Founder (or his agent)
The names and addresses of the proposed Councillors and their consents to act
The name and address of the proposed Guardian (if any), and his consent to act
The address and telephone number of the registered office of the Foundation in Guernsey
The registration fee
Provided that the name is not unlawful or already taken and the Purpose is not contrary to the Law of Guernsey, the Foundation will then be registered, and given a number and a Certificate of Registration.
At this point the Foundation becomes a legal entity separate from its Founder, the foundation officials (the Councillors and any Guardian), or Beneficiaries. The Registrar has discretion regarding whether or not a Foundation will be subject to an annual renewal process and, like a company, a Foundation can have perpetual existence.
Key Features of a Guernsey Foundation
The Council
A Guernsey Foundation is managed by a Council comprised of at least two Councillors, except where the constitution permits a single Councillor. If neither the Councillors nor the Guardian is a Guernsey licensed fiduciary, then the Foundation will require a Guernsey resident agent to hold the Foundation’s records within the jurisdiction.
The Council of a Foundation owes its duties to the Foundation itself. The Council does not owe any duties to the Beneficiaries of the Foundation.
Councillors have a duty to act in good faith. They also have a duty not to profit, other than as permitted by the Constitution, to preserve the property of the Foundation, to give information to the Guardian and enfranchised Beneficiaries, to maintain accounting records and to be impartial.
The Constitution: Charter and Rules
The core document by which a Foundation is governed is its Constitution. The Constitution comprises two parts: the Charter and the Rules.
The Charter must contain the name and purpose of the Foundation, a description of its initial capital or endowment, and whether the Foundation has a limited duration in which case the duration must be stated. It may also contain anything else that the Founder wishes to include.
The Rules set out the operating provisions of the Foundation, detail the functions of the Councillors, deal with the procedures for the appointment, retirement and remuneration of Councillors and any Guardian, and identify the default Beneficiary. The Rules may also specify other matters, such as how the assets of the Foundation should be applied and how Beneficiaries may be added or excluded. They may also impose obligations on a Beneficiary or contain protective measures to terminate a Beneficiaries’ interest, for example, if he becomes insolvent.
The Founder
The Founder of a Guernsey Foundation determines; the Purpose of the Foundation, decides the Foundation’s Constitution, and provides it with initial capital. The Founder, or his agent, must also detail his name as the Founder, to the Constitution of the Foundation, by signing it.
It is also the Founder’s role to appoint the initial Councillors and any Guardian and to have the Foundation registered. The Founder may also be a Councillor or a Guardian, but not both simultaneously, in addition to being a Beneficiary.
Reservation of Powers by the Founder
The Founder may reserve certain limited powers to himself, such as the power of amendment or revocation of the Constitution, and/or of the Purposes of the Foundation.
Such powers can be reserved only for the duration of the Founder’s life, if he is a natural person, or for 50 years from the date of establishment, in the case of a legal person. After which point the reserved powers will automatically lapse. This does not preclude the Council from delegating certain functions to the Founder.
Guardian
In situations where there are disenfranchised Beneficiaries or where there is a stated Purpose, but no individual Beneficiaries, a Guernsey Foundation must have a Guardian.
The Guardian’s function is to enforce the Purposes of the Foundation on behalf of disenfranchised Beneficiaries, or where there are no Beneficiaries, in substitution for them. Foundations that have Beneficiaries, but no disenfranchised Beneficiaries are not required to have a Guardian.
The Founder may act as Guardian. The Guardian will be named in the Register and may not serve on the Council at the same time. He must maintain accurate accounts and records during his guardianship.
Duties Owed
A Guardian also owes fiduciary duties to the Founder and the Beneficiaries to enforce the Constitution.
Additional Information
If you require any additional information regarding Guernsey Foundations, their benefits and how they can be used, please contact John Nelson at the Dixcart office in Guernsey: advice.guernsey@dixcart.com
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.
Switzerland does not have specific Trust Law, but recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.
In Switzerland, the Settlor (the individual who settles assets into the trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee. The Trustee holds and manages the assets in the trust on behalf of the Beneficiaries.
Why Use a Trust And What is the Role of a Trustee?
A trust is a very flexible instrument and is particularly useful for estate planning, wealth management and asset protection.
At a basic level, the concept of a trust is relatively simple: the Settlor places assets in the legal custody of another (Trustee), who holds the assets for the benefit of a third party (Beneficiary). The trust is not a separate legal entity, but more of a legal obligation agreed between two parties: the Settlor and the Trustee.
Trustees owe a fiduciary duty to both the Settlor and the Beneficiaries, as well as to the trust itself. Depending on the jurisdiction under whose laws the trust is constituted, the trust can either have a pre-determined life span or be indefinite. Trusts are intrinsically very flexible.
Taxation of Trusts in Switzerland
The Hague Convention (Article. 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently, Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.
The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries.
In terms of Swiss Law:
A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.
Why Use a Swiss Trustee?
In addition to the potential tax advantages detailed above, there are a number of reasons why use of a Swiss Trustee can be advantageous:
Switzerland has a long established reputation for discreet professional support when managing the affairs of wealthy private individuals.
Switzerland is located in the centre of Europe, where many affluent individuals are based. Swiss Trustees therefore offer the advantage of being able to provide frequent and high quality support as they can regularly liaise with and, when appropriate, meet with clients and/or other professional advisers.
Swiss economic, political and legal stability provides a solid base for the provision of high quality support and administration services.
Switzerland has a number of favourable and well developed banking laws, and has been a popular international private banking centre for many years. It is a jurisdiction with a good reputation and offers a high quality of knowledgeable professionals working within asset management, tax planning and private banking.
The Dixcart Office in Switzerland and Trust Services
The Dixcart office in Switzerland is a member of the Swiss Association of Trust Companies (SATC) and is registered with the Association Romande des Intermediaires Financiers in Switzerland (ARIF).
Confidentiality in Switzerland
Switzerland is well known for its commitment to banking services, professional confidentiality and commercial competence.
SATC provides that: “Any and all information related to a trusteeship and acquired by a Member must be kept strictly confidential by the Member, its directors, officers and other employees.”
A breach of confidentiality, whether professional or commercial, would only be permitted by law in the event of criminal liability.
Summary
A trust based on the Trust Law of, for example, England, or Guernsey, or Isle of Man, or Malta and with a Swiss Trustee, can offer a number of tax efficiencies, as well as advantages in terms of wealth preservation and confidentiality.
Dixcart can establish and manage such trust structures.
Individuals and families use various structures to protect their assets from uncertainty and volatility and to deal with estate and succession planning matters. Very often asset protection alone is not the principal driver in creating such structures.
It is not uncommon for the next generation of a family to move to new countries to study, work, establish businesses and settle down. As families become more internationally mobile the complexity of administering family estates and assets, as well as cross border succession and estate planning, increases.
Steps, Stages and Structures
Before a family’s estate reaches the size and complexity which requires the establishment of a dedicated, single family office, there are a number of stages through which the structure might transition.
Pooled and enhanced fiduciary support
At an early stage, several disparate family related structures are often transferred to a single fiduciary provider or trustee, with whom the family has a good existing relationship or who has been recommended by a trusted adviser.
These structures will generally take the form of a discretionary Trust or Foundation. The Trustee or Foundation Council can then be instructed to assist with developing the position into a standalone family office position, utilising their knowledge, experience and existing resources of; qualified staff, policies and procedures. At this stage efficiencies are created in the management and administration of the structures under a single provider, the family/adviser relationship is reinforced, and additional cost efficiencies often result.
Private Trust Company (PTC)
For many years the PTC has been the preferred vehicle for administering the assets of wealthy families and many variants have emerged across jurisdictions that specialise in providing them, and whose legislation and regulation are particularly suited to private wealth management. One of the main attractions of the PTC is that decisions, relating to the underlying trusts, are made by directors who are carefully chosen by the family and/or may even be family members.
There are a number of variants of the PTC, which can be limited by shares or guarantee and/or even with separate classes of shares for voting purposes. Consideration as to the level of control exerted over the PTC needs to be carefully considered. Too much control can lead to tax implications.
The most common solution to the control issue has been to hold shares in the PTC through a Purpose Trust (see diagram below), which creates additional layers of ownership and administration.
Whilst PTC’s remain a popular specialist solution, Guernsey can also offer a simpler structure through the Private Trust Foundation (PTF).
Private Trust Foundation (PTF)
A PTF removes the need for the ownership layers which are required above a PTC, and can simplify the structure and therefore administration and cost (see diagram).
A PTF established under the Foundations (Guernsey) Law 2012 (the “Law”), must be for the sole purpose of acting as Trustee of the Trusts for the benefit of an individual or family.
The Law makes it clear that, on establishment, a Guernsey Foundation has its own legal personality, independent from that of its Founder and any Foundation officials.
Diagram: A Classic Private Trust Company Structure and the Guernsey Foundation Solution
The Advantages that a Guernsey PTF Offers
A Guernsey PTF will be run and managed in a similar way to a PTC, with the involvement of a local licensed fiduciary such as Dixcart, but with the significant advantage that, as an orphan vehicle, it does not have any other owners or controllers.
Family members or other trusted advisers can also be appointed to the PTF Council, which is responsible for acting as Trustee to the underlying family Trusts.
Managed Services
Managed support from a fiduciary provider, is often the penultimate stage in the progressive route towards establishing a full standalone family office, directly employing appropriately experienced staff in the jurisdiction of choice.
Managed Support Available from Dixcart
Managed support, as provided by Dixcart, can include dedicated serviced office space at the Dixcart Business Centre in St Peter Port, and fiduciary, accounting and legal support as appropriate. A fiduciary provider, such as Dixcart, can also help grow and develop the position into a standalone family office, ultimately operating independently.
Complicated family structures and family office positions are increasingly looking at the use of Private Investment Funds (PIFs) within their global management positions. As a holder of a Protectors of Investors Licence, Dixcart in Guernsey is licensed to provide fund establishment and on-going fund administration services, to support and further enhance our existing private client offering.
Additional Information
For further information on private wealth structures and their management, please contact John Nelson, Director, Dixcart Trust Corporation Limited, Guernsey: advice.guernsey@dixcart.com.
Dixcart Trust Corporation Limited, Guernsey: Full Fiduciary Licence granted by the Guernsey Financial Services Commission. Guernsey registered company number: 6512.
The key advantages of a Swiss Private Trust Company (PTC) are the additional elements of control and discretion which the PTC can provide. A PTC is the ideal structure for high net worth families to use as part of their wealth structuring.
Important Considerations: Professional Trustee or Private Trust Company
One of the first things to consider when establishing a trust is who to appoint as trustee. This is a sensitive question as the settlor is often unwilling to give away control of the assets to strangers in another jurisdiction. A number of individuals may prefer to establish their own private trust company, rather than to use a professional trustee.
A PTC is a standard privately owned company whose sole purpose is to act as trustee of one or more trusts, usually connected to one family. In principle, PTCs do not offer services to the general public. Usually the PTC holds shares in a family company or in an investment company.
PTCs and the Role of a Professional Licensed Trust Company
Like any other company, a PTC is run by its board of directors who make the trust decisions. The PTC allows the settlor and/or family members or trusted persons, to act as shareholders or to be members of the board. As such the settlor or family members are able to appoint or dismiss the directors of the company.
PTCs are often set up and administered by an existing licensed professional trust company, which advises the board members of the PTC, in terms of corporate governance and trustee issues. In some cases, a representative of the professional service company will sit on the board of the PTC together with family members. This combination of family and professional advisers allows the PTC to react quickly to the needs of an extended family and to meet its best business interests.
Specific Characteristics of Swiss PTCs
A Swiss PTC ensures privacy, when it is formed as a Limited Company. It makes it easier to control access to and disclosure of confidential information. It also allows for rapid commercial decisions to be made.
A Swiss PTC does not have to be licensed as a professional trust company.
Switzerland as a Family Office Jurisdiction
Switzerland is a, if not the main, hub for family offices.
Discretion, expertise and security together with one of the best jurisdictions in the world for asset protection and for asset management makes it arguably the best place for a high net worth family to conduct its estate management and control of its assets.
Dixcart Switzerland
Dixcart Switzerland has been providing Swiss Trustee services for over twenty years, is a member of the Swiss Association of Trust Companies (SATC), and registered with the Association Romande des Intermédiaires Financiers (ARIF)
The Swiss Federal Act on Financial Institutions (FINIG) came into effect at the start of 2020, and professional trustees must now gain mandatory approval. Dixcart Trustees (Switzerland) SA meets all of the required regulatory obligations and continues to do so.
Additional Information
if you would like additional information regarding Swiss Private Trust Companies, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com.
Each of the Dixcart offices has an Asset Protection and Trust Team, providing a variety of wealth management services as detailed below.
Christine Breitler from our Swiss office and Peter Robertson from our Dixcart office in the UK, are the two members of the team we are introducing you to today.
Dixcart Asset Protections and Trusts
The Dixcart Group has almost 50 years of private client advisory expertise in the administration of trusts, foundations, and the provision of family office services. International clients can take advantage of these services from any one of our nine offices. We also have fully regulated, independent trust companies, located in the following jurisdictions: Cyprus, Guernsey, Isle of Man, Malta, and Switzerland.
Dixcart provide the following international wealth management services:
Estate and international tax planning
Family office services
Formation and administration of family trusts
Formation and administration of foundations
Formation and management of managed trust companies
Formation and management of private trust companies / foundations
Provision of trustee services
Provision of protector services
Introduction to Christine Breitler and Peter Robertson
Christine joined the Dixcart Group in 1997. She was promoted to Head of the Dixcart office in Switzerland, in 2000. Christine has extensive experience in international tax planning as well as the formation and administration of Swiss and foreign companies.
Pete’s key area of expertise is assisting families and individuals to manage their multi-jurisdictional wealth, as well as planning for the future. He was appointed a director in 2013 and subsequently appointed Managing Director of the Dixcart office in the UK, in 2018.
Christine has expertise regarding the establishment of trusts and foundations and provides advice on family office and wealth preservation services to both Swiss and international clients, including estate planning, tax, commercial matters, and immigration.
Relocation, and the movement of family members around the world, often presents opportunities to put in place tax neutral structuring of investments and provide the initial overview and planning necessary to ensure the responsible maintenance, management, and distribution of the wealth to the next generation.
Christine is on the Board of a number of client companies both in Switzerland and overseas.
Christine is a Law graduate of the University of Neuchâtel (Switzerland), and she qualified as a Swiss Attorney at Law in 1990 in Neuchâtel, and in 1993 in Geneva. She speaks English, French and Spanish and is a member of the Society Trust and Estate Practitioners, the British and Swiss Chamber of Commerce and the Geneva Art Law Centre.
Pete is a member of the international team at Dixcart UK and much of his work is with the Tax team and the Immigration team, working primarily with international, non-UK domiciled families in their planning for a move to or an investment into the UK. This often involves early stage tax planning, assistance with obtaining relevant visas to move to the UK and ongoing assistance over the subsequent years.
Pete also advises clients on their international tax residence and estate planning and is often asked for Dixcart UK’s assistance with families and individuals managing their multi-jurisdictional wealth and future planning. This will normally entail working with advisers in the appropriate jurisdictions, to ensure that relevant tax and practical considerations have been incorporated into the planning.
Pete is a qualified Chartered Accountant and Solicitor. He became a member of the Institute of Chartered Accountants in England and Wales in 2006, completing his training at Blick Rothenberg LLP. In 2008 Pete became a member of the Law Society, qualifying as a Solicitor with the central London firm Pemberton Greenish LLP (currently he is a non-practising solicitor). He is a member of STEP and the International Fiscal Association.
People often say that a Foundation is the civil law alternative to a Trust; but what does this mean? What does a Foundation offer your clients that a Trust cannot? Furthermore, when does it make sense to use a Foundation? Add on top of that the fact that you can validly use both entities in tandem, the clear contrast we were hoping for begins to look grey – but hopefully this article can provide some clarity.
This is the third article in a three-part series we have produced on Foundations. If you would like to reacquaint yourself with the basics of Isle of Man Foundations or the technicalities of setting up and administering one, please refer back to the previous articles in this series:
Using an Isle of Man Foundation for Succession Planning
Unlike a Trust, an IOM Foundation is an incorporated vehicle, having separate legal personality; similar to a Private Limited Company, but without shareholders. As such, the IOM Foundation has the capacity to enter into contract, own property and take legal action in its own right.
Because an IOM Foundation is not answerable to shareholders and is perpetual in term, it is free to pursue its Founder’s intended Objects for as long as stipulated in the Foundation Rules. For these reasons, the IOM Foundation can be a great choice for those seeking to ensure the continuation of their life’s work, whether a successful business or charitable pursuits.
The IOM Foundation can be established for the purpose of purchasing and owning the shares of a company, either retaining profits for future growth or making distributions to classes of beneficiary, in line with the IOM Foundation’s Instrument and Rules.
Furthermore, once the IOM Foundation has been registered, unlike a Trust, it will receive a certificate of incorporation, which can be useful for evidencing existence when dealing with institutional lenders and third parties, for example. To this end, an IOM Foundation could be used as a Special Purpose Vehicle, with one of its Objects being to secure capital for the business via loans that will not appear on the company’s balance sheet.
IOM Foundations can deliver a level of assurance and control that make them an ideal vehicle for succession planning.
Using an Isle of Man Foundation for Asset Protection
One of the most common uses of the IOM Foundation is asset protection, particularly with regards to Estate Planning. The Founder can dedicate assets (usually capital) into the corporate vehicle. Following this, the Foundation Council will manage and distribute the funds in line with the Foundation Rules and Instrument, as prescribed by the Founder.
Non-charitable IOM Foundations require an Enforcer to be appointed, who ensures the Council carries out its functions in compliance with the constitutional documents. Whilst the Founder can be appointed as Enforcer, it is recommended that they are not; very often it will be a trusted adviser who might act as Enforcer. However, the Founder can be, and often is, appointed as a Council Member; allowing them to retain some control to ensure that their goals come to fruition, potentially without jeopardising their tax position.
Not only does the IOM Foundation provide a clear and enforceable roadmap for the Council Members to follow, due to its legal personality it might also be used to mitigate tax liabilities, particularly inheritance and wealth taxes. The IOM Foundation will be domiciled in the Isle of Man, therefore being subject to the Manx tax regime i.e. 0% IHT, for example.
The IOM Foundation is also appropriate for the mitigation of Forced Heirship laws. As the structure is resident in the jurisdiction of registration, therefore the laws of the Isle of Man are applicable. Any challenge to the IOM Foundation will be heard in an Isle of Man Court and, for example, laws seeking to challenge the validity of the IOM Foundation can be set aside, in conformity with the Foundations Act 2011.
IOM Foundations are not currently a matter of public record, meaning the identities of the Founder, and any Donors or Beneficiaries are a private matter.
Depending on the IOM Foundation’s constitution, the Foundation’s Rules which will deal with the appointment or removal of any parties, such as Enforcer, Beneficiaries etc., can be altered at any time. This flexibility allows for any change in wishes or circumstance.
The IOM Foundation can also be used to ringfence assets and wealth exposed to both creditors or spouses etc. making it a great all-round tool for asset protection.
Using an Isle of Man Foundation as Trustee
Both Foundations and Trusts provide mechanisms for the transfer of beneficial ownership, from donor to beneficiary – this may make it seem like it’s always an either-or scenario, but it isn’t. In some circumstances the two vehicles can complement one another to further meet the client’s objectives.
The IOM Foundation can be appointed as Trustee, providing a function similar to a Private Trust Company. This provides some or all of the benefits of appointing a Professional Trustee, depending on the choice of Council Members. Such benefits can include:
Continuity
Neutrality
Technical Knowledge
Mitigating Risk
In addition, the Settlor can also be appointed as Council Member to retain some oversight, ensuring the purpose of the Trust is realised. This may provide the Settlor with some degree of comfort following the transfer of his assets to a new fiduciary service provider.
As you can see, using the two entities in tandem can help deliver added flexibility with regards to activity and increased oversight concerning the purpose in mind.
Using an Isle of Man Foundation for Charitable Objects
The IOM Foundation is also commonly used as a philanthropic vehicle. The IOM Foundation can be either dedicated to charitable or a mixture of charitable and non-charitable Objects. If established for purely philanthropic pursuits, the IOM Foundation’s Objects cannot be altered to include non-charitable activities in the future.
The IOM Foundation may be of particular relevance to clients seeking to engage in philanthropic activities in jurisdictions that do not recognise trusts.
There are broadly two categories of charitable IOM Foundation, each with its own purpose:
A non-operating charitable IOM Foundation is established to make grants to other not-for-profit or charitable organisations. In practice this may be the donation of income from its underlying assets or further donations from the Founder/Donors, or blend. Classes of Beneficiaries can be limited to a single organisation or cause as desirable.
An operating charitable IOM Foundation seeks to engage in charitable activities directly, taking responsibility for fulfilling its charitable Objects. Examples of such operating charitable IOM Foundations include; museums, educational institutions, and community initiatives.
The IOM Foundation can be used flexibly for the benefit of whatever cause or organisation is close to the Founder’s heart.
Dixcart Supporting the Establishment and Administration of Foundations
At Dixcart, we offer a full suite of offshore services to advisers, and their clients, when considering the establishment of an IOM Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent or Council Member, as well as providing specialist advice when required.
From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.
Get in touch
If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Paul Harvey at Dixcart: advice.iom@dixcart.com.
Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.
Since Foundations have been written into Manx law, they have been used frequently as part of intermediaries’ offshore wealth planning for any number of purposes, but all must conform to the same constitutional principles.
This is the second in a three-part series we have produced on Foundations, building up to a webinar hosted by experts who can help you to meet your clients’ needs. If you would like to read the other articles in this series, please see:
What do I need to establish an Isle of Man Foundation?
As required by the Isle of Man Registrar of Foundations (Registrar), and under the Foundations Act 2011(the Act), the application must be made by an Isle of Man Registered Agent (IOM RA) holding a class 4 license from the Isle of Man Financial Services Authority. The IOM RA will generally also be the Nominated Officer, as defined within the Beneficial Ownership Act 2017.
The IOM RA, typically a Corporate Service Provider like Dixcart, must also make a declaration that:
They will act as Registered Agent on establishment;
The Isle of Man address provided is the business address of the IOM RA;
That the IOM RA is in possession of the Foundation Rules, which have been approved by both the IOM RA and the Founder.
There are several options with regards to the application and its turnaround time, currently: a standard fee of £100 for establishment within 48 hours, £250 within 2 hours if received before 14:30 on a business day, or £500 for a ‘while you wait’ service if received before 16:00 on a business day.
On approval, the Registrar will make note of the names and addresses of the foundation, Council Members and IOM RA, its Objects and provide a Certificate of Establishment and registration number. Once established, the IOM Foundation gains legal personality and, for example, now has the ability to enter into contracts, sue and be sued.
There are several constitutional elements of an IOM Foundation that must be present for an application to be acceptable; this includes a completed application form, correct fee as detailed above and the Foundation Instrument (Instrument), and a redacted copy of the Foundation Rules (Rules) – in fact it is an offence for a Foundation to not possess these documents. We will examine the noteworthy facets of the Instrument and Rules in more detail within the following sections.
Isle of Man Foundation Instrument
By law, all IOM Foundations must have an Instrument (also known as the Charter) written in English that complies with the Act. A copy of this document is incorporated into the application proforma and supplied to the Registrar on application.
The IOM Foundation’s name can be altered if permissible under the Instrument and Rules, but notice of this must be given to the Registrar and supplied to the IOM RA. Alternatively, the Instrument and Rules can prohibit any changes to the name, if desirable.
IOM Foundation Instrument – Objects
The Instrument will also note the IOM Foundation’s Objects, providing broad information; the Instrument does not need to detail the specific purposes or classes of beneficiaries etc., it simply needs to ensure that the Objects are ‘certain, reasonable, possible, lawful and not contrary to public policy or immoral’. The Instrument should also detail whether the Objects are to be Charitable, Non-Charitable or Both, and that these are to be administered in accordance with the Rules.
IOM Foundation Instrument – Council Members and Registered Agent
Finally, the Instrument must detail the names and addresses of all Council Members and the IOM RA. These parties can be altered in line with the Rules in the future, but again, notification must be provided to the Registrar and IOM RA where appropriate.
There can be a minimum of one Council Member. An individual acting as a member must be aged at least 18 years, of sound mind and not disqualified. The Founder can be a Council member. Council Members can be appointed or removed in line with the Rules throughout the lifetime of the IOM Foundation.
As previously stated, whilst the IOM RA can be altered, this role is mandatory from establishment and throughout.
In many ways the Instrument is like the Foundation’s incorporating document, giving notice of certain key persons and their regulatory roles and the IOM Foundation’s Objects. It is similar to a memorandum, giving the Registrar the headline information.
Isle of Man Foundation Rules
If the Instrument is the memorandum, the Rules are, as their name suggests, the rulebook on how the Foundation should be administered. This document is specific to the individual Objects, functions and purpose of the IOM Foundation.
The Rules are a legal requirement under the Act and can be written in any language, but an English copy must be supplied to and retained by the IOM RA.
IOM Foundation Rules – Objects
The Rules must stipulate the manner and form of amends to the IOM Foundation’s Objects. Where the Foundation is established for specific purpose, or to benefit any person or class of persons, this will include how these details can be amended. For example, how beneficiaries can be added, removed or the classes extended.
Where Charitable Objects have been exclusively specified within the Instrument, the Rules cannot contain any provision for the alteration of these Objects to non-charitable pursuits.
IOM Foundation Rules – Council Members
The Rules must also establish a Council to administer the IOM Foundation’s assets and oversee its Objects. The proceedings of the Council are detailed within the Rules. In doing so, the Rules must also detail how Council Members can be appointed or removed and where appropriate, remunerated.
IOM Foundation Rules – Registered Agent
An IOM RA is a perpetual requirement for an IOM Foundation, and must be accounted for within the Rules. This will include the procedure for appointment and removal, to ensure an IOM RA is always appointed. The Rules will also cover the remuneration of the IOM RA as appropriate.
The removal of an IOM RA does not take effect until another appropriately licensed IOM RA has been appointed.
IOM Foundation Rules – Enforcer
An Enforcer can be appointed to ensure that the Council carries out its duties to further the IOM Foundation’s Objects and in compliance with the Rules.
Where an Object of the IOM Foundation is a specified non-charitable purpose, an Enforcer must be appointed. However, where the Object is simply to benefit a person or class of persons, it is an optional appointment and not a requirement.
Where an Enforcer is present, the Rules must provide the Enforcer’s name and address along with their remit and procedure for appointment, removal and remuneration – the remit can include the ability to approve or veto Council actions. Apart from the Founder and the IOM RA, a person may not be both a member of the Council and its Enforcer.
IOM Foundation Rules – Dedication of Assets
An IOM Foundation does not need to hold any assets at the time of establishment, but where a dedication is made from outset, details must be provided within the Rules. Additional assets can be dedicated at any time, and by persons other than the Founder, unless prohibited by the Rules.
If further dedications are contributed, the Rules must be amended to reflect the details of the dedication. It is important to note that Dedicators do not gain the same rights as the Founder after providing assets to the IOM Foundation.
IOM Foundation Rules – Term and Winding-up
The Rules may stipulate the length of the IOM Foundation’s lifetime and the procedure for winding-up the vehicle. The term, unless otherwise stated, is perpetual. The Rules can detail certain events or a lifespan that determines when the IOM Foundation is dissolved. Where desirable, full details must be included within the Rules.
Beneficiaries do not have an automatic legal right to the IOM Foundation’s assets. However, if a person becomes entitled to benefit in accordance with the Instrument and Rules, they may seek a Court Order from the High Court enforcing that benefit.
Legal Challenges to an Isle of Man Foundation
The Act provides that any legal challenge to the IOM Foundation, or the dedication of its assets, will be the jurisdiction of the Isle of Man Courts and subject to Manx law only:
s37(1)
“…must be determined in accordance with the law of the Island without reference to the law of a jurisdiction outside the Island.”
Therefore, the establishment or dedication of assets cannot be deemed void, voidable, set aside or invalidated by a foreign jurisdiction because:
It does not recognise the structure;
The structure defeats or potentially avoids a right, claim or interest imposed on a person by the law of a jurisdiction outside the Isle of Man; or
Of the existence of forced heirship rights; or
It contravenes the rule of law within that jurisdiction.
It is important to note that, due to the relatively recent introduction of this structure into Manx law, the IOM Foundation has not yet been legally tested on these matters. It is also worth noting that the exclusion of foreign law is only in respect of otherwise compliant IOM Foundations or dedicated assets – for example, the Founder or Dedicator must have legal title to the assets being contributed.
Record Keeping
The Act sets out various documents and records that must be maintained at the registered address of the IOM Foundation or such other Isle of Man address as the Council determines. This includes various registers and also accounting records.
The IOM Foundation must also submit an annual return to the Registry, due each year on the anniversary of establishment. Failure to submit an annual return is an offence.
Supporting the Establishment and Administration of Foundations
At Dixcart, we offer a full suite of offshore services to advisers and their clients when considering the establishment of an IOM Foundation. Our in-house experts are professionally qualified, with a wealth of experience; this means we are well placed to support and take responsibility for different roles, including acting as Registered Agent, Council Member or Enforcer as well as to provide specialist advice when required.
From pre-application planning and advice, to the day-to-day administration of the Foundation, we can support your goals at every stage.
Get in touch
If you require further information regarding Isle of Man Foundations, their establishment or management, please feel free to get in touch with Paul Harvey: advice.iom@dixcart.com.
Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority.
Switzerland is a very attractive jurisdiction for the coordination of asset protection for a number of reasons, including the stability of this international centre and the highest level of confidentiality that is guaranteed. An English, Guernsey, Isle of Man or Maltese Law based trust, with Swiss Trustees can offer a number of tax efficiencies, as well as advantages in terms of wealth preservation and confidentiality.
Dixcart can establish and manage such trust structures.
Reasons Why Switzerland is a Favoured Location
Political, Financial, Social and Economic Stability
The economy of Switzerland is one of the world’s most advanced. The service sector plays a significant economic role, particularly the financial services sector. The Swiss economy ranked first in the world in the 2019 Global Innovation Index, and fifth in the 2019 Global Competitiveness Report.
The stable political and economic environment of Switzerland makes it an appealing jurisdiction from an asset protection perspective, with the added benefit of attractive tax regimes for both companies and individuals. These factors, combined with the country’s high regard for personal privacy and confidentiality, are of appeal to Family Offices from all over the world.
Banking Advantages
Switzerland offers one of the strongest and most commercial banking centres in the world.
It has a long history of expertise in dealing with international currencies and open capital markets. Many banks have dedicated desks for particular jurisdictions, providing specific services to clients.
The main benefits of having a Swiss bank account are the low level of financial risk and high level of privacy
Trusts and Private Trust Companies as Asset Protection Vehicles
Widely used in Anglo-Saxon countries, a trust is flexible and, in the right circumstances, can be an effective asset protection vehicle. It provides anonymity for families, and confidentiality regarding the assets and/or companies held within it. Trusts can be a useful aid in terms of succession planning and can assist with long term inheritance matters.
A Private Trust Company (PTC) is a corporate entity authorised to act as trustee. The client and their family can actively participate in the management of the assets and decision-making processes, as well as sitting on the board of the PTC.
Switzerland recognised trusts with the ratification of The Hague Convention on the Law Applicable to Trusts (1985), on 1 July 2007. Whilst there is no domestic law governing trusts in Switzerland, trusts from other jurisdictions, and their specific rules, are recognised and can be administered in Switzerland.
In Switzerland the Settlor (the individual who settles assets into the Trust for the benefit of the Beneficiaries) can choose the law of any specified trust jurisdiction to govern the trust. For example, a Guernsey trust can be established with a Swiss Trustee.
The tax advantages available in using a trust with Swiss Trustees essentially depend on the tax residence of the Settlor and the Beneficiaries. Professional advice should be taken.
Reasons to Use Swiss Trustees
Taxation of Trusts in Switzerland
The Hague Convention (Article. 19) stipulates that the Convention does not prejudice the powers of sovereign states in fiscal matters. Consequently Switzerland has maintained its sovereignty in relation to the tax treatment of trusts.
The tax advantages available in using a trust with a Swiss Trustee essentially depend on the tax residence of the Settlor and the Beneficiaries.
In terms of Swiss Law:
A Swiss resident Trustee is not liable to Swiss income tax or capital gains tax on the assets held under management in a trust.
Settlors and Beneficiaries are exempt from Swiss taxation as long as they are not considered to be Swiss residents.
Regulation of Swiss Trustees
Swiss Trustees have to be registered as financial intermediaries in accordance with Swiss Anti Money Laundering Law. They can be registered with the Central Regulatory Authority or with a self-regulatory organisation (SRO), which must be recognised by the Swiss Federal State.
Protection
Under Common Law the Trustee is the owner of the assets and is required to administer the trust assets separately from his own assets. In the event of death or bankruptcy of the Trustee, the assets are not considered as belonging to the Trustee but are submitted to the trust’s protection and held separately for the Beneficiaries. The trust’s assets are therefore segregated from the Trustee’s estate.
Confidentiality in Switzerland
Switzerland is well known for its commitment to banking services, professional confidentiality and commercial competence.
SATC provides that: “Any and all information related to a trusteeship and acquired by a Member must be kept strictly confidential by the Member, its directors, officers and other employees.”
A breach of confidentiality, whether professional or commercial, would only be permitted by law in the event of criminal liability.
Dixcart and Swiss Trustee Services
The Dixcart office in Switzerland has been providing Swiss Trustee services for over twenty years and is a member of the Swiss Association of Trust Companies (SATC) and registered with the Association Romande des Intermediaires Financiers (ARIF).
The Swiss Federal Act on Financial Institutions (FINIG), came into effect at the start of 2020 and Family Offices and Trustees must now gain mandatory approval. Dixcart Trustees (Switzerland) SA meets all of the required regulatory obligations and continues to do so.
Additional Information
If you would like additional information regarding the use of Switzerland for asset protection, please contact Christine Breitler at the Dixcart office in Switzerland: advice.switzerland@dixcart.com. Alternatively, please speak to your usual Dixcart contact.
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