Trusts and foundations in Switzerland: when to use them

When a family wants to protect its wealth, organise its transfer or dedicate it to a long-term purpose, sooner or later it comes across two instruments: the trust and the foundation. They are often spoken of as if they were interchangeable, but they are institutions that are profoundly different in nature, functioning and recognition in Switzerland. Understanding when to use one or the other — and when neither is needed — avoids costly and ineffective choices.

The trust: a relationship, not an entity

The trust originates in common-law systems and is a legal relationship, not a legal person. One party (the settlor) transfers assets to another party (the trustee), who administers them for the benefit of third parties (the beneficiaries) according to the rules set out in the deed of establishment. The central point is separation: the assets in trust leave the settlor’s personal estate and are not mixed with the trustee’s own, who holds them as a segregated estate bound to the purpose.

Switzerland has no domestic trust law of its own, but it recognises foreign trusts, having acceded to the Hague Convention on the law applicable to trusts and on their recognition. In practice, a trust governed by a foreign law that provides for it can produce effects in Switzerland, and it is possible for the trustee or the assets to be located on Swiss territory. It is a flexible instrument, typically used for international succession planning and asset protection.

The foundation: assets with a purpose

The foundation, by contrast, is an institution firmly rooted in Swiss law. It is a legal person created by dedicating assets to a defined purpose. Unlike a company, it has neither partners nor shareholders: once established, the foundation “belongs to itself” and pursues the purpose set by the founder, under the supervision of an authority.

Different forms exist. Charitable (public-benefit) foundations pursue purposes of general interest (cultural, social, research) and can benefit from tax relief. Family foundations, on the other hand, are strongly restricted in Switzerland: the law limits their admissibility to narrowly defined purposes, excluding the mere maintenance of family members. This is a crucial difference compared with the family foundation understood as a generic vehicle for wealth management, which under Swiss law cannot be freely used.

Trust or foundation: how to choose

The choice depends on the objective, and some differences are decisive.

• Nature: the foundation is an autonomous entity with legal personality; the trust is a fiduciary relationship between parties.
• Control: in the trust the settlor defines the rules but entrusts management to the trustee; in the foundation the purpose is fixed in the founding deed and binds the bodies.
• Flexibility: the trust is generally more adaptable to the family’s needs; the foundation has a more rigid and supervised structure.
• Recognition: the foundation is an institution of Swiss law; the trust is recognised in Switzerland but governed by a foreign law.
• Family purpose: for transfer and protection in favour of the family the trust is often better suited, given the strict limitation of family foundations.

Typical use cases

In practice, these instruments respond to precise needs:

• International succession planning, when the family has members and assets in several countries and needs a vehicle that holds cross-border transfer together;
• Asset protection from risks linked to business activity, cleanly separating personal assets;
• Continuity of the family business, keeping the controlling package united across generations;
• Structured philanthropy, typically through charitable foundations, to dedicate resources to a purpose over time.

Mind the tax profile

The tax treatment of trusts and foundations is complex and depends on the circumstances: residence of the settlor and of the beneficiaries, type of trust, canton involved. The tax qualification of a trust can change radically depending on whether it is revocable or irrevocable, discretionary or not. An error at this stage can turn a protection instrument into a source of disputes. For this reason the structure must be designed upfront with care, not adopted off a standard template, and it must be coordinated with the rules of the applicable succession law, including forced-heirship shares.

The importance of design

Trusts and foundations are neither shortcuts nor ready-made solutions. They are powerful instruments only if designed around the family’s real objective and embedded in a design consistent with taxation and succession law. Adopting them without this analysis often produces useless or, worse, counterproductive structures.

At SIH ONE we help families assess whether and which instrument is truly needed, coordinating the civil-law, succession and tax aspects in a single project; activities subject to authorisation go through authorised partners.

Do you want to understand whether a trust or a foundation is right for you? Let’s analyse your situation together.