Trust or Foundation FAQ: Vehicles and Structures

The trust or foundation question comes first for most families, and it rarely has a single answer. The two vehicles solve similar problems in different ways, and the seat you pick changes what each one can do. The answers below are general information, not advice: the right vehicle depends on your residence, the countries of your beneficiaries, the nature of the assets and the canton or country concerned, and it calls for an individual analysis.

Trust or foundation

Trust or foundation: what is the basic difference?

A trust is a relationship, not a legal entity. Assets are placed under the control of a trustee, who holds title and manages them for beneficiaries or for a stated purpose. A foundation is a legal person with its own governing body, which owns the assets in its own name.

That difference drives most of what follows: who signs contracts, who is liable, how the assets are separated from personal estates and how a court looks at the structure. The Hague Convention describes the trust in exactly these terms, as a separate fund held in the trustee's name.

Does Switzerland have its own trust law?

Switzerland has no domestic trust statute that lets you create a Swiss-law trust. It recognises foreign trusts, and a Swiss-based trustee can administer a trust governed by a foreign law. The Swiss foundation, by contrast, is a domestic vehicle. For the strengths and limits of this position, see Switzerland as a trust seat.

Since when are trusts recognised in Switzerland?

The Federal Office of Justice confirms that foreign trusts have been recognised in Switzerland since the Hague Trusts Convention entered into force for the country on 1 July 2007. Switzerland signed the Convention on 3 April 2007 and ratified it on 26 April 2007. The Convention is classified as RS 0.221.371. More detail is in the Hague Trusts Convention explained.

Does a trust have to be a Swiss-law trust to work for a Swiss-based family?

No. The Convention lets the settlor choose the governing law, expressly or by implication. If the chosen law does not know the trust, the choice has no effect and the closest-connection test applies instead. The choice of law is a separate decision from the choice of seat, as explained in governing law versus seat.

Which is more flexible, a trust or a foundation?

Neither wins in the abstract. A trust deed can be tailored closely and, in many common-law seats, adapted by court order or by built-in powers. A foundation follows a statute and a deed filed under it, which gives a recognisable corporate form but often less room for improvisation. Flexibility is also a matter of what the settlor reserves: the Convention accepts that powers retained by the settlor are not by themselves incompatible with a trust, though local law may treat them differently.

Can a foundation and a trust be used for the same family?

Yes, and this is common in practice. A foundation can be settlor, beneficiary or holder of the trust's underlying company. The combinations and their pitfalls are covered in combining trusts and foundations across seats, and the earlier choice of vehicle in trust, foundation or company.

Corporate trustees and private trust companies

Can a company act as trustee?

Yes. Most professional trustees are companies, and in many seats a regulated company is the normal choice for a long-lived structure. A corporate trustee does not die or retire, and it can offer continuity, committees and internal controls. What matters is its authorisation, its governance and the law of the seat.

What is a private trust company?

A private trust company, or PTC, is a company set up to act as trustee for one family's trust or trusts, usually owned by a purpose trust or a foundation so that it does not belong to any one family member. Its board often includes family members and professionals. Siting a private trust company explains how the seat affects regulation and substance.

Is a PTC always better than a professional trustee?

No. A PTC gives the family more of a voice but also more responsibility: board decisions, record-keeping, directors' duties and the risk of sliding into a structure that looks like the settlor's own. Some seats exempt it from licensing, others treat it as a regulated activity. Compare the options with regulated versus lightly regulated seats.

Does a trustee in Switzerland need a licence?

It depends on what the trustee does. Under the Financial Institutions Act (FinIA, or LEFin in French and FINIG in German), professional trustees fall under a supervision regime with the FINMA and a supervisory organisation. The scope of the rule and any exemption depend on the activity, so check the specific facts with counsel before relying on any assumption.

Can the settlor be a director of the trustee company?

It is technically possible in some seats, but it raises the question of whether the trustee really controls the assets. The Hague Convention accepts reserved powers, yet courts, banks and tax authorities look at who actually decides. See protector and reserved powers law by jurisdiction.

Purpose trusts and special structures

What is a purpose trust?

A purpose trust has no beneficiary in the ordinary sense. Assets are held for a stated purpose, which may be charitable or non-charitable, and an enforcer or similar office supervises the trustee. The Hague Convention covers trusts created for a determined purpose as well as for a beneficiary. The concept is defined in the glossary under purpose trust.

When is a purpose trust useful for a family?

Typically as an owner of something that needs no human beneficiary: the shares of a private trust company, a family holding or a block of voting shares. It can also serve a philanthropic aim; the question of the seat for that case is treated in charitable and purpose trusts: choosing a seat.

What are VISTA and STAR trusts?

They are statutory regimes of the British Virgin Islands (VISTA) and the Cayman Islands (STAR) that relax the usual duty of a trustee to monitor the underlying company, or allow trusts for purposes as well as persons. They are tied to those seats; the glossary entries on the VISTA trust and STAR trust set out the idea. A Swiss trustee may still administer a trust governed by such a law, depending on the case.

Can a foundation own the shares of an operating business?

It can, and many European families use a foundation for that role. Whether a trust is a better holder depends on the governance you want, on succession rules in the settlor's country and on the legal seat. Business owners should read trusts holding operating businesses.

Protection, recognition and mandatory rules

Does the choice of vehicle protect assets from claims?

Any vehicle offers protection with limits. The Hague Convention requires recognition of the separation of trust assets from the trustee's personal estate, but it does not override the mandatory rules of the forum on creditors, spouses, minors or succession rights. Article 15 of the Convention keeps these rules in force. See forced heirship and trusts.

Will a Swiss court always recognise a trust?

Not necessarily. Article 13 of the Convention allows a state to decline recognition where the significant elements of a trust, apart from the choice of law, the place of administration and the trustee's habitual residence, are connected mainly with states that do not know the trust. This is why a purely domestic arrangement dressed up as a foreign trust is a risk, as discussed in myths about Swiss recognition of trusts.

How does the law of the foundation seat interact with the Hague Convention?

The Convention applies to trusts, not to foundations. A foundation is governed by the corporate and foundation law of its seat and by the private international law of the countries where it is used. When a trust owns or benefits from a foundation, two separate legal analyses run side by side.

Are trusts and foundations registered or reported differently?

Yes, and often more differently than people expect. Some seats keep registers of trusts or of beneficial owners, others hold information only with the trustee, and automatic exchange of information (CRS, AEOI) reaches both vehicles through banks and trustees. The overview is in trust registers and privacy.

Structures, assets and banking

Why would a trust own a company?

A trust owns a company to separate the holding of assets from their operation, to ring-fence liabilities and to give a bank or counterparty a legal person to deal with. The trustee holds the shares and appoints the directors. Substance, bank acceptance and the seat of the company need attention, as in economic substance and trusts.

Can a trust hold real estate directly?

Often it can, but the rules of the country where the property is situated apply, whatever the law of the trust. Some owners prefer a holding company under the trust for this reason. The situs rule is set out in the glossary entry on situs and applied in holding real estate through a trust.

Do banks treat a trust and a foundation the same way?

No. A bank will ask who the settlor, trustee, protector and beneficiaries are for a trust, and who the founder, council and beneficiaries are for a foundation. Onboarding depends on the bank's own policy and on anti-money-laundering rules (AMLA, LBA, GwG). Seat matters here too: see banking and custody for trust assets by seat.