Common Mistakes When Choosing a Trust Jurisdiction

The mistakes made when choosing a trust jurisdiction tend to follow a pattern. A family hears a persuasive pitch, fixes on one place, and discovers years later that a bank will not open an account, a register discloses more than expected, or leaving costs far more than arriving. None of this is inevitable, and most of it is visible at the outset to anyone who asks the right questions.

This page walks through the errors that recur most often, explains why each one hurts, and shows how to avoid it. It is general information, not advice: the right answer always depends on where the settlor and beneficiaries live, what the trust will hold, and which legal systems touch it. For the method behind a sound decision, see how to choose a trust jurisdiction.

Mistake one: choosing on marketing

Jurisdictions compete for trust business, and their promotional material is written to be attractive. A shortlist built from brochures, conference panels or a friend's anecdote tends to reward the loudest marketer rather than the best fit.

Why it costs. Promotional claims rarely mention the weak points: how courts treat foreign judgments, how the trustee community is supervised, or how a seat is viewed by banks elsewhere. A seat that looks ideal on paper may suit a different kind of family altogether.

How to avoid it.

• Write down your own objectives before looking at any seat.
• Compare seats on the same neutral criteria, not on the headline each one promotes.
• Ask for the downsides in writing. A serious adviser can state them readily.
• Test a favored seat against at least one rival, for example through the comparisons of Switzerland against Jersey or Singapore.

Mistake two: ignoring banking and custody

A trust is only as workable as the accounts that hold its assets. Some seats are legally elegant yet leave the trustee struggling to find banks willing to onboard a structure with beneficiaries in several countries.

Why it costs. If custody is difficult, the trustee spends months on onboarding, assets sit in less suitable accounts, and distributions are delayed. Banks apply their own compliance appetite, which may be stricter than the law of the seat.

How to avoid it. Ask where the assets will actually be held and whether institutions there accept trusts governed by the chosen law. Read banking and custody for trust assets by seat and raise the question with counsel before the deed is signed, not after.

Mistake three: ignoring the exit

Most people plan how to enter a jurisdiction. Few plan how to leave it.

Why it costs. Circumstances change. A seat may be added to a watch list, a bank may withdraw, or the family may relocate. If the deed has no power to change the proper law or the place of administration, moving later may require court approval, beneficiary consent, or a costly restructuring. Duration limits also differ widely between seats and can end a trust sooner than the family expects.

How to avoid it.

• Check whether the deed contains a power to change governing law and seat.
• Understand who must consent to a move and what a court would require.
• Compare how seats handle termination, as set out in winding up and exit rules by seat.

Mistake four: confusing governing law, seat and residence

Three different ideas are often treated as one: the law that governs the trust, the place where it is administered, and the tax residence of the people involved. A trust can be governed by one country's law, administered in another, and taxed by a third.

Why it costs. A family may believe that choosing a well-known law settles every question, then find that the place of administration brings its own rules on registers, reporting and supervision. Tax residence of the settlor or beneficiaries can matter more than either.

How to avoid it. Treat the three questions separately and answer each in turn. Governing law versus seat of administration explains the distinction, and confusing governing law, seat and residence shows how the confusion arises in practice.

Mistake five: overlooking registers and reporting

Privacy is often the first reason a family considers a trust, and it is often assumed rather than checked.

Why it costs. Registers of beneficial ownership, automatic exchange of information (AEOI, also called the CRS), and anti-money-laundering rules (AMLA in Switzerland) all limit what remains confidential. A family that expected silence may face disclosure to authorities, banks and sometimes other parties with a legitimate interest.

How to avoid it. Ask what each seat records, who can see it, and what is reported abroad. A realistic picture is in trust registers and privacy. Plan on the basis that the trustee, the banks and the authorities will know the structure, even where the public does not.

Mistake six: overlooking how the trustee is regulated

Seats differ in how they supervise trustees, and the difference affects both quality and reputation.

In Switzerland, the rules are written into the Financial Institutions Act (FinIA, or LEFin in French). Under Article 17, paragraph 2, a person is a trustee if they professionally manage or dispose of a separate estate for a beneficiary or for a specific purpose on the basis of a trust deed within the meaning of the Hague Convention of 1985. Article 61 places trustees under FINMA supervision, which involves a supervisory organization. Article 22 sets a minimum capital of CHF 100,000, paid in cash, together with suitable guarantees or professional liability insurance. Article 20 requires at least two qualified people on the management.

Why it costs. Choosing a seat where trustee oversight is light can reduce cost, but it may also reduce the comfort that banks, counterparties and courts take from a supervised trustee.

How to avoid it. Compare supervision seat by seat, using regulated versus lightly regulated seats. For the Swiss position in particular, Switzerland as a trust seat sets out strengths and limits without overstating either.

Mistake seven: forgetting that the settlor may move

A seat chosen for the family's current situation can become awkward once the settlor relocates, particularly to a country that treats trusts differently or taxes them in its own way.

Why it costs. A move can change how the trust is classified, reported and taxed, even though the deed has not changed. Families sometimes discover this only when a new tax adviser reviews the structure.

How to avoid it. Ask what would happen if the settlor, or key beneficiaries, moved to another country, and review the seat whenever a major move is planned. See trust seat and governing law when the settlor relocates.

Mistakes at a glance

A short checklist before you commit

• Write down your objectives and the countries where people and assets are located
• Compare at least two seats on neutral criteria
• Confirm that banks accept the structure and the chosen law
• Check the deed for a power to change governing law and place of administration
• Map what each seat records, publishes and reports
• Review how trustees are regulated at each seat
• Ask what happens if the settlor or a beneficiary relocates
• Put your questions to counsel, using questions to ask your counsel on seat