Moving a Trust Myths: What Relocation Does Not Change

Families often hear that moving a trust is a clean break: new seat, new start. The moving a trust myths below come up again and again in conversations with advisers, banks and beneficiaries, and most of them rest on one mistaken idea, that relocation rewrites the past. It does not. A relocation changes who administers the trust, where, and sometimes under which law. The acts already done, the claims already made and the duties already owed stay attached to the trust.

Each myth below is followed by what is accurate and what depends on your facts. This is general information, not advice: the answers turn on the governing law, the residence of the people involved, the nature of the assets and the canton or country concerned, and they call for an individual analysis.

Myth: moving a trust erases its history

A trust is a continuing legal relationship. The Hague Trusts Convention describes it as a relationship in which assets are placed under the control of a trustee for a beneficiary or a specified purpose, kept as a separate fund, with title in the trustee's name and a duty to manage and account. Nothing in that description restarts when the trustee or the seat changes.

In practice this means:

• Decisions taken by earlier trustees remain decisions of the trust. Distributions, loans, investments and waivers are part of the record.
• The incoming trustee usually needs the full file to administer properly: the trust deed and amendments, accounts, minutes, and any letter of wishes. Gaps in that file become the new trustee's problem and, often, a reason for delay.
• Beneficiaries keep whatever rights they had under the deed and the governing law at the time. A move does not cancel a past breach, and an earlier trustee can remain answerable for what it did while in office.

Think of relocation as a change of custodian for a document that keeps its dates. For a closer look at the legal mechanics, see moving a trust between jurisdictions and the documents to gather for a trust relocation.

Myth: a new seat wipes out liabilities and creditor claims

This is the most dangerous belief. Moving assets or administration to a new seat does not, by itself, extinguish debts, tax exposure or a claim already in motion. Courts in many systems look at the timing and the purpose of a transfer. A move made while a dispute is foreseeable can be reviewed, set aside or treated as an attempt to defeat creditors.

The Hague Trusts Convention says so in terms. Article 15 preserves the mandatory rules of the forum on matters such as the protection of minors and incapable persons, the effects of marriage, succession rights, the transfer of title and the protection of creditors and good-faith third parties. A trust that is validly recognised is still subject to those rules.

What a move can legitimately do is change the framework going forward: the administering regime, the supervisory expectations and the courts that will hear future disputes. For how different systems treat creditor-protection tools, see asset-protection statutes compared and forced heirship and trusts.

Myth: the governing law changes automatically when the trust moves

Not so. Under Articles 6 and 7 of the Convention, a trust is governed by the law the settlor chose, expressly or by implication. Only if no law was chosen, or the chosen law does not know the institution of the trust, does the closer-connection test apply: the place of administration designated by the settlor, the location of the assets, the residence of the trustee and the purposes of the trust.

So there are two separate questions that people often merge:

• Where is the trust administered? This is a question of seat and of the trustee's location.
• Which law governs it? This is a question of the deed and the choice made in it.

A trust can move its administration to Geneva and keep its original governing law, if the deed allows and that law permits it. Changing the governing law is a different step, usually requiring a power in the deed, a court order or a transfer to a new trust. Our page on governing law versus seat of administration explains the distinction, and proper law of a trust defines the term.

Myth: Switzerland will not recognise a trust that comes from abroad

Switzerland recognises foreign trusts. It signed the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition on 3 April 2007, ratified it on 26 April 2007, and it entered into force for Switzerland on 1 July 2007. The Federal Office of Justice confirms that foreign trusts have been recognised in Switzerland since that date. The Convention is classified as RS 0.221.371.

Under Article 11, a trust validly created under its applicable law is recognised as a trust. At a minimum, recognition means that the trust assets are separate from the trustee's personal estate and that the trustee can sue and be sued in that capacity.

Recognition has limits, and they are worth knowing:

• Article 13 allows a state to decline to recognise a trust whose significant elements, apart from the chosen law, the place of administration and the trustee's habitual residence, connect essentially with states that do not have the institution.
• Article 15, as noted above, leaves mandatory rules in place.
• Recognition says nothing about taxation, banking acceptance or regulatory status. Those are separate questions.

For more on this, read myths about Swiss recognition of trusts and switzerland as a trust seat.

Myth: once the trust has moved, the banks will follow

Recognition of the trust and acceptance by a bank are different things. A bank decides on its own risk appetite and its own onboarding standards. When a trustee changes, the bank will ask for evidence of the appointment, the trustee's authority, the identity of the settlor and beneficiaries, the source of the assets and the history of the structure.

A trust moving from a seat that has been under pressure may find that a bank is cautious about the legacy, not only about the new arrangement. Expect questions about past reporting, past distributions and any earlier correspondence with authorities. Having the file in order before the move is the most practical protection against delay.

Related reading: banking and custody for trust assets by seat and the situation of an existing offshore trust under banking pressure.

Myth: relocation resets reporting and removes past disclosures

Automatic exchange of information (AEOI, under the Common Reporting Standard, CRS) and beneficial ownership registers work on the facts of the trust at the relevant reporting date. A move to a new seat changes who reports and where, but it does not delete what has already been reported or registered by an earlier trustee or financial institution.

There are also practical points that deserve care:

• A trust may be reportable in more than one place during the transition year. The tax residence and classification of the trust, the trustee and the account holders all matter.
• Some registers keep historic entries. Whether and how they are updated depends on the register and on the country.
• Anti-money-laundering rules (AMLA) apply to the new trustee as an intermediary, which means a fresh round of identification and documentation, even where the structure is unchanged.

None of this makes relocation unwise. It means the old position must be understood, documented and, where needed, corrected before or alongside the move. Compare trust reporting regimes and trust registers and privacy.

Myth: a trust with a Swiss trustee is automatically regulated, safe and simple

Locating the administration in Switzerland places the trustee in a Swiss regulatory environment. Depending on the activity, a trustee may fall under the Financial Institutions Act (FinIA) and supervision by FINMA or a supervisory organisation, as well as the anti-money-laundering framework. That is a feature of the trustee's status, not a property of the trust.

A well-run Swiss administration can be a sound base. It cannot make a poorly documented or poorly designed trust sound, and it cannot remove the mandatory rules of other countries that touch the family. Strengths and limits are set out in Switzerland as a trust seat and in the comparisons with Jersey and the Cayman Islands.

What changes and what stays: a quick view