Purpose Trust Jurisdictions: Choosing a Seat for Charitable and Purpose Trusts

Families who want to give over several generations often ask the same question: which purpose trust jurisdictions will actually accept the structure they have in mind? The answer depends on a distinction that many legal systems draw sharply. A charitable trust serves a purpose the law recognizes as public benefit. A non-charitable purpose trust serves a cause that has no human beneficiary and is not necessarily charitable, such as keeping a family company together or caring for an art collection.

Under traditional English-derived rules, a trust needs beneficiaries who can ask a court to hold the trustee to account. Charities escape that rule because a public authority stands in for the missing beneficiaries. Purpose trusts outside charity do not, which is why a number of seats passed special statutes. Switzerland took a different route, and this page sets out how the two approaches compare.

Charitable trusts and non-charitable purpose trusts

The two categories are often mixed up, so it helps to separate them.

• Charitable trusts pursue aims such as relief of poverty, education, health or the environment. In most common-law seats the courts or a charity regulator supervise them, and tax relief usually depends on registration or approval.
• Non-charitable purpose trusts pursue a lawful aim without a public-benefit test. They are permitted only where a statute or case law says so, and they normally require an enforcer.
• Hybrid arrangements combine a charitable core with a private side, for example a family fund that supports named causes while a separate trust holds the family business.

Choosing between them is a legal decision before it is a tax one. A cause that satisfies the charity definition in one country may fail it in another, and the seat decides which definition applies. If you want the wider picture of how a seat interacts with governing law, see governing law versus seat of administration.

Where purpose trusts are allowed

Several offshore and onshore seats have written purpose trusts into their legislation. The details differ, but the common design is a trust with no beneficiaries in the usual sense, an enforcer with standing to sue, and rules on what the purpose may be.

• Jersey and Guernsey allow non-charitable purpose trusts by statute and require an enforcer. See the Jersey comparison and the Guernsey comparison.
• Cayman Islands offers the STAR trust, which can combine purposes and beneficiaries and leaves enforcement to named persons. The glossary entry on STAR trusts explains the mechanism, and the Cayman comparison places it next to Switzerland.
• British Virgin Islands offers the VISTA trust, designed for holding company shares without the usual duty to diversify. Read the VISTA trust definition for the limits.
• Isle of Man and Bermuda provide statutory purpose trust regimes of their own.
• US states such as Delaware and Nevada allow limited forms of non-charitable purpose trusts, often tied to the care of specific property.

Whether a given regime fits depends on the assets, the people involved and the country where the settlor lives. This page gives general information, not advice on your situation. The glossary entry on purpose trusts gives the short definition.

Enforcement: who holds the trustee to account

A trust with no beneficiary is only as strong as the person who can enforce it. Statutes usually answer in one of three ways.

1. An appointed enforcer. The trust deed names a person or company with the right to apply to court. The enforcer should be independent of the trustee, and many seats forbid the trustee from acting in both roles.
2. A public authority. For charitable trusts, a regulator or attorney general acts for the public. This is the model in most common-law countries.
3. A court-supervised mechanism. Some systems let the court appoint someone to enforce when the deed names no one or the enforcer is no longer available.

A weak enforcement clause is the most common drafting gap in purpose trusts. The protector and reserved powers page covers how supervisory roles are treated under different laws, and the courts and enforcement guide explains how a judgment travels between seats.

Charity regulation and recognition

A purpose trust has a second hurdle: other countries must treat it as a valid structure. The Hague Convention of 1985 on the law applicable to trusts helps with recognition, but it does not make every purpose trust recognized everywhere, and it leaves public-policy exceptions. For the full picture, see the guide to the Hague Trusts Convention.

Charity status adds separate questions: who registers the entity, what reports it files, how grants are monitored and what happens if the stated aims are no longer achievable. Tax exemption for the trust or for the donor is a matter of the law of each country involved, and it often turns on whether the recipient organizations qualify locally. That is why due diligence on recipients matters as much as the choice of seat.

The Swiss alternatives

Switzerland does not have a statute creating domestic non-charitable purpose trusts. It does recognize foreign trusts and regulates professional trustees. Under Art. 17 para. 2 FinIA, a trustee is anyone who, on a professional basis, manages a separate estate or disposes of it for a beneficiary or for a specific purpose, on the basis of a trust deed within the meaning of the 1985 Hague Convention. The wording expressly covers a purpose, so a trust governed by a foreign law can have a Swiss trustee. Under Art. 61 FinIA, such trustees are supervised by FINMA, with day-to-day supervision exercised by supervisory organizations authorized by FINMA.

For a cause-based structure, families more often use the Swiss foundation. It has its own legal personality, a board in place of a trustee and, for charitable ones, a public supervisory authority. The foundation is a different legal tool and not a trust under another name. Read Switzerland as a trust seat for strengths and limits, and combining trusts and foundations for hybrid models.

Example

Example: a family established in Lausanne wants to support medical research across generations and also keep a family company intact. One route is a Swiss charitable foundation for the research, and a foreign-law purpose trust, with a Swiss trustee and an independent enforcer, for the company shares. Another route is a single foundation for both aims. Which one works depends on the family members' residence, the assets and the countries of the recipients.

What the confidential assessment covers

This service concerns philanthropy and charitable trusts: giving a lasting framework to a family's causes, alone or next to a foundation. It suits settlors, family offices and advisers who want to compare seats before choosing one, and families whose current structure may no longer fit its purpose.

The assessment looks at:

• the definition of the charitable purposes and whether it holds in the seats concerned;
• the choice between a charitable trust and a foundation;
• grant-making policy and selection criteria;
• the involvement of family members in giving;
• due diligence on recipient organizations.

The documents involved normally include any existing trust deed or foundation charter, a draft letter of wishes (see letters of wishes across seats), a list of intended recipients and a summary of the family's tax residences. The assessment does not include drafting the deed, filing with a regulator or tax advice in a particular country. Fees depend on the structure and are indicated after the confidential assessment.