Trust and Foundation Structure Combinations Across Seats

A trust and foundation structure combination is an arrangement in which a trust sits alongside one or more other entities, typically a foundation, a holding company or an operating company, and the whole is run as one coherent plan. Each entity has its own legal basis, its own governing law and its own formalities. The difficulty is rarely creating the pieces. It is making sure they fit together, so that the decisions taken in one layer are valid and effective in the others.

This page looks at the combination from the angle of the seat: which law governs each layer, what a Swiss-seated trustee can coordinate, and where the limits lie.

Why families combine a trust with a foundation or a company

A trust separates ownership of assets from their benefit. A foundation is a legal entity with its own personality and a purpose set out in its statutes. A company carries on business or holds assets and issues shares. None of these is a substitute for the others, and each answers a different need.

Typical reasons for combining them:

• A company holds the operating business or an investment portfolio, and the trust holds the shares, so that succession happens at the level of the trust rather than the company.
• A foundation, often organised under Liechtenstein law, holds a defined pool of assets or serves a specific purpose, while a trust handles the discretionary benefit of the family.
• A private trust company acts as trustee, so that family members can sit on its board while a professional administers the day-to-day work.

Example: a family established in Lausanne owns a manufacturing business and a portfolio held abroad. Their advisers propose a trust that owns the shares of a holding company, with a separate foundation holding a philanthropic reserve. The question is not whether each piece is lawful on its own, but whether they have been laid out so that the settlor's intentions survive a change of trustee, a change of residence or a bank review.

The legal basis of each layer

The table below shows, in general terms, how the main layers differ. The exact position always depends on the law chosen and on where the entity is established.

The point to retain is that these are three different legal families. A trust is a relationship, a foundation and a company are entities. Mixing them means mixing governing laws, and the structure has to be drawn so that each law is applied to the layer it was written for.

What the Hague Convention says about the trust layer

Switzerland signed the Hague Convention of 1 July 1985 on the law applicable to trusts and on their recognition on 3 April 2007 and ratified it on 26 April 2007. 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 filed as RS 0.221.371. For a deeper reading, see the Hague Trusts Convention explained.

Several of its provisions matter when a trust is combined with other entities:

• Article 2 describes a trust as a legal relationship in which assets are placed under the control of a trustee for a beneficiary or for a stated purpose. The assets form a separate fund, title stands in the trustee's name, and the trustee must manage and account. Powers reserved by the settlor, or the trustee also being a beneficiary, are not by themselves incompatible with a trust.
• Articles 6 and 7 provide that the trust is governed by the law the settlor chose, expressly or by implication. Failing a choice, the law with the closest connection applies, judged by the place of administration, the location of the assets, the trustee's residence and the purposes of the trust. If the chosen law does not know the trust, the choice has no effect and the closest-connection test applies.
• Article 11 requires recognition of a validly created trust, which at a minimum means the trust assets are kept apart from the trustee's personal estate and the trustee can act in court in that capacity.
• Article 13 allows a state to decline recognition of a trust whose significant elements, other than the chosen law, the place of administration and the trustee's habitual residence, are connected essentially with states that do not have the institution of the trust.

The last point deserves attention in a layered structure. If the family, the assets and the entities all sit in states without trusts, a trust with only a foreign governing law and a foreign trustee is a candidate for non-recognition. The seat of administration and the location of the other layers are therefore part of the design, not an afterthought. The distinction is developed in governing law versus seat of administration.

Mapping the layers

The diagram shows a common arrangement. It is an illustration, not a recommendation: whether it suits a given family depends on residence, the nationality of the beneficiaries and the nature of the assets.

Where a Liechtenstein foundation fits

Liechtenstein has its own foundation and trust legislation, and its foundations are widely used beside trusts established elsewhere. A foundation can hold a defined reserve, carry a purpose that a trust would struggle to express, or sit between the trust and a company. Because it is a legal entity, it can enter contracts and hold title in its own name, which a trust cannot.

The trade-off is that it brings a second legal system into the structure, with its own formalities, supervisory expectations and reporting. Switzerland compared with Liechtenstein covers the differences in trust law and foundations, and the choice of vehicle before the seat explains why the vehicle question comes first.

A private trust company as trustee

Where the family wants a say in how the trust is run, a private trust company can serve as trustee. It is itself a company, so it has directors, a registered office and its own compliance duties. Its seat affects supervision, and in some situations the activity may require authorisation under Swiss financial-institutions legislation. Whether it does depends on the facts. See siting a private trust company for the seat considerations.

Governance links between the entities

Layered structures fail most often at the joints. The documents should state, in a consistent way:

• who appoints and removes the trustee, the foundation council and the directors;
• what powers a protector or the settlor keeps, and under which law those reserved powers are valid (see protector and reserved powers law by jurisdiction);
• how the letter of wishes, any family charter and the statutes relate to one another (see family governance instruments and the law of the seat);
• how information and accounts flow between the layers for reporting and banking purposes.

A mismatch, for instance a trust deed that gives a protector a veto the foundation statutes do not recognise, produces uncertainty exactly when a decision is urgent.

For whom, and what is not covered

This service suits families and business owners whose assets, residences or beneficiaries span more than one country, advisers coordinating several jurisdictions, and holders of an existing structure that grew piece by piece. It also applies where a business is held through a trust, a theme explored in trusts holding operating businesses.

It does not include selecting or evaluating a trustee, tax advice for a particular country, or a general introduction to trusts. It does not replace local counsel in each jurisdiction involved.

What the confidential assessment establishes

The assessment starts from the existing or planned documents: the trust deed, any statutes, articles of association and letters of wishes. From these it establishes the role of each entity, the law governing each layer, the points where those laws meet, and where an element may not be recognised or may clash with another. It also identifies which adviser must confirm each point locally. Fees depend on the structure and are indicated after the assessment.