5-minute read
If you have a private banking relationship in Switzerland sooner or later, your advisor may suggest you set up a trust to hold and protect your assets. There's nothing wrong with that, but the entire topic can be quite confusing and challenging to navigate. The following recommendations should help you to maintain clarity of thoughts throughout the wealth structuring process.
UNDERSTAND. Before starting to consider setting up a trust, understand in detail how it works. Ask your provider for comprehensive documentation and information about trusts. Get familiar with the involved parties, the concepts of a revocable and irrevocable trust, and the entitlement of beneficiaries. Most importantly, take your time as if you settle an irrevocable trust, it will be irreversible, and you may not be in the position to adapt in the future should your needs change. Also, consider forced heirship rules if applicable and taxes that may be due for you, the trustee, and the beneficiaries. Get expert legal and tax advice early in the process to maintain flexibility.
NEEDS ASSESSMENT. Once you understand how a trust works, you can move on to the evaluation and whether or not you need it. You may have various needs, such as asset protection, wealth structuring, estate planning, and tax considerations. It's tricky to tackle them all in one trust deed, and most probably, it would become complicated, which is not helpful at all when it comes to execution. Thus, prioritize your needs and focus on the top two goals to achieve good results. A typical situation many people face: you may want to protect assets with an irrevocable trust but are not willing to relinquish control over such assets. To overcome it, you may want to create an irrevocable trust for a part of the assets to be protected and a revocable trust for the other part to remain under your control.
PROVIDER SELECTION. Look for someone you haven't been working with thus far. Why? You need to diversify providers, just consider this: if your private bank is also your trustee and you want to move to another bank, then you are still bound to them via your trust. If the trust is irrevocable, unless there is a clause that allows for change of trustees, there may be no way to enforce the change of trustees and any transfer of funds. The same applies to protectors. So, look for an independent trustee with experience and substance in the respective jurisdiction.
THE TRUST DEED. You need to understand every clause and, in particular, ask what's the trustee's skin in the game. Some pitfalls: avoid common-law trusts administered in civil law jurisdictions if administrators are not highly specialized, white-labeled services, i.e., your trustee is not really your trustee but using someone else providing the service. And, also be aware of anti-Bartlett clauses (trustee will not be responsible for specific companies under the trust) if not explicitly needed. Again, take your time; in most cases, only revocable trusts are reversible.
DIVERSIFY. Don't try to solve every issue with one trust. Depending on the assets, they may be better structured with a life insurance policy, with a holding company, or just covered by a provision in a will. You may want to set up a revocable and irrevocable trust depending on the assets to structure. And don't let yourself guide only by tax considerations since tax laws change regularly and rarely for the taxpayer's benefit. As long as you don't pay additional taxes for the trust structure, that's a fair price to achieve your goals.
If you follow these steps, you should maintain focus throughout the process and produce precise and sustainable results such as asset protection, estate planning, and wealth structuring. The arrangement needs to work after your lifetime. That's why simple and bright will do the best job in terms of execution of your wishes.
If you are asking who is writing this? We are Centro LAW, a Zurich based boutique private wealth law firm. We support global wealth owners, entrepreneurs, and their families in all private wealth matters. Just contact us to schedule a free, non-binding consultation to learn more about how we enable wealth owners by defining the purpose of wealth in their life.