21 February 2025

Leading Case on Trusts in Swiss Estates

  • Articles
  • Legal
  • Tax
  • Inheritance / Succession
  • Structuring / Relocation

A recent decision of the Swiss Federal Supreme Court brings clarity with regard to whether funds of an irrevocable discretionary trust are encompassed by the deceased's estate as well as the nature of the beneficiaries' appointment and their subject to the duty of hotchpot.

  • Alexandra Geiger

    Legal Counsel

In a decision of mid-December 2024, the Swiss Federal Supreme Court ruled on several previously unresolved legal matters regarding trusts in Swiss estates (decision of 16 December 2024, BGer 5A_89/2024). This leading case stabilizes the Swiss legal framework significantly and leads to an increased legal certainty within the estate and succession planning with trust structures.

The Supreme Court clarified the following legal principles for trusts and trust-like structures:

1. Irrevocable discretionary trust funds do not form part of the estate
The Supreme Court ruled that when trust funds are transferred to the trustee with an irrevocable renunciation of any rights whilst the trustee is given full discretion in terms of nature, scope and payment modalities of the distributions, the trust is qualified to be irrevocable and discretionary. This qualification based on succession law may well differ from the one by tax laws. Therefore, albeit the funds have been taxed during the deceased’s lifetime, the trust assets do not form part of their estate.

2. Nature of beneficiaries’ appointment
The Supreme Court ruled that the granting of the beneficiary status was an inter vivos gift of the deceased because it already took effect during the deceased’s lifetime. This means that the formal prerequisites of a testamentary disposition do not need to be complied with.

3. Duty of hotchpot (Ausgleichung)
The Supreme Court held that the mere granting of the beneficiary status did not constitute a transfer subject to the duty to hotchpot. In contrast, distributions made to beneficiaries during the deceased’s (settlor’s) lifetime as well as beneficial rights in fixed interest trusts are principally subject to hotchpot (Art. 626 Swiss Civil Code).

4. Clawback claims (Herabsetzung)
Lifetime gifts of the deceased are principally subject to clawback claims (Art. 522 Swiss Civil Code).

In the case at hand a Liechtenstein trust reg., i.e. an enterprise was involved (and not a trust within the meaning of the Hague Trust Convention), for which the Supreme Court still applied trust principles. 

This much-needed clarity is highly welcomed for any succession and estate planning involving trusts. MME's Private Clients team will be happy to assist you with setting up foundation or trust structures within your estate and succession planning. We look forward to hearing from you.

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