The political and economic stability as well as the liberal structures of the founder’s rights enable large philanthropic engagements in Switzerland. However, the wish to bequeath assets to future generations through a family foundation is subject to strict limitations.
This article shows to what extent the Swiss family foundation differs from the Liechtenstein family foundation and which instrument is more suitable for the protection and bequest of assets within the family.
1. Swiss Family Foundation and Prohibition on Fee Tails
The purpose of the Swiss family foundation is statutory limited to the following types of benefits: education, endowment, and support of family members or for similar purposes (Art. 335 para. 1 of the Swiss Civil Code [""CC""]). Hence, one may conclude that family members can be fully supported by a foundation without any limitations. However, the Swiss Federal Supreme Court prohibited such an interpretation of the law (already) in 1949: according to pertinent case law, foundations intended to provide unconditional financial support for a family or individual family members as so-called pure maintenance or beneficial foundations are inadmissible (BGE 75 II 90 f.). This restriction is based on the consideration that a permanent link of assets to a family only seems justified in connection with an ideal and welfare purpose. Thus, disbursements of grants shall only be permitted in case of special needs and requirements or to secure the existence of the family. In other words: disbursements of grants may only be made for special occasions such as marriage, a child’s birth, or the education of a family member. Extensive unconditional payments, e.g., an annual maintenance payment to each family member, are prohibited.
Likewise, not admissible in Switzerland are fee tails, i.e., assets which are permanently linked to a family by private disposition, and which are intended for the beneficial use of the family members based on a fixed order of succession (Art. 335 para. 2 CC).
The importance of family foundations in Switzerland is limited due to the restricted scope of purpose and the prohibitive court practice.
2. Advantages of the Liechtenstein Family Foundation
However, when looking abroad, one quickly comes across the Principality of Liechtenstein where family foundations can be structured with much more flexibility than in Switzerland. A Liechtenstein family foundation (Art. 552 ff. of the Liechtenstein Persons and Companies Act) is like a Swiss one, but has several advantages compared to the Swiss family foundation:
2.1 No limitation of purposes
The family foundation may be used as an instrument of asset planning over generations in the sense of a pure maintenance or beneficial foundation.
2.2 Asset protection
- The founder may determine that creditors of beneficiaries shall not be entitled to enforce the beneficiary's claims towards the foundation through legal proceedings (albeit enforcement of the assets as such cannot be excluded).
- Heirs who are entitled to a mandatory share may only challenge transfers of assets from the founder to the foundation made within the last two years prior to the founder’s death.
2.3 Full anonymity
The possibility to establish a foundation on a fiduciary basis and the fact that the Liechtenstein family foundation does not have to be registered in the Public Registry guarantee the highest degree of confidentiality (only the notification of incorporation needs to be deposited, in which the members of the foundation board are shown, but not the founder or the foundation’s assets).
2.4 Mixed family foundation
It is possible to combine charitable and privately benefited purposes.
2.5 Broad possibilities of structuring and controlling the foundation
The founder may fully control the foundation, e.g., by reserving an unrestricted right of revocation and amendment or by concluding a trust agreement with the foundation board.
2.6 Taxes
As Swiss family foundations are relatively unattractive from a tax point of view; the Liechtenstein foundation may have various advantages in this regard.
Even though the structure of the Liechtenstein family foundation differs from the Swiss one, the Liechtenstein one is permitted and recognised in Switzerland. Therefore, a Liechtenstein family foundation can be very attractive for founders having residence and domicile in Switzerland. Structures for sustainable and multigenerational wealth and estate planning may be created through a Liechtenstein family foundation.
MME's foundation law team gladly advises you from a foundation, inheritance, and tax law perspective on the establishment of a family foundation under Swiss or Liechtenstein law as well as on philanthropy in general. We are happy to introduce you to the possibilities of establishing a foundation and to discuss with you the details and scope of such a foundation. We look forward to hearing from you.
