The Liechtenstein Trust – An instrument for efficient asset protection and flexible tax-optimised asset management and succession planning

Brief overview

Legal structure of the Liechtenstein Trust

The Liechtenstein Trust is a dedication of assets in which a settlor transfers assets to the trustee, which the trustee must manage in his own name in favour of beneficiaries in accordance with a trust deed (trust deed trust agreement) and a purpose anchored therein.

The Liechtenstein Trust is not a contract and has no legal personality of its own. It is a sui generis legal institution.

The trust has three participants: settlor, trustee and beneficiary. They can be legal entities or natural persons. The trustee and settlor can also be beneficiaries.

A protector can also be appointed as an optional supervisory body.

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Differentiation from other trust forms

The Liechtenstein Trust must be distinguished from other forms of trust in Liechtenstein, such as the fiduciary trust > the foundation > the establishment > and the trust enterprise.

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Establishment and administration of the Liechtenstein Trust

The Liechtenstein Trust is established (founded) by a written agreement (trust deed) between the settlor and the trustee – either inter vivos or upon death.

The trust deed can be entered in the commercial register or deposited with the district court. Neither registration nor filing are constitutive.

In the trust deed, the settlor transfers part of his assets to the trustee designated by him on the terms and conditions set out in the trust deed.

The trust deed also directly or indirectly names the beneficiaries and optionally provides for other bodies in addition to the trustee, such as the advisory board, protector or auditors.

There is no minimum capital requirement. All asset classes are authorised for asset transfer.

The trust can be structured in the trust deed as:

Revocable trust: The trustee retains economic control over the trust assets.

Irrevocable trust: The settlor irrevocably transfers the trust property.

Discretionary trust: The time and amount of the contribution to a beneficiary are at the discretion of the trustee.

Fixed-interest trust: The trustee has no discretionary powers. The timing and amount of the contribution are fixed.

The trustee is solely responsible for managing the trust. The settlor is only able to issue instructions to the trustee to a limited extent.

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Trust deed Trust agreement and Letter of wishes

The trust deed (trust agreement) governs the relationship between the settlor, beneficiaries and the trustee and contains the basic provisions for managing and preserving the value of the trust assets. It also sets out which assets the settlor transfers ownership of to the trustee.

In a letter of wishes (separate document), the settlor can specify his wishes for the administration and maintenance of the trust’s value.

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Amendment and dissolution of the Liechtenstein Trust

The trust deed may be amended by the parties involved insofar as this is provided for in the trust deed. If there are compelling reasons, an amendment is also permitted with the consent of all parties involved.

The trust relationship is irrevocable unless the settlor reserves the right of revocation. There is no maximum period for the duration of a trust. The trusteeship generally ends in accordance with the provisions of the trust deed, upon the destruction of the trust assets or with the consent of all parties involved.

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Control Supervision Protector Auditors

An advisory board, protector or auditor can be involved in the trust administration to supervise and monitor the trustee.

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Settlor – rights and restrictions

The trust founder (settlor) may be one or more natural persons or legal entities domiciled in Switzerland or abroad. He determines the regulations of the trust deed and provides assets for the trust. In principle, the trust is irrevocable for the settlor. Withdrawal is only possible if this is reserved in the trust deed. Creditors of the settlor cannot access the assets of the trust.

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Trustee – Rights Duties Liability

The trustee is appointed by the trust deed and assumes office by written consent or declaration of acceptance.

The trustee may be a natural person or a legal entity. At least one trustee must be domiciled or resident in Liechtenstein and be authorised by the Financial Market Authority. The trustee has extensive rights and duties (drawing up a list of assets, duty to provide information and accountability to the auditors, beneficiaries and settlor). The trustee must manage and utilise the trust assets in the interests of the beneficiaries and in accordance with the trust deed (trust agreement).

The trustee is liable to third parties for debts of the trust assets (trust property) with all his personal assets. The trustee is liable to the settlor for breach of trust and must pay compensation for damages arising from the breach of his fiduciary duty.

In the event of the trustee’s death or incapacity to act, the district court appoints a successor, unless the trust deed (trust agreement) provides otherwise. In the event of the trustee’s bankruptcy, the trust assets are deemed to be third-party assets (segregated assets). The trustee’s creditors have no access.

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Beneficiaries – Rights Obligations Appointment

The beneficiaries receive present or future benefits or advantages from the trust relationship in accordance with the provisions of the trust deed. Both the settlor and the trustee or any other natural or legal person may be appointed as beneficiaries. The beneficiaries have comprehensive rights of information and accounting claims against the trustee with regard to all documents, material circumstances and activities of the trust.

A distinction is made between three different types of beneficiaries: beneficiaries > with a legal entitlement to the benefit > beneficiaries without a legal entitlement and > prospective beneficiaries who become beneficiaries once a condition has been met.

The trust assets are protected for beneficiaries in bankruptcy and foreclosure proceedings unless they have a direct claim to the beneficiary or the trust deed provides for irrevocability.

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Trust assets (trust property) Transfer of rights Internal trust law

The trust assets include all assets and asset classes that are transferred to the trustee by the settlor or by operation of law, together with the income generated from them. No minimum capital, upper limits or inventory are prescribed.

The trust assets do not have their own legal personality: the legal entity is the trustee, who must hold and manage the trust assets as separate special assets from his other assets.

Third parties may acquire ownership of trust assets in good faith. Rights under land register law or other rights to be registered are transferred to the name of the trustee. The trustee’s internal restrictions on disposal should be clarified and secured as a priority notice or note in the land register. The trustee’s right in rem remains limited to an administrative right.

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Use and advantages of the Liechtenstein Trust in practice

The Liechtenstein Trust offers a wide range of flexible, attractive structuring options for the long-term protection of family assets, estate planning, business succession and asset protection.

The terms of the fiduciary relationship can be freely customised. The trusteeship can be concluded for any purpose. In principle, the use of a trust can be considered for larger assets, complex asset structures, previously burdened family relationships, underage or severely disabled heirs, unpopular children or greedy, wasteful spouses.

The most common reasons for using a Liechtenstein Trust are

• Avoidance of judicial probate proceedings
• Long-term provision for the family and lifestyle planning
• Protection of minors
• Continuation of a company
• Consolidation of assets
• Avoidance of legal challenges
• Protection from creditors and bankruptcy
• Emigration/immigration planning
• Flexibility
• Tax optimisation
• Confidentiality and discretion
• Philanthropy

Working terms of practical forms

There are many different forms of trusts. In practice, the following working terms have emerged, depending on the purpose of the trust:

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Asset protection of the trust assets

The trust assets are completely exempt from enforcement and access under insolvency law by the trustee’s creditors.

The settlor’s creditors are limited significantly in asserting their claims against the trust assets.
Creditors of discretionary beneficiaries cannot assert any claims against the trust assets.

The trust assets themselves are insolvent. The trustee is personally liable without limitation for the liabilities entered into by him at the expense of the trust assets.

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Taxation of the Trust in Liechtenstein

The trust’s profits are tax-free in Liechtenstein and are only subject to a flat-rate minimum income tax of CHF 1,800 per year.

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Taxation of the Liechtenstein Trust in Germany

What are the tax consequences in Germany for a family entrepreneur or wealthy private individual when using a trust domiciled in Liechtenstein as part of a company/asset succession?

Trusts are unknown to the German legal system. Germany has also not acceded to the Hague Trust Convention on the International Recognition of Trusts.

The taxation of Liechtenstein Trusts in Germany is not comprehensively regulated. However, established guidelines have been developed for settlors, trustees or beneficiaries of a foreign trust acting in Germany.

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The Liechtenstein Trust from a Swiss perspective

The trust is not recognised under Swiss law. However, foreign trusts are recognised under civil law. The tax treatment of a trust is governed exclusively by Swiss tax law and is generally treated as transparent due to the lack of legal capacity and capacity to hold assets. The trust assets are always allocated to a person behind the trust, either the settlor or the beneficiary.

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