Inheritance shares and the Liechtenstein trust company: Swiss Federal Supreme Court ruling and its consequences for estate planning

In its ruling 5A_89/2024, the Swiss Federal Supreme Court made a significant decision on issues relating to the division of estates and the treatment of Liechtenstein trust companies under Art. 932a PGR. The case concerned the settlement of the estate of G.A. (the “deceased”) who passed away in 2013 and who was also a settlor as well as a beneficiary of the assets of a Liechtenstein trust company (“I. Trust Reg.”).
While some of the heirs had settled their claims, the deceased's position as beneficiary of the assets of the Liechtenstein trust company was discovered later. The assets of the trust company were not included in the estate inventory and only two of the deceased's children were appointed as beneficiaries in the by-laws. The children of the predeceased daughter then demanded a supplementary distribution from these assets. The High Court of the Canton of Solothurn ruled that the assets should be included in the estate.
The children of the deceased appealed against this decision to the Swiss Federal Supreme Court.

The decision:

The Swiss Federal Supreme Court reversed the decision and determined that the assets of the Liechtenstein trust company were not included in the deceased’s estate. The reasoning:

 

  1. Legal independence of the trust company: The Swiss Federal Supreme Court ruled that the trust company is to be considered as an independent legal entity. The deceased had irrevocably waived all rights to the trust company during his lifetime, meaning that it was no longer part of his assets and therefore could not be included in his estate.
  2. No pass-through liability to the trust assets: The legal concept of a pass-through liability is an exception to the principle that the independence of legal persons must be observed. The court rejected a pass-through liability, as there was no indication that the deceased had abused the legal entity. The Liechtenstein trust company was not a so-called “sham trust”, which would justify such a claim.
  3. The applicability of the duty of hotchpot (Ausgleichung/rapport): The Swiss Federal Supreme Court also ruled that the appointment of the deceased’s children as beneficiaries of the trust company does not constitute a claim arising from a compensatory distribution within the meaning of Art. 626 of the Swiss Civil Code (ZGB). This is justified by the fact that the beneficiaries have no enforceable legal claim to the assets. No applicability of the duty of hotchpot can be determined on the basis of such a discretionary benefit.

 

Effects on Liechtenstein companies and trusts

In connection with estate planning, the ruling has a variety of implications for Liechtenstein entities. This applies in particular to trust companies that have a connection to Switzerland:

 

  1. Recognition of trust companies: The Swiss Federal Supreme Court has confirmed that Liechtenstein trust companies are generally recognized in Switzerland, provided they comply with Liechtenstein law. This ruling enhances legal certainty for such structures.
  2. No automatic inclusion in the estate: Assets held in a trust company are not automatically included in the deceased’s estate if the deceased irrevocably waived their rights during their lifetime. This is significant for heirs and beneficiaries arguing that the trust company is legally independent.
  3. The applicability of the duty of hotchpot (Ausgleichung/rapport) on the grounds of the beneficiary position: The judgement highlights that the appointment of a beneficiary in a trust company does not necessarily lead to a claim by the heirs. For this result, it must be ensured that no distributions have yet been made and that the heirs have no legal claim to distributions (so-called ‘discretionary beneficiary’). If the trust company is not organized as a discretionary beneficiary structure or if distributions have already been made, an express instruction from the deceased is required stating that there should be no duty to compensate.

 

Conclusion

The judgement 5A_89/2024 shows clearly how complex estate planning with international connections can be. It is crucial for testators and their heirs to create well-founded and legally compliant structures and have them fully documented. International estate planning requires precise and accurate legal and tax clarification in order to guarantee the will of the testator. The judgement underlines the importance of careful estate planning in order to avoid unintended consequences. This requires comprehensive and early advice in order to prevent later inheritance disputes.