Family foundations and trusts in estate planning

Case 1a: Estate planning by means of Australian trusts "Basic facts - The wife dies first".

1. facts of the case

John and Ida are married. They are Australian citizens and both have resided in the Canton of Bern since 2019. They have 3 children, two of whom (K1 & K2) also reside in the Canton of Bern, while the third child (K3) lives in Australia.

John and Ida each draw up a will with identical contents. The estate is governed by Australian law (Art. 90 para. 2IPRG). Upon the death of one of the spouses, the estate passes in a first step to a so-called executor, an Australian lawyer, as property held in trust.

Ida dies in 2020 and the executor shall distribute the estate according to the will as follows:

• Payment of all debts and death expenses
• Making bequests to various friends and relatives
• Establishment of the "Kangaroo Trust" and transfer of the residual estate to it

Question

• What are the tax consequences of Ida's death?

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Case 1b: Estate planning by means of an Australian trust "Extension of facts I - The husband also dies".

1. facts of the case

John dies in 2023. John's will contains the following details, which Ida's will also already contained.

• K1, K2 and K3 shall be entitled to the trust property in equal shares, their descendants shall step into their position
• K1, K2 and K3 receive the shares in Trustee Ltd. in equal shares
• From the age of 25, there is an entitlement to a managing director position in Trustee Ltd.
• The Trustee Ltd makes decisions by majority vote, in case of a tie the votes of K1, K2 and K3 count double.
• The Trustee Ltd may divide the trust assets into sub-trusts
• Trustee Ltd has full discretion as to when, whether and to whom it makes distributions

Ask

• What are the tax consequences ofJohn's death?

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Case 1c: Estate planning by means of Australian trusts "Facts variant II - Family foundation instead of trust".

1. facts of the case

Same facts as in the basic case, with the following modification.

John and Ida's will provided for the establishment of a FL foundation rather than a trust. Beneficiaries are:

• 1st class: the surviving spouse
• 2nd grade: children K1, K2 and K3
• 3rd class: other relatives of John and Ida
• 4th grade: Dählhölzli Zoo Society in Bern

The board of trustees includes a lawyer from FL (chairman) and the surviving spouse. After the death of both parents, the children K1, K2, K3 become additional foundation board members.

Question

To what extent does the choice between a trust and a Liechtenstein (family) foundation affect the attribution and taxation of assets?

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Case 2a: Letter of Wishes and Protectors "Simple Letter of Wishes

1. facts of the case

Identical facts as in case 1a / basic facts with the following modifications.

• There is no will with detailed instructions to the Executor, but a "Letter of Wishes" in whichJohn and Ida tell the Executor their wishes regarding the trust.
• The surviving spouse (John or Ida) and K1, K2, K3 are neither shareholders nor directors of Trustee Ltd. Rather, it is a professional trust company that acts as trustee for a variety of trusts.
• The surviving spouse and K1, K2 and K3 belong to the same class of beneficiaries.
• The other classes of Beneficiaries (relatives, Tierparkverein Dählhölzli) and their order are unchanged.
• The Trust Deed assures the Trustee Ltd full discretion as to whether, when and in what amount a Beneficiary should receive a distribution.

Questions

What is the meaning of the Letter of Wishes?

How to evaluate the fact that:

• The surviving spouse and K1, K2 and K3 belong to the same Class of Beneficiaries?
• Beneficiaries cannot hold a position in the Trustee Ltd and do not hold shares in it?

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Case 2b: Letter of Wishes and Protectors "Clear Letter of Wishes, Protection by Protectors".

1. facts of the case

As in the basic facts with the following modifications:

The Letter of Wishes is signed by the deceased person and the designated Protectors. It contains the following wishes:

• The Trustee Ltd shall entitle the surviving spouse to 50%, the children K1, K2 and K3 each to 16.66% of the trust assets.
• The Trustee Ltd shall distribute annually according to the above quotas the current income from the trust
• For any other distribution or for the exclusion of a Beneficiary, the Trustee Ltd shall consult with the Protectors

The Trust Deed states the following with respect to the Protectors:

• These decisions of the Trustee Ltd. require the prior approval of the Protectors:

               - Changes in beneficiaries

               - Distributions to beneficiaries, except current income

                - Suspension of the distribution of current income to beneficiaries

• The Protectors are authorized to replace the Trustee at any time
• The Protectors are primarily the surviving spouse and K1, K2 and K3 with equal vote
• In the event of a tie, the surviving spouse shall have the casting vote

Question

What is the significance of the Letter of Wishes and the Protector position for the qualification of the trust and the attribution of trust assets?

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Case 3a: Originally contributed trust capital "Basic facts".

1. facts of the case

Estate Trust is an irrevocable discretionary trust established as part of the estate settlement of Hans, who died in 2010.

The trust assets are not attributable for tax purposes to the two beneficiaries of the estate trust, Uwe and Ute, both domiciled in Bern.

When the trust was established in 2010, the following assets were contributed:

• Cash and cash equivalents of CHF 0.5 million
• Securities account 1 million with various trading titles (shares, bonds, etc.)
• 100% of the shares in Ypsilon GmbH, based in Germany
• 2 artworks from Vincent van Gogh
• Chalet in Gstaad

The trust is now to be liquidated. All the years since its establishment, it has not made any distributions. The following should be noted with regard to the various assets:

• Cash and cash equivalents still amount to CHF 0.5 million, current income and expenses (dividends from Ypsilon GmbH, income from securities portfolio, property maintenance and trust management) were booked via cash and cash equivalents.
• The securities portfolio was actively managed and could be liquidated with a profit of CHF 0.5 million despite some bad investments
• Shares in Ypsilon GmbH are to be distributed to Uwe and Ute at 50% each and held by them in the future. The value of the shares increased from
  CHF 10 million at the time of the contribution to CHF 15 million today.
• The 2 works of art by Vincent van Gogh are divided between Uwe and Ute (each takes one)
• The chalet in Gstaad becomes half co-ownership of Ute and Uwe and is used as a vacation home

Question

What are the tax consequences for Uwe and Ute in the liquidation?

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Case 3b: Originally contributed trust capital "factual variant foundation

1. facts of the case

The facts of the case are basically the same as the basic facts, but instead of a trust, the case concerns the non-controlled Immer-Sommer Foundation with its registered office and administration in Vaduz, Liechtenstein.

Question

What changes with respect to the liquidation of the trust compared to an irrevocable discretionary trust?

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Case 4a: Contribution of Swiss Real Estate to Trusts and Foundations "Basic Facts - Trust

1. facts of the case

Sara is an Australian citizen. She has lived in the canton of Bern for many years and now also has Swiss citizenship.

Sara owns a commercial property that is rented out and where a carpentry shop is operated. In addition, Sara owns a residential house in which she lives. Both properties are in the Canton of Bern. She intends to establish a trust and to contribute her properties to it.

With respect to the trust, the following rules apply:

• During Sara's lifetime, she is to be the sole beneficiary of the trust. After her death, her two children living in Australia (variant: her two friends living in Australia) are to be beneficiaries of the trust.
• The trustee is to be the Australian-based Trustee Ltd. During her lifetime, Sara is the sole shareholder and, together with an Australian lawyer, the managing director.
• After her death, the two children (variant: girlfriends) of Sara
  become shareholders (50% each) and, together with the Australian lawyer, directors of Trustee Ltd.

Questions

1) Do problems arise under the Lex Koller when the properties are transferred to the trusts or upon Sara's death?

2) What are the tax consequences with regard to real estate gains tax (GGST) and real estate transfer tax (HÄST):

• Upon contribution of the land to the trust?
• At the death of Sara?

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Case 4b: Contribution of Swiss Real Estate to Trusts and Foundations "Factual Variant - Foundation

1. facts of the case

The properties will now be transferred to a Liechtenstein family foundation rather than to a trust, whereby:

• The situation / rank of the beneficiaries corresponds to that of the beneficiaries at the trust
• During her lifetime Sara and a Liechtenstein lawyer are foundation trustees, after her death the two beneficiaries with the attorney
• Resolutions are passed by majority vote. In the event of a tie, the votes of the beneficiaries count double

Question

To what extent are there changes with regard to Lex Koller and tax consequences compared to the situation with the trust?

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