Trusts and Foundations

Preserving the Legacy of Trusts and Foundations

The Altoo Wealth Management Platform is designed to meet the specific demands of Trusts and Foundations. Our revolutionary technology enables Trust or Foundation to have modern access and data to better understand their wealth and safeguard it.
The Platform not only enhances convenience for all parties involved but also offers a more comprehensive view of the accumulated wealth.

Rooted in the Swiss banking tradition, Altoo takes on the arduous task of consolidating and managing wealth data for trusts and foundations. By doing so, we alleviate the burden on these entities, enabling them to allocate their resources more efficiently and make well-informed strategic decisions with the assistance of real-time reporting.

Benefits of the Altoo Wealth Platform for Trusts and Foundations

A secure digital home for all the wealth, providing a holistic view of all the assets on an intuitive dashboard.
Real-time transparency of all the foundation’s assets, with on-demand access to bankable and non-bankable assets, including alternative investments such as NFTs and cryptocurrencies.
Zero lead time for digital reporting.
Automated asset reporting solutions and consolidated reporting enhance collaboration with your foundation and multiple stakeholders.
Provides a better understanding of the role and performance of each asset within your entire investment ecosystem with intelligent portfolio data.

Enhanced security, including three-factor authentication, ensures a secure home for easy tracking of your assets.

Secure and intuitive document storage and sharing, including secure collaboration with external stakeholders.
Takes the guesswork out of financial planning – make more accurate financial decisions based on real-time insights.
Reduced the risk of losing important documents and sensitive data.

The Role of Trusts and Foundations in Wealth Management

“The first generation creates wealth, the second manages wealth, the third studies art history, and the fourth decays.” This Bismarck quote dates back to the 19th century. But the concern that descendants will squander their inheritance is timeless.

As a result of this unwritten rule, the majority of wealthy people want to decide who gets what when they pass away. The financial industry benefits from this, and trusts and foundations are used as intriguing tools for wealth planning and securing a financial legacy.

The ultra-high net worth and high net worth Individuals and families can benefit from the myriad of options that trusts and foundations offer for succession planning, asset management, and charitable giving. When evaluating the benefits of establishing such structures, asset protection and taxation are likely to be among the most important considerations.

What is a Trust?

The legal institution has its origins in the 12th or 13th century. English knights who took part in crusades appointed administrators for their estates at that time. A trust has no legal personality of its own, but establishes a legal relationship between several parties.

The founder of the trust transfers his assets to a trustee during his lifetime or in the event of his death. The trustee thus becomes the administrator and owner of the assets. However, these are not personal assets, but separate assets.

What is a Foundation?

In accordance with the guidelines given by a founder, foundations are distinct legal entities. Any property that is handed to a foundation by its founder becomes the foundation’s property, and it is governed in accordance with a charter and a set of regulations. A foundation, just like a trust, is required to have clearly stated goals, and these goals might be related to charitable giving or to something entirely different. The creator of a foundation may opt to retain some capabilities, such as the ability to manage investments or issue distributions, despite the fact that there are no beneficial owners associated with the foundation. Trust deeds can also contain reserved powers, but the nature of these powers and the extent to which they are exercised can vary greatly.

Legal aspects

Trusts have proven to be a more suitable option for families residing in common law jurisdictions, such as the UK. These jurisdictions have tax regulations that are typically more accommodating towards trusts, allowing families to benefit from their advantages. Furthermore, the presence of a well-established body of case law provides a reliable foundation for families to rely upon when utilising trusts.

A foundation is commonly characterised as a fusion between a trust and a company. In a parallel role to that of a council overseeing a foundation, directors of a company assume the crucial responsibility of overseeing and managing the various activities of the organisation. In a striking parallel, both companies and foundations share a crucial commonality in the form of separate legal personalities. This entails that both entities are required to have a physical registered office, further solidifying their resemblance. In civil law jurisdictions, opting for a foundation rather than a trust is often favoured due to the greater clarity and understanding surrounding the corporate structure. This serves as an additional rationale for such a choice.

When determining the most suitable structure for succession, wealth planning, and philanthropy, it is crucial to carefully evaluate each family’s unique circumstances. This evaluation should encompass various factors, including legal and taxation regulations, cultural practises and practical implications associated with residing in a specific country.
By considering these elements, one can make an informed decision regarding the optimal approach for their family’s situation.

Wealth management

Many foundations and trusts opt for professional wealth management as it improves the efficiency and effectiveness of their day-to-day operations.

There are three main reasons for this decision: (1) time relief through outsourcing of processes with high workloads, (2) reduction of liability risk by agreeing on binding and transparent investment guidelines; and (3) the expertise of professional asset managers and their experience with the management of numerous foundation assets

Experts conclude that the assets of these entities need to be managed in a way that allows them to fulfil their mission in the most effective manner possible. What appears straightforward on the surface is sometimes rather challenging to put into practise.

Because of the profound shifts that have taken place in the financial markets, many of the presumptions that were made when a foundation or a trust were established are no longer valid. The distributions that foundations and trusts make, on the other hand, are a significant part of the contribution that they give to society.

Consistent return maintenance is the duty of competent entity managers. Not just for paying their regular payouts, but also for funding charity initiatives that primarily benefit foundations.

The majority of individuals who have charity ambitions also want to keep their assets, so they require somewhere around three percent of their existing income per year to reach those goals. During this stormy year for stocks and in the face of increasing interest rates, this is going to present a challenge that is particularly tough for managers to overcome.

The majority of wealth managers are not sufficiently sensitive to the needs of their endowment customers and instead provide ideas that are “off the shelf.” However, given the present climate of rising inflation and fears about a recession, foundation managers would need to change portfolios in close cooperation with clients in order to guarantee that essential distributions were not put in jeopardy. There is an increased requirement for sound financial management, and in many instances, there is pressure being put on returns.

Regardless of the reasons they were established, foundations and trusts in today’s world have challenging obligations in the areas of wealth management and governance.

The ever-increasing complexity and regulation of the financial markets have an impact on foundations and trusts, just like other types of investors, so these entities must also deal with constantly changing regulations. This requires maintaining a continual equilibrium between expenses, potential returns, and responsible governance.

The Role of Trusts and Foundations in Switzerland

Switzerland is one of the world’s most prominent charitable locations. There were 13,635 Swiss foundations at the end of 2022, and the trend is still upward.

Furthermore, according to Stiftung Schweiz, overall foundation assets comprise around CHF 100 billion.

In addition to traditional foundations with legal authority, alternative foundation solutions are gaining popularity, with trust foundations and endowments being particularly popular. In fact, a charitable foundation is still established on average almost every day in Switzerland.

The Swiss foundation landscape includes everything from small foundations that help the local museum or youth chorus to colossi like the Jacobs Foundation. With its CHF seven billion in assets, the latter funds educational programmes all around the world. 80% of Swiss foundations, on the other hand, have assets of less than CHF five million.

By the end of 2020, family foundations and religious foundations were to be registered in the commercial registry. This has revealed extremely old, established foundations that offer financial support to parishes or churches, for example. In the shape of the “Fideikommiss”, there are also traces of mediaeval family foundations. In general, the lack of tax exemption makes family foundations less appealing in Switzerland, at least when compared to family foundations in Germany, Liechtenstein, or Austria. Anglo-Saxon trusts (or those based in the Principality of Liechtenstein) are also seen as more attractive in terms of tax advantages.

Mixed forms are also frequent, such as family foundations that are partly charitable while also pursuing a traditional family purpose. According to Swiss legislation, the fields of support or topic areas of “family foundations are confined to emergency relief, educational programmes, and assistance in establishing a self-sufficient living.”

Foundations can, in principle, invest in nearly any asset type. In this case, they can either acquire real estate with their cash or sell bank loans and use the property as collateral. Furthermore, foundations might accept loans from the founder.

The liberal legislation has resulted in a plethora of charitable groups. According to experts, the framework conditions for foundations in Switzerland are favourable. Such an entity can be established by anyone, and if it serves a philanthropic purpose, no tax is due on capital or revenue.

In all circumstances, a forward-thinking design of the articles of organisation and accurate coordination of the financial concept (rental revenue, costs, and redemption payments) are required. The foundation design involves careful planning and counsel, both in foundation and tax law. The greatest attention should always be paid to the later purpose of the foundation. Arbitrary measures to the detriment of the foundation’s assets are then completely ruled out and inadmissible. This is obviously a significant benefit for asset preservation.

From an emotional point of view, some individuals may perceive it as a potential drawback that the ownership of real estate assets and the family legacy has transitioned from the founder or the family to the foundation. So far, there has been no study of the effective economic benefits and costs of charitable foundations, even at the Swiss level. Most Swiss charity organisations are not active in operation by themselves, but rather make their finances accessible to other groups. Capital-saving foundations, in particular, have a lengthy history. The Inselspital in Bern, which was founded, is the greatest example of this. Anna Seiler created the foundation by bequest in 1354. It is still in use today.

Top Five Foundations in Switzerland

(Source: Stiftung Schweiz)

Jacobs Foundation

Area: The largest foundation in Switzerland in the field of child and youth development.

Gebert Rüf Foundation

Area: The largest foundation in Switzerland in the field of science.

The Avina Foundation

Area: Considered one of the most important foundations in Switzerland, it has been active in the field of food since 2020.

Aga Khan Foundation

Area: Child education in developing countries.

Ernst Göhner Foundation

Area: Education and culture.

Culture of Donation in America vs Europe

Donation practises in Europe and in the United States are different. Both continents agree that helping the less fortunate is an admirable trait. However, charitable activity occurs within very different institutional and cultural contexts. This also changes the structure beneath the surface.

Promotion vs Anonymity

Even the social perception of charitable giving differs on both continents. Wealthy individuals like Bill Gates, Warren Buffett, and the Estee Lauder Family aren’t the only ones who want to get their names out there. Smaller donors also want to promote themselves. On the contrary, European contributors are more likely to remain anonymous.

The number of foundations is higher in the United States. It is common that private individuals to donate to public institutions like libraries, museums, and schools, and this information is frequently shared with the general public. Carnegie Hall and the Guggenheim Museum are just two of many famous examples.

Old Money vs Self-made

It’s also notable that many American entrepreneurs enter the philanthropic world at an early age. Thus, the “self-made mindset” brings business requirements into the financial system. As a result, these individuals not only financially support the foundation’s initiatives, but also provide their expertise and insights.

In Europe, it is common for affluent individuals to donate their assets to a foundation only at the end of their life or even after they have passed away. There are, of course, numerous notable exceptions to this rule. Although true, European benefactors have less direct say in how “their” foundations are run.

Foundations also have different levels of longevity. On the old continent, they are often invested “in perpetuity”; the goal is thus asset preservation. In this model, it is mainly the current income that is distributed. With low interest rates, this means that the charitable purpose receives relatively little money each year.

Different foundation types

In the USA, consumer foundations are more popular. These are not designed to last forever, but to have the greatest possible impact within the foreseeable future. Accordingly, more money is distributed. This is also because foundations in the USA are only tax-exempt if they spend at least 5% of their assets on charitable activities per year.

There are also regional differences in the purpose of foundations. In the USA, where there is no church tax, donations to religious institutions are more common than in Europe. In addition, more private money flows into the education system in America. Generous donations are made to elite universities, where children from good families often study, which perpetuates social inequality rather than reducing it.

Difference based on politics

All these differences also have political roots. In American capitalism, for instance, much of what the welfare state in Europe handles remains unregulated. In this respect, the higher level of donations in the USA can also be interpreted as a correction for the weak welfare state. The wealthy pay for the capitalist freedom that made it possible for them to become wealthy in the first place.

This tolerance also takes into account the fact that American foundations and gifts are taxed more favourably than they are in the majority of Western European nations. This is one of many reasons why, according to the annual OECD reports, America leads the world not only in the number of foundations but also in the volume of donations (about 1.5% of economic power).

Switzerland in the middle

The highlighted distinctions between the two foundation systems are far from distinct. In this context, Switzerland holds a middle ground, according to experts on foundation management. For instance, Switzerland possesses many traits that appear more American than European, such as the liberal foundation legislation, the longstanding civic engagement culture, the concentration of rich people, and the strong readiness to give.

Foundation and Trust in Liechtenstein

Until now, corresponding foreign legal institutions have been available in Switzerland, which are regularly used and are also recognised in Switzerland. This also includes institutes of Liechtenstein law.

The Liechtenstein foundation corresponds structurally to the Swiss foundation and is an independent legal entity which is managed by the foundation council. The assets donated by the founder are distributed to the beneficiaries in accordance with the statutes. Under Liechtenstein law, there are hardly any limits to the way the foundation can be set up.

In contrast to the foundation, the trust is not an independent legal entity. The founder of a trust allocates the assets to natural persons (the so-called trustees), who then hold them in their own name and distribute them to the beneficiaries within the framework of the trust’s regulations. Unlike the trust in the Anglo-Saxon world, the Liechtenstein trust is regulated by law in this respect.

As a result, the same goal can already be achieved with the Liechtenstein trust as with the Liechtenstein foundation. However, the reason why Liechtenstein offers both forms lies in the specific needs of the international clientele. It can be seen that clients with a continental European background more often choose the foundation form, while those with an Anglo-Saxon background often prefer the trust.

Trust in Switzerland

The trust is used to allocate assets to a certain cause, much like the foundation does. The trust, however, lacks a separate legal identity. Additionally, it must be separated from the Swiss trust because the latter is more than just a mere contractual relationship. The trust can perform a wide range of tasks and is incredibly adaptable. In terms of managing family wealth, it is often used in estate planning, and in business, for example, to finance investments and transactions.

As a legal entity, trust was created inside the Anglo-Saxon judicial system. According to a deed of creation, the settlor places certain assets under the control of a trustee, who manages and uses them in the beneficiaries’ best interests or for a certain purpose. The settlor of the trust may create the trust by a will or a legal transaction.

Legislative framework

There are no trust-specific rules in the present version of Swiss law. To create a trust in Switzerland, one must presently use another country’s legal system. Since the Hague Trust Convention went into effect in 2007, these trusts are common and acknowledged in Switzerland.

Several legislative initiatives are now underway that should allow trusts under Swiss law as well. The Swiss trust outlined in the present draft shares many traits with trusts recognised under Anglo-Saxon law and is compatible with how trusts are interpreted under the Hague Trust Convention. This may raise domestic value added by around CHF 140 million a year, according to an estimate produced by the Bureau for Labour and Social Policy Studies (Bass) for a research commissioned by the Confederation in 2023.

It is crucial for the trustee to locate and confirm all individuals involved in a trust’s surroundings, including the beneficial owners. This carries out Switzerland’s responsibility in the field of tax transparency as well as the fight against money laundering and terrorist funding.

The similarities to the foundation are clear. The notion of a Swiss trust is equally unpopular among many legal specialists for this reason. Some of them claim that family foundations instead of trusts might address the same goals. However, doing so would require amending the foundation legislation.

Trusts and Foundations

Preserving the Legacy of Trusts and Foundations

Benefits of the Altoo Wealth Platform for Trusts and Foundations