Beneficial owner of a trust: definition and practical meaning

The beneficial owner of a trust is the natural person who really stands behind the assets, as opposed to the person or company named on paper. A trust has no owner in the usual sense: the trustee holds legal title, while settlor, beneficiaries and sometimes a protector hold the rights or powers that matter. Your trustee in Switzerland must work out who these people are, check their identity and keep the records up to date. The entries below explain that duty and the words you will meet around it. For the practical side, see what information your trustee must give you.

A

AEOI (automatic exchange of information)

The international system under which financial institutions report account information on foreign residents to their tax authority, which passes it on to the authority of the country of residence. A trust can be caught either as an account holder or through the persons behind it. How a given trust is classified depends on its facts and needs an individual analysis.

AMLA (LBA / GwG)

The Swiss anti-money-laundering act. It treats trustees as financial intermediaries, so they must identify the contracting party and the beneficial owner before and during a business relationship. The act also defines non-operating legal entities broadly enough to include trusts.

Annual audit

A trustee approved under FinIA is audited each year by an audit firm of the kind the law prescribes. The audit looks at the trustee's own compliance, not at whether a particular trust was a good idea. Your own trust review is a separate exercise.

B

Beneficial owner (ayant droit économique)

Under the AMLA, the beneficial owner is the person for whose benefit a business relationship is ultimately held or controlled. For a trust, a trustee will usually look at the settlor, the named or identifiable beneficiaries, a protector and anyone who can in practice direct the assets. The financial intermediary must identify this person with the care the circumstances require and verify identity. If the contracting party is not the beneficial owner, or in case of doubt, a written declaration is required.

Example of a deed clause, invented for illustration: "The trustee may require each beneficiary and the protector to provide identification and any declaration that the trustee needs in order to meet its legal obligations, and may suspend a distribution until it has received them."

Beneficiary

A person, or a class of persons, for whose benefit the trustee holds and uses the trust property. In a discretionary trust the beneficiary has no fixed entitlement; in a fixed interest trust the entitlement is set by the deed. Beneficiaries can also be beneficial owners for compliance purposes, depending on their rights and the control they have.

C

Co-trustee

One of several trustees who act together under the deed. Decisions are normally taken jointly, unless the deed allows otherwise. Having more than one can add oversight, though it also complicates compliance, because each must be identified and each remains answerable.

Controlling person

The CRS term for the natural person who exercises control over an entity. For a trust it generally covers settlor, trustee, protector, beneficiaries and anyone else exercising ultimate effective control. It overlaps with the beneficial owner but is not identical.

Corporate trustee

A company that acts as trustee, as opposed to an individual. A Swiss-based trustee must be a sole proprietorship, a commercial company or a cooperative entered in the commercial register. Its senior management must include at least two qualified people. See how to decide between individual and corporate trustee.

CRS (Common Reporting Standard)

The OECD standard on which AEOI rests. It sets out which accounts are reportable and what must be collected about the account holder and the controlling persons. Your trustee or the bank holding the trust accounts applies it; the result for you depends on where you and your beneficiaries are resident.

D

Deed of retirement and appointment

The document by which one trustee steps down and another takes over, transferring the trust property. It is the legal hinge of a change of trustee. Read the glossary entry on this deed before planning a handover.

Discretionary trust

A trust in which the trustee decides whether, when and how much to distribute among a class of beneficiaries. Because no beneficiary has a fixed share, the trustee's records of who might benefit carry extra weight when it identifies beneficial owners. The letter of wishes often guides these decisions.

Due diligence

The checks a trustee makes on a client before accepting a relationship and the checks a client should make on the trustee. On the trustee side it covers identity, origin of assets and purpose of the structure. On your side it covers approval, supervision, experience and conflicts.

E

Exculpation clause

A deed clause that limits the trustee's liability for certain mistakes. It does not usually cover dishonesty or wilful breach, and its reach depends on the governing law and the wording. See the entry on exculpation clauses.

F

FINMA

The Swiss Financial Market Supervisory Authority. It grants the licence to professional trustees and oversees the supervisory organisations that carry out day-to-day checks. See what FINMA and SO-FIT approval means for you.

FinIA (LEFin / FINIG)

The Swiss Financial Institutions Act. It classes trustees as financial institutions alongside asset managers, and defines a trustee as a person who, professionally, manages a segregated estate for a beneficiary or a set purpose on the basis of a trust deed within the meaning of the 1985 Hague Convention. Activity is professional when it is an independent economic activity carried on to earn a regular income.

Fixed interest trust

A trust in which the deed gives each beneficiary a defined entitlement, so the trustee has less discretion. Beneficial owner questions are often simpler here because the entitled persons are named. Control by others can still matter.

H

Hague Convention

The 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. Switzerland ratified it, and FinIA refers to it when defining who is a trustee. It does not turn a trust into a Swiss legal entity.

I

Irrevocable trust

A trust the settlor cannot simply undo once the assets are transferred. The settlor has given up ownership, though reserved powers can remain. For compliance purposes the settlor often stays on the list of relevant persons.

K

KYC (know your client)

The file a trustee builds on each client and each person behind the structure: identity documents, origin of funds, purpose of the trust and a record of the beneficial owner. It is refreshed from time to time. Expect your trustee to ask for updated documents whenever your circumstances change.

L

Letter of wishes

A non-binding note from the settlor telling the trustee how the settlor would like discretion to be used. The trustee takes it into account but is not bound by it. See how a trustee uses a letter of wishes.

P

Private trust company

A company set up, often by a family, to act as trustee of one family's trusts. It can keep the family close to decisions, but it still needs to meet identification and governance requirements. Whether the trustee in that arrangement needs approval depends on the facts.

Professional activity

The test for whether a trustee needs approval. If trusteeship is an independent economic activity pursued to earn a regular income, FinIA treats it as professional. A private person acting for a relative occasionally is in a different position.

Protector

A person appointed in the deed to oversee the trustee, often with power to approve distributions or to remove and replace the trustee. A protector may also be treated as a beneficial owner if the powers are broad enough. See the entry on the protector.

R

Reserved powers

Powers the settlor keeps over the trust, such as power to direct investments or to revoke. The more the settlor keeps, the more likely the settlor remains a beneficial owner, and the less the structure may behave as intended. See reserved powers.

Revocable trust

A trust the settlor may revoke and so take the assets back. Because the settlor keeps control, the settlor is nearly always treated as a beneficial owner.

S

Segregated estate (patrimoine distinct)

The trust property, kept apart from the trustee's own assets. The trustee manages it, preserves its value and uses it for its stated purpose. Keeping it separate is the reason the trustee's own creditors should not reach it.

Self-regulatory organisation

A body approved to supervise members' anti-money-laundering compliance. A firm that was not subject to authorisation under the earlier law could carry on provided it belonged to one, during the transition to FinIA. SO-FIT acts in this capacity as well as in its prudential role.

Settlor (constituant / Errichter)

The person who creates the trust and transfers assets to it. The settlor is one of the first people a trustee identifies when establishing the beneficial owner. See the entry on the settlor.

SO-FIT

A non-profit association authorised by FINMA to act both as a self-regulatory organisation for anti-money-laundering purposes and as a supervisory organisation for asset managers and trustees. Other supervisory organisations also exist, so ask which one oversees your trustee.

Successor trustee

The person or company named to take over when the current trustee dies, retires or is removed. Naming one early avoids a gap in administration. See successor trustee.

Supervisory organisation (organisme de surveillance)

A body authorised and overseen by FINMA that checks on a day-to-day basis whether approved trustees still meet the conditions. Changes in the trustee's circumstances must be reported to it in advance. FINMA publishes lists of approved supervisory organisations and of the trustees they oversee.

T

Trust deed (acte de trust)

The document that creates the trust and sets out its purposes, the trustee's powers, who the beneficiaries are and who holds any special powers. It is the first document the trustee reads when identifying beneficial owners. Keep a complete copy with all amendments.

Trustee

The person or company that holds the trust property and administers it for the beneficiaries or for the stated purpose, in line with the deed and the applicable law. A professional trustee in Switzerland is a financial intermediary under the AMLA. It must identify the contracting party on the strength of a supporting document and identify the beneficial owner.