A South African resident settlor and a trustee in Switzerland

A South African resident settlor who works with a trustee in Switzerland is, in practice, running a three-party conversation: you, an adviser in South Africa, and the trustee in Geneva. The trust itself is only as good as the information that moves between those three. This page explains what the trustee asks of you, what it asks of your local advisers, and how a first year usually unfolds.

It deliberately stays on the practical side. How South Africa treats a foreign trust, and how your own tax position works, are questions for a South African adviser; they are flagged below with the questions to put to that adviser.

What the trustee needs from you

A Swiss trustee is a regulated professional. Before it accepts assets, it has to understand who you are, where the assets come from and what you want the trust to do. For a settlor living in South Africa, that usually means four groups of material.

None of this is unusual. A trustee that asks very little at the start is a reason for concern, not comfort. Our guide to due diligence on your trustee lists what you can check in return.

Who talks to whom

The diagram below shows the normal flow. The settlor is the centre, but the local adviser and the trustee should also speak to each other directly, with your written permission, so that nothing is lost in relays.

The order matters. A common difficulty is the trustee being asked to build a structure before anyone in South Africa has said what the home-country consequences are. It is much cheaper in time and effort to settle that question first.

What a trustee in Switzerland does and does not decide

Two layers sit side by side, and it helps not to mix them up.

The Swiss and Hague layer

The Hague Convention on the Law Applicable to Trusts and on their Recognition entered into force for Switzerland on 1 July 2007, and the Federal Office of Justice confirms that foreign trusts have been recognised in Switzerland since that date. The Swiss implementing rules in the Private International Law Act (chapter 9a, Articles 149a to 149e) sit alongside it.

Two points from the Convention matter for a settlor abroad:

• Governing law. Under Articles 6 and 7, the trust is governed by the law you choose. If that law does not know the trust, the choice has no effect and the law with the closest connections applies instead, looking at the place of administration, the location of the assets, the trustee's residence and the purposes of the trust.
• What recognition means. Under Article 11, recognition means at least that the trust assets are kept apart from the trustee's personal property and that the trustee can act in court in that capacity.

The Convention also leaves mandatory local rules in place under Article 15, for example on the protection of minors, the effects of marriage, succession rights and creditor protection. That is why the next layer cannot be skipped.

The South African layer

Whether South Africa recognises the trust for its own purposes, how it treats you as settlor, and how it treats beneficiaries living there are matters of South African law. The Swiss trustee can describe the structure precisely; it should not be the one to tell you how South African authorities will see it. Article 13 of the Convention also allows a state not to recognise a trust whose significant elements are connected only with states that do not have the institution. Which side of that line your situation falls on is a question for your local adviser.

Swiss tax points worth knowing, without confusing them with your own

The Swiss federal tax circular on trusts describes how Switzerland treats different types of trust. Three points are relevant when a settlor lives abroad:

• A revocable trust is treated as transparent: assets and income stay taxable with the settlor at the settlor's residence, and a distribution to a beneficiary is treated as a gift, at a rate set by the cantons.
• For an irrevocable fixed interest trust, the beneficiary can be treated like a holder of a usufruct, and the creation of the trust counts as a gift from settlor to beneficiary.
• For an irrevocable discretionary trust, where the settlor is domiciled abroad at the time of creation, the assets are attributed neither to the settlor nor to the beneficiary for Swiss tax purposes.

These are Swiss rules. They say nothing about South African treatment, which can differ and which depends on your residence, your assets and your family. The kind of trust you choose also changes the trustee's work: see the trustee role in revocable and irrevocable trusts and the trustee of a discretionary trust.

What to ask your South African adviser

Ask for written answers, addressed to you and shareable with the trustee. A useful list:

• Is the trust, as designed, recognised for South African purposes, and how are you taxed as settlor?
• How are beneficiaries resident in South Africa treated when they receive distributions?
• Do reserved powers, a protector or a letter of wishes change that treatment?
• What filings do you, as an individual, have to make about a foreign trust, and by whom?
• Are there foreign-exchange or other controls on moving assets out of the country, and who handles any approvals?
• How should the trust deed be worded to avoid a mismatch with local rules?

On the Swiss side, our pages on settlor reserved powers and working with a protector explain how those features affect what the trustee can do.

Example: a first-year calendar

Example: a family business owner based in Cape Town, Mr and Mrs N., wants a discretionary trust for their children and has engaged a tax adviser at home. The calendar below is an illustration of the rhythm, not a promise of timing; the actual pace depends on the structure and on how quickly documents arrive.

The year-end step is where most South African families first see the value of the arrangement: a single review in which the trustee, the settlor and the local adviser look at the same set of papers. A yearly compliance review and an annual trust health check give you a template for it.

What the trustee reports back to you

You should expect a regular flow of information, not just an annual envelope. At a minimum: accounts of the trust assets, a record of significant decisions and the reasons for them, and notice of any change in the trustee's own position. What you can and cannot demand is covered in what information your trustee must give you.

If you move from South Africa to another country later, your tax position and the trustee's reporting can both change; when the settlor moves country explains what the trustee does then.