Spanish resident settlor: working with a trustee in Switzerland

A Spanish resident settlor who places assets with a trustee in Switzerland is dealing with two worlds at once: a trustee who administers under a chosen governing law from Switzerland, and a home country whose rules on residence, family and tax continue to apply to you. The trustee can run the trust well. It cannot answer, on your behalf, what Spain makes of the structure. That is why the useful starting point is not the trust deed but the division of work between you, your local advisers and the trustee.

This page is practical. It explains what a trustee in Switzerland will ask of you, what it will ask of the advisers you already have, how information should travel, and what a sensible first year looks like. Spanish law and tax are only flagged here, with the questions to put to a Spanish adviser.

What a Swiss trustee actually does for a settlor in Spain

The trustee holds title to the trust assets, keeps them separate from its own property, administers them under the trust deed and accounts for what it does. That description follows the definition in Article 2 of the Hague Convention on trusts, which also confirms that powers reserved by the settlor are not, in themselves, incompatible with a trust. Where you keep such powers, the trustee needs to know exactly how and when you intend to use them; our page on settlor reserved powers and the trustee goes into the practical side.

For a settlor living abroad, the trustee's work has three layers:

• The trust itself: deed, governing law, beneficiaries, any protector, investment and distribution policy.
• The regulated layer: identifying who you are, where the assets come from, who benefits, and keeping that picture current. A regulated trustee has anti-money-laundering duties that do not depend on your goodwill.
• The cross-border layer: reporting and information that your country of residence may expect, which the trustee supports but does not decide.

The third layer is where most misunderstandings arise. A trustee will usually be glad to provide documents, but it will not tell you how Spain should treat them.

Who talks to whom

Information should move in a deliberate pattern. When the settlor relays messages between advisers, details are lost and questions are answered twice, differently. The diagram below shows the simplest workable arrangement.

Two points follow from this. First, the trustee should hold a signed authority naming which adviser may receive which documents; a trustee that releases trust papers to an unidentified third party is not being careful. Second, the Spanish adviser should have the trust deed and the letter of wishes before giving any view, not a summary of them.

What the trustee needs from you

Before a trustee accepts the role, it will want a full picture of the settlor. For a person resident in Spain this typically includes:

• proof of identity and of residence, and details of any other nationality or tax residence;
• the origin of the assets to be transferred, with supporting documents;
• your objectives, and the family members or purposes the trust is meant to serve;
• a description of the assets, including any held in company form or located in another country;
• the powers you wish to reserve, if any, and whether you want a protector.

The aim is not bureaucracy for its own sake. A trustee that lacks this picture cannot administer prudently, and cannot explain its decisions to a regulator or a court later. Our due diligence questionnaire for trustees shows the questions you should ask in return.

What the trustee needs from your local advisers

The trustee in Switzerland will normally ask for a written view from counsel in your country on matters that sit outside its competence. A good request names the topic and the use that will be made of the answer.

This division matters because the trustee is not a tax adviser to your country. It will not file anything in Spain for you, and it should say so plainly.

Recognition and tax: flagged, not resolved

Several points are known from official sources, and several are not.

What is known from the Convention. The governing law of a trust is the one chosen by the settlor, expressly or by implication, and failing that the law with which the trust is most closely connected, looking at the place of administration, the location of the assets, the trustee's residence and the purposes of the trust (Articles 6 and 7). A trust validly created under its governing law is recognised as a trust, which at a minimum means the assets are separate from the trustee's personal estate and the trustee can sue and be sued in that capacity (Article 11). A state is not bound to recognise a trust whose significant elements connect essentially with states that do not know the institution (Article 13). The Convention also leaves in place mandatory rules of the forum on matters such as the protection of minors, the effects of marriage, succession rights, the transfer of title and the protection of creditors (Article 15).

What this means for you. If your connections to the trust are mainly with a country that does not know trusts, the question of how that country will treat it is real and has to be asked. Whether Spain applies the Convention, and how its courts and authorities deal with succession, marriage and creditor rules in relation to a trust, is a matter for a Spanish adviser. This page does not state that position.

Swiss side. Switzerland ratified the Convention on 26 April 2007 and it entered into force there on 1 July 2007; the Federal Office of Justice confirms that foreign trusts have been recognised in Switzerland since that date. The Swiss federal circular on trust taxation distinguishes by type: a revocable trust is treated transparently, so assets and income stay with the settlor at their place of residence; an irrevocable discretionary trust whose settlor was domiciled abroad when it was created does not have its assets attributed to the settlor or to a beneficiary for Swiss purposes. Those statements describe the Swiss treatment only. How Spain taxes the settlor, the trust or the beneficiaries is not answered by them, and our page on what the trustee does when the settlor moves country explains why residence changes make this more complicated.

Questions to put to your Spanish adviser, in writing:

1. How is a trust with a Swiss trustee classified for your own reporting?
2. Do distributions, or only the existence of the structure, create obligations for you or for beneficiaries?
3. Do any mandatory family or succession rules limit what you can place in the trust?
4. What information about the trust must you disclose, and to whom?
5. What would change if you moved residence?

Example: a first-year calendar

The following is an illustration, not a model for every case. Consider a fictional settlor, a retired entrepreneur living in the region around Valencia, who sets up a discretionary trust with a corporate trustee in Geneva. Her adviser is a Spanish lawyer who works with a tax specialist.

The rhythm is what matters. The trustee's report must reach the Spanish adviser early enough to be used, and any change of residence, marriage, death or new asset must reach the trustee before it affects a decision. The annual trust health check can serve as the agenda for the closing review.

Letters of wishes and communication

A letter of wishes is the usual way for a settlor to explain how the trustee should exercise its discretion. For a settlor in Spain it deserves extra care: it is a document a Spanish adviser will want to see, and it can be requested in a family dispute. Write it with that in mind, keep it consistent with the deed, and update it when circumstances change. How a trustee uses and updates the letter is covered under letters of wishes and your trustee.

Choosing the trustee before you choose the structure

Many settlors in Spain arrive with a structure in mind and look for a trustee afterwards. It works better the other way round: a trustee who understands your family, your country and the limits of its own competence will shape the structure sensibly. Our decision method for choosing a trustee in Switzerland and the page on appointing a trustee for a new trust set out the criteria. If you want a protector as a check on the trustee, see working with a protector.

Fees depend on the structure and the work involved and are indicated after the confidential assessment.