Liechtenstein Trust

Instrument for the Protection of Real Estate Against Expropriation-Like State Interventions

Introduction to the Liechtenstein Trust

The Liechtenstein Trust, also known as a trusteeship, is a flexible legal institution for the dedication of assets. The settlor transfers assets to a trustee, who administers them in his own name but for the benefit of the beneficiaries in accordance with the provisions of the trust deed. Unlike the Liechtenstein Foundation, the Trust does not have its own legal personality but constitutes a contractual relationship sui generis. Typically, three parties are involved: settlor, trustee and beneficiaries. Optionally, a protector may be appointed as a supervisory body. This enables a clear separation of the trust assets from the private assets of the parties involved and creates long-term structuring options for asset protection and estate planning.

Advantages and Disadvantages

The Liechtenstein Trust is characterised by a high degree of flexibility. It can be established for almost any purpose and offers a wide range of structuring options, ranging from the long-term safeguarding of family assets and business succession to efficient asset protection. Particularly attractive is the ability to consolidate complex asset structures, make creditor access more difficult, avoid court-supervised probate proceedings and maintain discretion.

The Liechtenstein Trust is based on the Anglo-American model and is therefore highly “compatible” when combined with U.S. corporate structures for asset protection solutions (e.g., expropriation-like state interventions). In addition, trusts governed by foreign law can also be established in Liechtenstein. The law stipulates that only Liechtenstein law applies in external relations. Foreign law governs the internal relationship between the settlor, trustee and beneficiaries, while the statutory provisions of Liechtenstein law apply in the trust’s relationship to third parties.

However, potential disadvantages should be taken into account. The Trust is not recognised internationally everywhere, and the trustee must be licensed in Liechtenstein. The trust assets are subject to insolvency proceedings, and the Trust is generally less suitable for operational, active business activities. Nevertheless, for many settlors with substantial or complex assets, the advantages outweigh the disadvantages.

Establishment and Structuring Options

Establishment is effected by a written trust deed between settlor and trustee, by unilateral declaration of the settlor with acceptance by the trustee, or by last will. The deed governs the relationships of the parties, the transfer of assets, the administration and the beneficiaries. Foreign law may be chosen for the internal relationship, while Liechtenstein law applies to third parties. There is no minimum capital requirement, and practically all asset classes can be contributed.

Commonly used forms include the irrevocable discretionary trust (Irrevocable Discretionary Trust), which creates a particularly strong separation from the settlor and minimises the risk of piercing the trust veil. Other variants include the revocable trust, the fixed-interest trust with fixed entitlements, the charitable trust for charitable purposes and the special-purpose trust for specific purposes without individual beneficiaries. The deed may be registered or deposited with the Commercial Register, in which case the name, date of establishment, duration and the trustee appear publicly. Internal arrangements such as the Letter of Wishes or binding regulations remain confidential and serve to allow the settlor to exercise control.

Roles and Parties Involved

The settlor sets out the basic framework in the deed and can secure influence through a Letter of Wishes or regulations without jeopardising the separation of the assets. The trustee manages the segregated assets with the diligence of a prudent businessman, keeps accounts and submits annual statements. He is personally liable for breaches of duty, but the trust assets themselves are protected from his private creditors. Beneficiaries enjoy varying degrees of entitlements and information rights depending on the structure (fixed or discretionary). The discretionary trust offers particularly good protection against the creditors of the beneficiaries.

Asset Protection and Tax Considerations

A key advantage lies in asset protection. The trust assets are separate from the private assets of the parties involved. Creditors of the settlor have only limited access options, for example where the transfer is contestable. Creditors of the trustee and, in many cases, also of the beneficiaries cannot access the trust assets. Real estate is registered in the name of the trustee but can be secured by notations or annotations in the land register.

For tax purposes, the Trust in Liechtenstein is subject to a flat-rate minimum tax of CHF 1,800 per year if it is domiciled or administered there, while profits are exempt from income tax. In Germany and Switzerland there is no uniform regulation. For German residents, careful structuring as an irrevocable discretionary trust is recommended to avoid attribution. Distributions to German beneficiaries are subject to capital gains tax. In Switzerland, foreign trusts are recognised under civil law but are often treated as transparent for tax purposes.

Practical Guidance for Trust Settlors

Licensed trustees in Liechtenstein offer comprehensive services for establishment and administration – from the preparation of documents to accounting, compliance and ongoing administration. Costs start with flat-rate fees for establishment and the appointment of the trustee, while annual administration fees range between CHF 9,000 and 18,000 depending on complexity. The Liechtenstein Trust is particularly suitable for individuals with substantial assets, complex family circumstances, succession planning needs or a desire for long-term security and discretion. Professional advice is essential to optimally implement individual objectives and minimise tax and legal risks.