Last updated: 15 Nov 2025

Germany–Switzerland: Trusts & Foundations in Cross-Border Inheritance

How foreign/common-law trusts and foundations (Stiftungen) are viewed between Germany and Switzerland, when to prefer a foundation, how to fund and distribute cross-border, and how this interacts with treaty allocation, Swiss cantonal inheritance taxes, and § 21 ErbStG. Includes governance tips and evidence packs for filings.

1) German & Swiss classification of foreign trusts

• Substance over form (both sides): Civil-law systems focus on who has control and economic entitlement, not just the label “trust”.
• Revocable grantor trusts: Often treated as transparent for German purposes; economically, assets remain with the settlor until death or irrevocability. Swiss practice may follow a similar economic-ownership view.
• Irrevocable discretionary trusts: Both Germany and Switzerland analyze whether and when beneficiaries acquire a concrete enforceable right vs. a mere expectation. This drives whether inheritance/gift tax arises at funding, at death, or only at distribution.
• Fixed-interest / life-interest trusts: Where rights are clearly defined (fixed shares, life interests), an acquisition event is more easily identified for German inheritance tax and Swiss cantonal inheritance/gift tax.
• Estate vs. ongoing trust: Distinguish administration of the decedent’s estate (executor role) from a continuing trust/foundation structure that holds assets beyond the estate settlement phase.

2) Taxable events: funding, vesting, distributions

• Funding during life: May trigger German gift tax and/or Swiss cantonal gift tax if beneficiaries obtain an economic interest when assets are settled into the trust/foundation.
• At death: If the trust/foundation becomes operative only at death or if rights vest then, this may be treated as an inheritance event for Germany (per beneficiary) and for relevant Swiss cantons.
• Distributions: Where beneficiaries only acquire on payout, recurring or lump-sum distributions can constitute the relevant taxable acquisitions, especially in discretionary setups.
• Per-beneficiary lens (Germany): German inheritance tax always looks at each recipient: allowances (e.g. €400k child), tax class (I/II/III), and rate band; for Switzerland, cantonal rules and relationship-based tariffs apply.
• Evidence-driven: Trust deed, statutes, side letters, distribution guidelines, and minutes are crucial for determining the timing and nature of the taxable event.

3) Treaty framework & §21 ErbStG interaction

• Start with the bilateral framework: Clarify residence and situs under the Germany–Switzerland inheritance-tax rules (see Treaty overview (Germany–Switzerland)).
• Foreign death duties: If Swiss cantonal inheritance tax (or German ErbSt on a Swiss resident’s estate) is levied on the same asset slice as in the other jurisdiction, credit relief comes into play.
• §21 ErbStG in practice: Germany may credit Swiss cantonal inheritance tax paid on Swiss-situs assets against German inheritance tax, capped at the German tax attributable to that Swiss slice for each beneficiary.
• Trust/foundation context: Clarify whether foreign tax is levied at the level of the estate, the trust/foundation, or directly on the beneficiary, and which assets were taxed abroad, so the German §21 computation can match the correct slice.

4) Foundations (Stiftungen): when they fit

• Use cases: Long-term family wealth governance, holding of business and real estate across Germany and Switzerland, philanthropy, and controlled, rule-based distributions to descendants.
• Predictability: German and Swiss family foundations (and selected foreign foundations, e.g. Liechtenstein) offer a recognized legal personality and more predictable entry/exit taxation than many trust constructs from a German/Swiss perspective.
• Design levers: Statutes (purpose, beneficiaries, distribution regime), board composition, protector or supervisory body, investment guidelines, and succession in governance.
• Cross-border angle: Decide whether a German, Swiss, or third-jurisdiction foundation is most suitable, and obtain upfront guidance/rulings where feasible to avoid later disputes.

Implementation: Foundation structuring · Foundation management

5) Governance & asset protection

• Control mapping: Avoid excessive retained powers (unrestricted revocation, broad unilateral appointment rights) that may lead German or Swiss authorities to question whether a real transfer occurred.
• Distribution policy: Define objective criteria and processes for ordinary and extraordinary distributions (education, health, entrepreneurship support, etc.) to reduce the impression of ad-hoc, settlor-driven decisions.
• Checks & balances: Separate roles for settlor, board, protector and investment committee; keep detailed minutes for key decisions to demonstrate independent governance.
• Liquidity: Plan liquidity for German inheritance tax, Swiss cantonal inheritance/gift taxes, and potential forced-share (Pflichtteil) claims, ideally without forced asset sales.

6) Documentation & evidence for filings

7) Common pitfalls & risk controls

• Wrong event timing: Treating a mere discretionary expectation as a vested acquisition (or the reverse) can lead to missed or premature filings in Germany and/or Switzerland.
• Unclear situs mapping: If it is not evident which assets are DE- vs. CH-situs, authorities may deny or limit treaty relief and §21 credits.
• Retained control by settlor: Excessive powers may lead to re-characterization at death and unexpected inheritance-tax exposure.
• Missing or weak evidence: Lack of proper appraisals, governance documents, or payment proofs tends to prolong audits and increase interest/penalties risk.

Next steps & services

Also see: Foundation management · Executor services