Fixed Trusts

Understanding the fixed trust

The fixed trust (also known as a bare trust in its simplest form) is distinguished from the discretionary trust by the nature of the rights it confers on beneficiaries. In a fixed trust, the trust deed precisely defines the shares or entitlements of each beneficiary. The trustee has no latitude regarding distribution: it is bound to distribute the assets in accordance with the predetermined terms.

This structure is particularly well suited to situations where the settlor wishes to guarantee a specific allocation of their estate, for example providing regular income to a surviving spouse or distributing capital equally among children at a specified age.

Key characteristics of a fixed trust

• Vested interests: Each beneficiary holds a legally enforceable right to their share of the trust. They can require the trustee to comply with the distribution terms.
• Predictability: Beneficiaries know in advance what they will receive and when, facilitating their own financial planning.
• Transparency: Beneficiaries with fixed entitlements generally have the right to be informed of the composition and value of the trust assets.
• Administrative simplicity: The trustee follows the instructions in the trust deed without needing to exercise discretionary judgement over distributions.

When to use a fixed trust

A fixed trust is generally recommended in the following situations:

• Regular income: Providing a stable and predetermined income to a spouse, an elderly parent or a dependent beneficiary.
• Equal distribution: Distributing an estate in equal shares among several children or grandchildren at a specified age.
• Contractual obligations: Situations where prior commitments require fixed distributions, for example under a divorce settlement or family agreement.
• Tax considerations: In certain jurisdictions, fixed trusts benefit from more favourable tax treatment than discretionary trusts, particularly regarding inheritance tax.

Fixed trusts and asset protection

It is important to note that a fixed trust offers a different level of asset protection compared to a discretionary trust. Since beneficiaries hold vested interests, these rights may in certain jurisdictions be seized by creditors or taken into account in matrimonial proceedings. The level of protection must be assessed with reference to the governing law of the trust and the domicile of each beneficiary.

Our team conducts a detailed analysis of the legal and tax implications in each relevant jurisdiction before recommending a fixed structure. In some cases, we may propose hybrid structures combining fixed and discretionary elements to optimise protection while guaranteeing certain distributions.

Administration of a fixed trust from Geneva

As a FINMA-licensed trustee, Swiss Trustee administers fixed trusts applying the highest standards of governance and compliance. Our obligations include strict adherence to the terms of the trust deed, fiduciary accounting, regular reporting to beneficiaries and compliance with Swiss and international regulatory obligations (CRS, FATCA, AMLA).

We also coordinate with custodian banks, investment advisers and tax specialists to ensure optimal management of trust assets, in accordance with the instructions of the trust deed.