Семейный фонд Княжества Лихтенштейн на практике

The Liechtenstein foundation in practise

INTRODUCTION

In recent years the global market for financial services has been characterised by profound up-heavals, with special emphasis on the and «Know-Your-Customer»-Rules and rules to combat money-laundering and international terrorism.To this end, the Principality of Liechtenstein has made concentrated efforts to establish new standards of quality which have gained international recognition and respect, notably from the Financial Action Task Force (FATF) and the International Monetary Fund (IMF).

In parallel with this, we have seen a trend away from so-called «offshore» structures (i.e. those which take no account of the tax situation of the private client) towards «onshore» solutions. This has been necessitated by, inter alia, the tax amnesties already implemented by individual countries (e.g. Italy), and proposals of equivalent measures at national level in other countries. In this context, an increasing number of moves from simple to complex structures can be forecast.The USA in particular is attempting to identify those of its potential tax-payers with offshore bases. This is taking place against the background of new US-rules on the deduction of withholding taxes in the case of investments in US-securities made through foreign financial intermediaries (under the heading of «Qualified lntermediaries»).The European Union is working towards harmonisation of the taxation of the interest-related earnings of its citizens.This is to be done in various ways including the automatic exchange of information between the tax authorities in the jurisdiction of domicile of the bank’s client.This regulatory regime is to be applied with the cooperation of important third countries (Switzerland, Liechtenstein etc.) who will have to introduce measures of «equivalent value» chief among which is the introduction of a standardised paying-agency tax (Zahlstellen-steuer) in these third countries on remittance for the benefit of EU citizens. Switzerland achieved a breakthrough in the negotiations with the EU in January 2003. The result of this is that Switzerland, Liechtenstein and other third countries such as Belgium, Luxembourg and Austria will in fact be retaining their banking client secrecy for the foreseeable future.

Against this changed background and the persistent slump in world stock markets, instruments which have an application in financial planning will have to prove their value.The future success of these structures will depend, firstly, on their fiscal positioning within the international context, and, secondly, on the extent to which they are embedded within the existing financial planning of wealthy clients.

The individual financial centres have to strike a careful balance between increasing the attractiveness of their services and financial products whilst avoiding the stigma of being called a «tax-haven». Firms offering niche products will, however always find a ready demand for them.Thus, in recent years, a variety of financial centres have tried to include the successful Liechtenstein family foundation, adapted to a greater or lesser extent, within their product portfolios.

The following pages, as well as giving a general explanation of Liechtenstein family foundations also contain more detailed information for the benefit of practitioners.

I.THE CONCEPT, LEGAL FORMAT AND NATURE OF FOUNDATIONS

The foundation can be defined as a legally independent asset which has been donated for a specific object in accordance with the intentions of the Founder (St/fter). Definitions of such objects are listed by way of example in the Liechtenstein Law on Persons and Companies (Art. 552 Sec. I of Liechtensteinisches Per-sonen- und Gesetlschaftsrecht, PGR) whereby in practice the Family Foundation is far more important than charitable or religious foundations.

The Family Foundation (Familienstiftung) requires that the beneficiaries shall be members of one or more designated families (Art. 553 Sec. 2 PGR).The term Mixed Family Foundation is used when the donated assets also serve «in addition or supplementally» to objects outside the families. Beneficiary Foundations (Genussstiftungen) are foundations whose beneficiaries are specifically designated or definable.

The foundation possesses its own independent legal personality, and as such is itself endowed with rights and obligations, can hold bank accounts, hold power-of-attomey and be a party to litigation. In this way it is differentiated from the Trust (Treuhanderschaft) as defined under Art 897 et seq. PGR, whereby the trustee himself ad personam acts as the legal, though not the beneficial owner of the trust assets, is the named holder of bank accounts, exercises powers-of-attomey and is the named party whether as plaintiff or defendant in litigation. Although Trusts are being used increasingly in Liechtenstein and other Civil Law jurisdictions, financial intermediaries, clients and courts sometimes face difficulties with this instrument.

The following are deemed to be the necessary elements in the formation of foundations:

• the statement of the intent of the Founder to establish a foundation;
• the designation of the assets to be dedicated to the foundation;
• the definition of the objects of the foundation.

The fundamental liberality of the Liechtenstein provisions on Foundations, characterised by the principle of private autonomy, means that the requirements both in formal and material terms for the setting up Family Foundations are relatively modest:

• unilateral legal transaction by the Founder; no public deeds are required;
• low statutory minimum capital (CHF 30,000.00);
• the possibility of establishing Maintenance Foundations (Unterhaltsstjftungen) allowing unconditionalpayments to be made to beneficiaries for generalliving expenses — this is e.g. not permissible for family foundations established under Swiss law;
• entry is not required in any register accessible tothe public;
• the ability to set up the foundation on behalf of the beneficial Founder by a fiduciary agent such as, for example, a Liechtenstein attorney, a trustee or a trust company.

The following additional advantages should be emphasised in regard to the administration of a Liechtenstein Family Foundation:

• endowments can be made to the foundation of any rights of monetary value: cash, shares, precious metals, receivables, collections of works of art or artefacts etc.;
• it is not subject to any general official supervision;
• it is not obliged to have its accounts audited nor to publish them;
• the establishing, maintenance, administration and dissolution of the family foundation are carried out under conditions of the strictest confidentiality; the tax burden in Liechtenstein is minimal; there is an utmost discretion in structuring the internal organization of the foundation, in allocating authority to the officers, in managing the assets and in the protection of family members;
• the possibility of including provisions in the statutes whereby, in case of compulsory distraint, benefits cannot be reclaimed from the assets of the beneficiary even when obtained without consideration;
• the foundation is terminated ipso iure as soon as it has no further assets or the purpose of its establishment can no longer be achieved. The board of the foundation simply has to establish that such is the case.

Il.TYPES OF FOUNDATIONS

I. General

The Liechtenstein Law of Foundations, as already stated, rests largely on the principle of private autonomy i.e. the freedom to structure the internal organization of the foundation in the manner most suitable to the founder (principle of freedom of foundations). A subject of persistent controversy, which has occupied the courts of Liechtenstein for decades, is the question of whether the so-called „founder’s nights“ are admissible as powers to be exercised by the officers of the foundation (cf. fig. VII below for more details), Any ongoing influence to be exerted on the activities of the foundation by the founder as a body of the foundation requires, at all events, to be reserved in the statutes.

On the other hand, in a 1990 decision, the Supreme Court of the Principality of Liechtenstein (F.L Oberster Gerichtshof, OGH) made it clear that the issue of the By-laws designating beneficiaries is not a compulsory requirement for the valid establishment of a foundation. In the opinion of the Supreme Court, the omission, at the time of establishment of clear provisions concerning beneficiaries is a serious defect but this, the court asserts, can be remedied retrospectively and must be accepted for reasons of certainty of law3. This ruling, which predominantly relies on trusteeship practice, is vehemently disputed, since it obscures the central question of the adequate definition of purpose and thus of the valid establishment of the foundation.

Furthermore, an element of this freedom of structure is that the authority to nominate the beneficiaries and allocate benefits from the foundation may be reserved to a particular body known as the „Colla-tor“ (Kollator), instead of to the board of the foundation (Art. 561 Sec. 2 PGR).

Finally, the identity of the beneficiaries and the amount of their specific interests does not have to be fixed in detail at the time of the formation of the foundation. It is sufficient for the board of the foundation to be given the widest possible discretion in the nomination of the beneficiaries and the allocation of benefits (e contraho from Art. 567 Sec. 2 PGR and § I I of the Liechtenstein Collection of Case Law, LES 199 1, 9 I (107) and LES 1990, 105 (I 19)).

Law on Trust Enterprises, Gesetz iiber die Treuun-temehmen, TrUG).This type of foundation is known as „Discretionary Foundation“ (Ermessensstifiung).

2. The classic structure of the foundation

In the classic structure of a family foundation the regulation of the beneficiaries is vested in a by-law or regulation, in which the Founder both nominates the beneficiaries and defines the extent of the benefit at the time of the establishment of the foundation.The dominant position of the economic Founder, who is also generally the prime beneficiary, of the foundation assets, is in practice thus secured together with an agreement which he may enter into with the members of the supreme body of the foundation. On the death of the Founder the residuary beneficiaries accede to beneficial interests to the extent provided for by the by-laws.

This rigid determination of the beneficiaries and their beneficial interests is often desirable in order to clarify relationships but, at the same time, it can be a disadvantage in some cases:

Firstly, the unconditional claim on capital benefits or income by a beneficiary can have disadvantageous tax consequences and, in certain circumstances — despite the disparity of legal personality under Civil Law, — can lead to an unwelcome attribution of the assets to the beneficiary in his/her country of domicile.

Secondly, after the death of the economic Founder the foundation board can no longer make allowances for fundamental changes in the family or in the circumstances of a beneficiary. If, for example, a beneficiary on reaching the relevant age to receive a distribution, finds himself in difficult circumstances or in an unsatisfactory social environment, the board of the foundation has generally no legal power to prevent the unconditional distribution even if its withholding would have clearly been in accordance with presumed intentions of the Founder.

3. Discretionary foundations

As the name suggests, in a discretionary foundation the Founder grants the board of the foundation more or less wide discretion in nominating the beneficiaries and determining their beneficial interests. On the formation of the foundation, instead of nominating a fixed succession of beneficiaries and contingent beneficiaries, a single class of beneficiaries is established, as a rule, all the members of the Founder’s family. By its very nature, it is not made clear at the outset whom among the class of beneficiaries will be nominated as a beneficiary or the extent of their ultimate benefit The board of the foundation simply receives guidelines from the Founder as to how the purposes of the foundation are to be achieved and how a system of the allocation of benefits might be envisaged. In this context, a „letter of wishes“ has no binding power whatsoever.

In order to achieve some form of „checks and bal-ances“ in the administration of a foundation, the board of the foundation may be assisted by an officer known as a „Protector“ (Protektor) or a Committee of Protectors who advises the board in all its important decisions. The level of significance of this counselling, however, can vary significantly. As a rule the Protector has a detailed knowledge of the family circumstances and enjoys a position of complete trust. He may be a legal entity or a natural person — the family attorney the personal financial advisor or a friend of the family. The board and the Protector should always come to a common opinion before the board decides on a distribution to a nominated individual in the class of beneficiaries.

Any obligation or restriction of any kind on the board of the foundation by reason of a contractual agreement is harmful and runs counter to this concept of the foundation.

In the context of the changes to the US legislation on the withholding tax regime, the Discretionary Foundation may be regarded as a „beneficial owner“, to the extent that the conditions of a „complex structure“ are fulfilled.

4. Mixed form

This is a combination of the classic and the discretionary foundation. In this form, the beneficial interest of the Founder and prime beneficiary is fixed for his lifetime whilst, on his death, further beneficiaries are nominated from the designated class of beneficiaries at the absolute discretion the foundation board with the approval of the Protector (if any).

III. LIECHTENSTEIN FOUNDATIONS AND ASSET MANAGEMENT

I. Principles of asset management

To achieve the purpose of a foundation it is necessary that the assets dedicated to the foundation are properly managed, conserved and if possible, grown. Depending on the composition of the assets originally committed, the board of the foundation would be well advised to call upon qualified third parties as professional investment advisors and asset managers.

The destruction of wealth caused by the unforgettable stock-market crash of 1987 as well as the continual weakening of markets around the world in recent times, plus the massive proliferation of new investment instruments, have all led to a fundamental and far reaching debate about whether there are any restrictions on the management of assets within family foundations and, if so, the extent of such restrictions.

It is well known that there is a general legal restriction forbidding foundations from engaging in any trade or commercial activities as such on its own behalf. On the other hand, the investment and management of its own assets does not come under this heading, regardless of the number of stock-market transactions carried out on its portfolio.

However, the legal principles are very rudimentary. In Art. 558 Sec. 5 PGR it is succinctly stated that in case of doubt the investment of assets must be carried out on a very conservative and safe manner (treuhand-sichere Anlagen). Reference is made to the investment of securities of the Liechtensteinische Landesbank, a mainly state-owned bank. The regulations relating to trust companies applied by analogy state that the trustees „shall ensure the orderly administration and preservation of the trust assets in their legal and economic state“ (§ 28 Sec. I TrUG).They also lay down the „obligation to conserve, improve and secure the trust assets“ (Sec, 2). If no guidance can be inferred from the objects of the trust company or the trust deed itself for example from any investment clauses, then the investment must be «safe and profitable)) (§ 3 I Sec. I TrUG).

The essence of these provisions is that, in the absence of any other rules, the board of the foundation must pursue a conservative investment policy.

It is rare to find rules governing the investment of assets in the statutes normally adopted by foundations in Liechtenstein. The exception would be where provision is made for the „free and unrestricted discretion of the board“. It is occasionally stated that emphasis should be placed principally on safety, with income/yield as only a secondary consideration. It is therefore possible for the board to pursue a dynamic investment policy, depending on the scope provided in the statutes, provided that the purpose of the foundation is not frustrated in the process.

Published case law on this topic is, to date, non-existent.

In general, the board of the foundation as the body responsible for management cannot avoid making the following fundamental decisions when it comes to delegating the management of the assets to third parties:

• the selection of asset manager and/or depository bank;
• the adoption of an investment strategy and appropriate guidelines;
• the implementation of mechanisms for supervision and periodic monitoring.

Depending on the provisions of the foundation statutes and by-laws, the board has a fairly comprehensive duty of care in making the above decisions or taking action when exceptional circumstances occur If, during his lifetime, the Founder formally or informally reserves the right to participate in the above decisions, or when there is actual discussion with the beneficiaries, the board’s duty of care has to be implemented in a different way. This is especially necessary when there are different categories of beneficiaries -perhaps minors or beneficiaries with differed benefits, or if a pre-existing and poorly-structured portfolio has been endowed to the foundation, originally. The board of the foundation is required to act as the situation requires, taking account of the purpose of the foundation, the intention of the Founder and the interests of the beneficiaries.

It is therefore important that a detailed analysis of the situation of the beneficiaries is carried out after the death of the Founder In certain circumstances it may be necessary to re-direct the management of foundation assets for example placing greater emphasis on income rather than on capital growth.

In Discretionary Foundations, the investment programme and the laying down of an investment strategy are undertaken, if necessary, in consultation with the Protector.

2. Modern investment instruments

a) General

The whole field of investment has become more global, faster-moving and altogether more complex, and requires decisions to be made in an ever shorter time-span. At the same time the flood of information with a possible relevance to decision-making has become too great for any individual to keep up. Today’s financial markets are characterised by a drive to innovate, which generates a continuous flow of new products designed to achieve very different objectives. At the same time, the legal untangling and evaluation of these new products usually lags a long way behind their development. Nonetheless, the board of the foundation is obliged to get to grips with all this, since it is ultimately responsible for the management of the foundation’s assets.

b) Derivative financial instruments

Derivative financial instruments and transactions are financial contracts, the value of which is derived from one or more underlying base-values, either shares, or commodities, or to reference-scales such as interest-rates, indices or currency values.Traditionally, a distinction has been drawn between, on the one hand, fixed-date futures trading, where all the conditions are fixed in advance — classic futures trades, SWAPS not quoted on the stock-exchange and futures quoted on the stock-exchange, and, on the other hand options on futures, SWAPS, calls and puts.

The economic motives for using these financial instruments might be:

• hedging (i.e. insuring against a sharp fall in the value of a security);
• investment;
• a mix of these.

If this type of financial instruments is used in the context of hedging, then in principle there can be no objection to it. On the contrary, it conforms to the principle of conserving assets, even if such insurance has a cost.

Structured transactions, where synthetic investment instruments are used combining a traditional investment instrument such as a bond with a derivative, give no cause for concern, provided:

• they are intended as a hedge;
• they guarantee at least full repayment of the capital invested;
• no leverage effect on the portfolio as a whole is anticipated; and
• they conform with the own investment policy of the bank managing the assets.

It is important to note that as instruments for investment, such derivatives may have a speculative character Because of their inherent leveraging effect and the unlimited margin requirement through which futures, for example, are secured, they are impermissible from the foundation’s point of view, since the foundation would be entering into non-calculable commitments.

If such speculative transactions are undertaken however, precautionary measures should be taken, whereby the board of the foundation decides, for example, to make a disbursement to a beneficiary and the foundation undertakes these transactions as a trustee on behalf of the said beneficiary, though without in any way endangering or involving the remaining assets. At all events, the foundation may not enter into any margin commitments going beyond this, on behalf of the beneficiaries.

c) Securities Lending

i) General

In short, Securities Lending is the commercial lending of equities or bonds against a guarantee. Stockbrokers use this procedure to obtain securities when there is any delay in obtaining title documents from third parties to securities due for delivery.

In legal terms, this is a transaction similar to a loan, by which the lender undertakes to transfer ownership temporarily in specified securities to the borrower against an undertaking to return securities of the same type, quantity and quality. Thus the claim to re-payment is guaranteed by the pledging of securities or liquid assets, which must be placed in the depository bank for the benefit of the foundation, or through bank guarantees.The depository bank also becomes liable for any default by the borrower in accordance with customary practice. All income whether dividends, interest or premiums arising during the period that the securities are on loan, accrue to the benefit of the lender In overall terms, access to the securities is not diminished. The economic motive for the lender is that of obtaining additional commissions to improve the performance on the portfolio.

The lender, in this case the foundation, provides the securities to be lent,

The borrower is the other party who takes delivery of the securities lent by the foundation. It may be a depository bank which either takes the securities on its own account or acts as an agent in its own name on behalf of a borrower; subject to satisfactory indemnities from the ultimate borrower

ii) Problems posed for foundations

Ownership of the securities together with any rights associated with them or, as the case may be, any claim against them, is assigned to the borrower at the time when the loan is made. The agent (bank) acquires, on behalf of the foundation, a claim for repayment with valid securities of the same type and in the same number

The foundation’s claim on the bank, or Swiss Securities Clearing Corporation (SEGA) as the clearinghouse, for obtaining title to is converted, by the terms of the loan, into a claim for monetary compensation against the bank or the borrower This can lead to a deterioration of the position of the foundation in the context of a separation of assets in the event of proceedings for distraint. However; the probability of such a default occurring in a bank with a high credit rating is slight.

Hi) Risk assessment

The assets of the foundation are not exposed to serious risk as long as the institution acting as borrower is the foundation’s own depository bank or another prime bank, brokerage-firm or insurance company; the transaction can be terminated at any time; the risk of default is covered by collateral of at least equivalent value, and the depository bank possesses the relevant expertise in handling such deals. In certain circumstances, the indemnity liability or guarantee of a prime bank can represent a better security than individual titles.

Nonetheless, the standard bank contracts applicable to securities lending should be submitted to careful scrutiny in the risk assessment process.The oard of the foundation would be well advised to familiarise itself with the relevant guidelines of the wiss Confederate Banking Commission with regard to securities investment funds.

IV. ADDITIONAL ISSUES IN ASSET MANAGEMENT PRACTICE

I. The pledging of beneficial interests

The issue is whether the legal right of a beneficiary per se, provided for in the by-laws can be assigned or pledged by the beneficiary, for example in connection with securing a loan granted to the relevant beneficiary personally.

The legal provisions on foundations do not give any lead on this point. It is stated within the footnote of Art. 552 Sec. 4 PGR, § 122 Sec. I TrUG that:

„Unless the contrary is provided… the beneficial interest as a whole as well as individual rights and obligations arising from the possession of a beneficial interest including a contingent interest may be disposed of, transferred or bequeathed, and the beneficial interest as well as individual rights therein may be charged with limited rights in rem….“

When applied to the law of foundations, this means that in the first instance the provisions of the statutes are definitive, and these frequently forbid the disposal and encumbrance of the rights of beneficiaries and reversionary interests not yet vested. Where this requires the consent of the board of the foundation, the board must assess whether doing so would prejudice a disbursement that is not due until a later date and thereby in certain circumstances frustrate the intentions of the Founder.

In contrast to this, individual due claims deriving from beneficial interests, regardless of whether they relate to disbursements already decided upon by the board of the foundation, may be transferred even when expressly forbidden by in the statutes of the foundation (§ 122 Sec. 2 TrUG).

2. The pledging of foundation assets

The pledging of foundation assets may be necessary in the context of asset management by the depository bank, in order to guarantee collateral loans or other debit positions.

In principle, the foundation shall not, by reason of its declared object, enter into any major commitments or even supply any form of financial guarantee. In particular in the case of any security pledged in favour of a bank, care must be taken that such encumbrance of the foundation’s own assets relates only to claims by the bank against the foundation and not against beneficiaries or related persons, whether natural or juridical persons. Specific attention is drawn to the securing of bank claims against subsidiary companies of the foundation, or its shareholdings in companies, and it is necessary to verify whether such guarantees are at least in the interest of the foundation.

At all events, it is generally advisable to impose financial limits on such commitments and to have a clear asis in the statutes for any such resolutions by the board.

V. FOUNDATIONS AND STATUTORY HEIRS

1. General

Under Art. 560 PGR any dispositions made to a foundation can be contested either by the heirs or the creditors of the Founder in the same manner as challenges to gifts.

As a rule, a challenge relating to claims by Statutory Heirs (Pflichtteilserben) means asserting claims to the Statutory Portions and/or Claims to restore the Statutory Portions to their original value. Under Liechtenstein’s law of inheritance, a Statutory Heir can merely claim monetary compensation for the value of the loss of the gifts made by the testator, without obtaining the full legal position of an heir This ruling contrasts with the Swiss law, where the Statutory Heir is always a member of the comunity of heirs.

2. Statute of inheritance Erbstotut

Under the Liechtenstein Private International Law the the law applicable to an estate (Statute of Inheritance) is held to be the law of the country of citizenship of the testator, which also establishes the identity of the possible Statutory Heirs and the nature of their rights in the event of an infringement of their statutory entitlement (if any).The statute of inheritance also applies to gifts and other donations made during the testator’s lifetime.

If, for example, a German citizen sets up a foundation in Liechtenstein, after his death, the rights of his Statutory Heirs have to be assessed under the German law of inheritance. German law equates the establishment of foundations with the making of gifts. In analogy with § 2325 Sec. I of the German Civil Code (Burgerliches Gesetzbuch, BGB) if the testator has made a gift to a third party the Statutory Heir may demand the restoration of his inheritance in full from the recipient of the gift. In this case it is irrelevant whether the testator intends to assign funds to an already established foundation, or sets up a new foundation and endows it from his personal assets. Furthermore, according to German jurisprudence, Statutory Heirs and those entitled to Statutory Portions have a right to be informed under § 242 BGB if they are unable to obtain the required information in any other reasonable way, and if the recipient of the gift is in a position to provide the information immediately.

3. Time-limits on challenging dispositions by statutory heirs

The time limits within which claims for Statutory Heirs have to be made are two years under Liechtenstein and Austrian law (§ 785 Sec. 3 ABGB or 6ABGB), five years under Swiss law (Art. 527 Sec. 3 ZGB) and ten years under German law (§ 2329 Sec. I BGB). Certain gifts, however; cannot be contested, in particular those made out of a moral obligation.This is more usually true for gifts made within the family.

In other cases where a will can be contested under civil law, particularly in cases of a lack of clear intention or an error of form, the provisions of Art. 64 et seq. ofthe Liechtenstein Act concerning the Protection of Assets, Rechtssicherungsordnung (RSO) apply. Under Art. 65 and 66 RSO certain legal actions, which result in obtaining access to assets, can be contested provided they were undertaken by an insolvent person within a year before the issuing of any distraint proceedings against him.

A general challenge without limit of time exists only in relation to legal actions which an insolvent person „… undertook with the recognisable purpose, at the time of taking those actions, of disadvantaging his creditors or favouring certain creditors to the disadvantage of others“ (Art. 67 Sec. I RSO).The burden of proof lies with the creditor making the challenge.

4. Challenges under the law relating to matrimonial property

Relevant in this context are claims for compensation based on disputes over matrimonial property. Under the Liechtenstein Law on Matrimony (Ehegesetz, EheG) this takes place under the general heading of „Compensation for Acts of Discrimination*. This ncludes matrimonial household effects and matrimonial savings, which have been disposed of without the approval of one spouse and which are contrary to the matrimonial standard of living (Art. 84 Sec. I EheG).

Under Swiss law, the value of a gift arising out of matrimonial assets made to third parties without the approval ofthe one ofthe spouses must be included. Thus Art. 220 ZGB enables a spouse to assert this claim for compensation of the aggregate discrepancies not only against third parties but also against heirs.The plaintiff spouse or their heirs must initially assert and prove the quantum ofthe proposed share. The disputed gifts must have been made from assets acquired during the coverture of the marriage and the interests of a third party, who acquired the property in good faith, must be taken into account. Provisions relating to time-limits and the total sum ofthe gifts in question, are similar to those relating to challenges by Statutory Heirs (Art. 208 ZGB as reference standard). In an analogous application of the provisions relating to inheritance law, recipients of gifts in good faith are only obliged to make restitution to the extent that he is still in enjoyment ofthe benefit at the time ofthe dispute over matrimonial property.

5. Enforcement by Liechtenstein courts

Judgements by foreign courts will only be recognised and enforced in the Liechtenstein courts when „… mutuality is guaranteed by international treaties or by a government declaration of legal equivalence.“ (Art. 52 of the Execution Ordinance on Foreign Judgements). At the present time, treaties only exist with Switzerland and Austria, and no declarations of legal equivalence affecting other states have been pubished. Unlike Switzerland, for example, Liechtenstein is still not a signatory ofthe „Lugano Convention of 6 September 1988 on the Authority of Courts and the Enforcement of Court Decisions in Civil and Commercial Matters“.Finally foreign plaintiffs in civil proceedings have to deposit security for costs which is sufficient for the other party to pursue a claim for costs, where necessary,This is justified by the lack of enforcement treaties with other states with the exception of Switzerland and Austria. The Liechtenstein judiciary has confirmed the conformity of this provision with the requirements of the European Economic Area in several decisions, most recently that of the Supreme Court on 6 June 2002. It is also in conformity with the principle of equality of treatment.

Vl.THE RIGHTS OF BENEFICIARIESTO INFORMATION

The rights of beneficiaries to financial accounts and information and to inspect files are governed by the Law on Trust Enterprises (§ 68TrUG) through the reference-standard of Art 552 Sec. 4 PGR. According to this,the trustee „… in so far as not otherwise stated in law or in the trust deed, or otherwise imposed by circumstances, shall on request, give equitably information about all facts and conditions, in particular about the status and investment of the trust assets, to every beneficiary including contingent beneficiaries

In practice the essential question is whether and to what extent these rights provided by the law can be derogated by means of provisions in the statutes or by-laws of the foundation. In the literature, the view based on a 1996 decision of the Supreme Court is held that the rights to information can be reduced to a minimum but not excluded entirely.The reason for this lies in the implicit abuse of any system based on the total exclusion of this right.

At all events, the restriction on providing information must rest on a clear provision in the statutes or bylaws. The issue has to be judged differently when Statutory Heirs who are not named as beneficiaries or contingent beneficiaries of the foundation claim to have been deprived of their rights and demand information from the foundation about gifts made by the testator during his lifetime.These can only be asserted by recourse to litigation.

Obtaining such information is a prerequisite for filing an action with the courts at all.

Finally, it should be sufficient if the desired information is indirectly provided or confirmed on behalf of the foundation by auditors appointed to this effect rather than by the board itself.

VII. FOUNDER’S RIGHTS

The question of the permissibility of founder’s rights has for years been the subject of controversial rulings by the judiciary and in the literature. The essential question is whether and to what extent the rights of the Founder of a Liechtenstein foundation can be transferred to third parties, if the Founder has reserved such rights to himself in the statutes and bylaws of the foundation.

Founder’s rights are taken to mean rights as a body of the foundation, including, for example, the authority to alter the statutes, to choose and dismiss members of the board and to nominate beneficiaries.The practical relevance of this free transfer of Founders’ rights is that, after the death of the Founder „control“ over the foundation could become vested in a third party who played no part in the original setting up of the foundation or its administration. This possibility has always been recognised and established in the rights of the founder of an Anstalt, which can be abdicated by a deed of assignment.This has also been ruled permissible in the case of Founder’s rights by the Supreme Court in its judgements to date. However; in its latest judgement, the Supreme Court has ruled against this, bringing about a change in practice. In specific cases, Founder’s rights have in the past been transferred by the legal Founder (trust company) to the economic Founder The latter who would exercise his rights by nominating board members to take office after his death, as well as nominating beneficiaries and a ((successor Founder)). The Supreme Court has found this assignment of Founder’s rights to be null and void and has re-interpreted the legal transactions carried out in this function by means of a substitution of a power-of-attorney in favour of the original Founder This power-of-attorney then expires on the death of the Founder, so that no Founder’s rights of any kind and in particular the right to alter statutes can survive. It has to be emphasised that the question of whether the rights of the Founder as a body of the foundation can be exercised ab initio by a third party instead of by the board, and to what extent the Founder’s rights are therefore not strictly personal rights has explicitly been left open. In this context reference is made to provisions in the statutes and bylaws to incorporate advisors or Protectors with powers similar to he rights of the Founder from the very outset.

For reasons of legal policy, it is satisfactory to note that this ruling by the Supreme Court approaches again the principle of crystallisation (Erstarrungs-prinzip) called for by eminent critics of the earlier jurisprudence. It emphasises the fact that with the establishment of the foundation, the intentions of the Founder are crystallised and the foundation from that point represents a legal personality in its own right for whose subsequent administration the only valid provisions are those laid down in the deed of foundation and the statutes, albeit with the express reservation of rights under Art. 599 Sec. 4 PGR.

VIII.TERMINATION OF FOUNDATIONS

The termination of a foundation takes place when its purpose can no longer be achieved. This could be because it can no longer fulfil its task through lack of assets (Art 568 PGR). Other grounds for termination would include insolvency or an act of revocation by the Founder under specifically reserved powers,

In its decision of I 3 June 2001, the Superior Court of the Principality of Liechtenstein (EL. Obergericht, OGer), adduced important detailed requirements for practitioners, namely:

• The formal termination of a „deposited“ foundation (hinterlegte Stifiung) can be effected by filing with the Public Register the relevant resolution establishing absence of assets. No actual liquidation procedure has to be completed, unless there are still assets on hand.
• The petition for dissolution of registered foundations has to be presented to the Public Register No liquidation procedure need be completed in case of lack of assets, where the purpose is unachievable, but if assets remain, the liquidation procedure is followed in accordance with Art. I 30 et seq. PGR.
• «Dissolution resolutions“ without establishing termination allow foundations to remain in existence with all the consequential legal and fiscal implications.

When foundation assets are discovered retrospectively a registered foundation follows the procedure for retrospective liquidation under Art. I 39 PGR. Deposited foundations are retrospectively «wound up“ by a Curator (Kurator), an officer appointed by the Liechtenstein Court of First Instance.

As a consequence, specific attention must be paid to a complete distribution of assets as well as an accurate drafting of the relevant resolutions on the termination of foundations.

OUTLOOK

Following the regulation of the financial services market, the law on foundations in Liechtenstein is being adapted to current conditions and, consequently, be subject to a new legal discipline. In this connection, it is especially important to bring the existing provisions of the law up to the latest standards of jurisprudence, and thus achieve a higher degree of legal certainty.

The overriding premise remains the fundamental liberality of Liechtenstein’s law on foundations. This will guarantee that the foundation, by virtue of its flexible range of forms and versatile applications, will continue to rank among the most successful instruments of financial and testamentary planning.