Trust funds in Czech Republic

A trust fund, or svěřenský fond (in Czech), is an advanced instrument of management, preservation and protection of family or business assets. Therefore, trusts can be settled for different reasons, such as: distribution of the assets in case of family dispute, entrepreneurial risks, protection of the assets from the third parties or preservation of the assets over a long period of time. 

Since adoption of this law in Czech Republic in 2014, there was a significant increase of the registration of the trust funds in the country. To point out, for the first 5 years since its inception there were more than 1600 funds registered in the country. 

Foundation of the trust fund

Usually, the matter of the trust funds arises at the point when the owner of the valuable business or other assets thinks of their protection and succession by his heirs. 

In order to establish a trust a founder of the trust with the assistance of the lawyers, accountants and tax advisors shall work very scrupulously on the Statute and additional documents of the trust. These documents describe a wide range of situations that determine the management (who will be the administrator, supervisory), operation (activity of the trust), duration and dissolution of the trust. For example, the documents provide specific conditions, under which the beneficiaries are entitled to benefits from the trust (for example, graduation from the specific education body with certain grades or capabilities), describe the administrators’ restrictions or advise on management of the assets.

Furthermore, a founder should think very accurately about the goal of the trust. For example, whether it is to protect the assets or fair and gradual exploitation of the assets by beneficiaries, it will have an impact in the future course of possible changes in the Statute, which will be always assessed by the judge for the relevance to the initial goal of the trust.

The foundation of the trust takes place once the Statute of the fund is signed by the founder at the notary. The administrator of the trust or trustee shall accept the trusts’ assets management and sign that respectively. Lastly, the data about the trust shall be provided to the register of the trusts. Such data includes information about the trustee, his registration data and property transferred to the trust. Beneficiaries and a founder of the trust are not open in public records.

Management and Ownership of assets in trust fund

According to the legal act of Czech Republic No.89/2012 of the Civil Code, the trust fund created by setting aside the assets from the founder’s ownership and transferring the assets into the trust fund. The assets of the trust are managed by the trustee and the trustee is obliged to undertake these assets and execute their management. The majority of the trusts in Czech Republic are created in order to protect the ownership of the immovable property. However, any assets, movable and non-movable can be transferred into trusts: cash in bank, intellectual property rights, shares, bonds and cars.

After the assets are transferred to the trust, they are no longer belong to the founder of the trust, no they belong to the trustee or beneficiaries. Therefore, by alienating the ownership rights from him/herself, the founder becomes only a supervisor and may only advise to the administrator of the fund on management of the assets. In reality, none of the owners do not want to lose the ability to control over the business or property, which they built over the lifetime. Therefore, the law of Czech Republic allows the founder to be also the administrator of the trust. Though, in this case, there should be an additional independent administrator to eliminate the conflict of interest. Moreover, the founder can also be a beneficiary of the trust. 

The founder of the trust may dismiss the appointed trustee in case of any unsatisfactory activity of the trustee. The founder may also change the beneficiaries or any earlier established order with regards to the asset’s inheritance and trust benefits distribution. 

Trustee

Trust is represented by the authorized trustee or administrator. He acts on behalf of the trust with his own name. Therefore, the name of the trustee and his address of registration will be in the bank account details, the trusts register and the property register. However, as pointed our earlier, trustee has no ownership rights on the assets under his management. 

Trustee can be an individual or a corporate entity. By the law, they are obliged to open the bank account, ensure compliance with anti-money laundering regulations, register the trust at the Tax office (Finánční úřad in Czech), maintain the records of activity, maintain bookkeeping, file the accounting reports to the Tax office and pay taxes. Therefore, a trustee shall be able to fulfil the above-mentioned responsibilities or to hire the professional providers for each activity.

Advantages and disadvantages of trusts in Czech Republic

One of the benefits of the Czech trusts is the flexibility of the law, where the founder can also be an administrator (together with independent administrator) and a beneficiary. This allows the owner of the assets to preserve and protect the assets, but not to lose the control over their lifelong achievements. Moreover, the price of the settlement of the trust is quite reasonable in comparison to the same services in Lichtenstein, Austria, Germany and Switzerland.

The current downside is that the trust law is relatively young in Czech Republic. Therefore, the popularity of such instrument is still quite low. As a result, not many banks are ready to provide services for the trusts and many of those charge an extra fee for the bank services. At the moment of writing this article, only 10 banks in Prague are offering their services to trusts. 

To point out, trusts do not provide any tax benefits as they act as a corporate entity and pay all the taxes, which a corporate entity would pay. So, before proceeding with the decision, it is vital to seek a consultation with a lawyer, a tax advisor and an accountant to make the professional assessment of the all the operations planned to be in a trust.