We are proud to announce that our new book, Svěřenské fondy – krok za krokem is on sale now.
This is the first book on Czech Trusts to provide a complete overview of the subject in simple and understandable language – written for consumers, not just for lawyers.
The physical book is only available in Czech, and can be purchased here.
There is also an English language e-book which you can purchase here.
Since they were introduced in the Czech Republic in 2014, interest in and the use of Czech Trusts has increased strongly. One of their main uses is to own real estate. This is done for a variety of reasons including asset protection, inheritance, and confidentiality.
There have been other presentations on Trusts in the past, but this one is focused specifically on the area of real estate. It is designed for real estate professionals including agents, developers, and property managers, and also for the owners of real estate who might be considering using a Trust. It will present the topic from all angles, explaining both the positives and negatives of using Trusts in this way.
The seminar will cover:
There will also be time available for questions and answers
Both presenters are experts in this field and this seminar provides a unique chance to benefit from their experience and knowledge.
Date: 26. January 2021
Time: 10.00 – 12.00
Místo: on-line (Zoom)
Language: Czech
Presenters:
Mgr. Eva Hrušková,
Partner, Svěřenské fondy a trusty s.r.o.
Matěj Nešleha
Director, Tax Adviser, KODAP Jihlava, s.r.o.
Registration: by email to: info@trusty.cz
Seminar fee: 1,400,- Kč
The webinar will take place online via the Zoom platform. Upon successful completion of the registration, we will send the relevant link to the participants.
We have released the first in our educational series of videos “What is a SF?”
You can view it below (it is in Czech language only) and please do subscribe to our YouTube channel.
In these Covid days, it is very common to see maps comparing the situation in different EU member states.
Here’s another map, but this one is not about Covid.
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You will notice that much of the map is red. There are just a few countries that are green, including the Czech Republic.
Can you guess the significance of the colours?
The red countries are ones which have Estate or Inheritance taxes. The green countries do not.
The expression inheritance Tax actually covers two different kinds of tax. Technically, inheritance tax is tax paid by a person who inherits money or property from a person who has died. The other variant, estate tax, is a tax on the estate (money and property) of a person who has died before it is distributed. There is a lot of confusion and misuse of these two terms. For example, the tax in the UK is officially called “Inheritance Tax” but it is not an inheritance tax, it is an estate tax.
The rate of tax varies widely from country to country and also depends on how much money the person has. Some rates are quite low. Others are much higher. Here are some examples of some of the higher rates in the EU:
So as you can see, these rates can be extremely high.
As the map shows, inheritance taxes are very popular with governments. There are a few reasons for this:
When inheritance taxes are introduced, they are almost inevitably done without any advance notice. The reason is that it is important not to give people time to reorganise their affairs (e.g by giving everything to the children) before the new tax takes effect.
They also come with ‘anti-avoidance rules. The most common is a tax on gifts, again to stop people giving things away to children or putting them in trust in order to avoid the new tax.
We do not have a crystal ball or any special sources of information, but we would rate the likelihood of an inheritance tax coming to CZ and now quite high
First, the Czech Republic had inheritance taxes at a relatively low level until 2013.
Second, as we all know, the Covid Pandemic has had an enormous negative impact on Government finances. They now have a big hole that they need to fill.
Inheritance taxes must seem like an incredibly tempting way of doing that.
By the way, you might be thinking that this particular government is not that likely to introduce such a tax, but perhaps it is worth remembering that our current Prime Minister already has much of his wealth in trusts
Internationally, one of the main uses of trusts is to protect families against inheritance taxes. Remember that once your assets are in a trust, they are no longer yours. That means that they do not form part of your inheritance. The very best time to put your assets in a trust is before the new tax comes into force.
It may be that you have already been thinking about setting up a trust for some other reason, for example:
It may also be that you have been procrastinating or that you are in some other way “stuck”.
If you are, then we strongly encourage you to get on with it and move forward with your new trust.
Once inheritance tax arrives, it will be too late!
We are delighted to be presenting at this prestigious event which is jointly organised by APRSF, STEP, and the Czech Bar Association.
The seminar takes place on 13 November and will be presented in English.
Click here for the full program and registration details
People often ask us questions about confidentiality. Indeed, for some clients, confidentiality is one of the reasons for setting up a trust in the first place.
There are many reasons for seeking to keep your financial affairs confidential. Some of those reasons are good reasons, others not so good.
Whether a Czech Trust is going to achieve the level of confidentiality you want depends on who exactly it is that you are trying to keep your information confidential from and why.
In a nutshell, if you are trying to hide from the police or the tax department, a Czech Trust won’t work. On the other hand, if you are wanting to keep nosy neighbours and other prying eyes at bay, then a Czech Trust is a very effective tool.
In between these two extremes fall a number of other people who might be interested in what you are up to including creditors, business partners, banks, and other members of your family. The extent to which a Czech Trust will protect you from these people varies, and we’ll discuss this in more detail in this blog.
Depending on your objectives, an international trust can sometimes offer more confidentiality than a Czech Trust, and this can be one of the reasons you might prefer an international solution.
But first, let’s look at Czech Trusts, and how well they protect your confidentiality from various groups.
I want to hide from my nosey neighbours
This is a perfectly valid reason for setting up a trust and a perfectly valid expectation to have.
For many families, this is also important from the perspective of family security. If people can see you have money, then your family becomes a target for those who would like to take it from you. In some extreme cases, this can even amount to a physical threat to your family safety.
Indeed, your right to this kind of privacy is protected by both European and Czech law.
It is important when we look at the law to remember that almost all trusts are family (not business) relationships. This means that unlike companies, there is no public interest in full disclosure of all their details.
Indeed, if your trust is a family arrangement, then is it protected by Article 8 of the European Convention on Human Rights, which says:
Article 8 – Right to respect for private and family life
1. Everyone has the right to respect for his private and family life, his home and his correspondence.
2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country,
These rules are binding on the Czech State and can be enforced through the European Court of Human Rights in Strasbourg.
In the Czech Republic (as in some other states around the world), we have a Register of Trusts. However the Czech Register is consistent with the rules above.
That means that, while you are required to provide a lot of detail about your trust, only a very small amount of this data is visible to the general public.
Here is an example of an extract from the public register: (Click on the image to open the file):
As you can see, there is not a lot of information here.
We can see the name of the trust, its identification number, the name and address of the trustee, a general statement of purpose and not much else – or at least not much else that’s interesting. In fact, it is public knowledge that the founder of this particular trust is Andrej Babiš, Prime Minister of the Czech Republic, but from looking at this extract it is not possible to see this.
So we cannot see is whose trust this is. We cannot see the name of the founder. We cannot see the names of the beneficiaries and perhaps most importantly we cannot see what assets are in the trust.
So your nosey neighbour is out of luck
A word of warning though, if the trust owns real estate or a shareholding in an s.r.o., the information above will also appear in the commercial register or the land register. The name of the founder and the beneficiaries will still be hidden, but your nosey neighbour might be able to figure out some things this way, especially if the previous owner of the house or the shares was you personally.
Still, on the whole, a pretty decent level of privacy which is good enough for most people.
I am a corrupt politician/ I am a criminal / I want to hide from the police and the tax department
Sorry, a Czech Trust is not going to help you.
The public can’t see much, but the police, the tax authorities and the other organs of the state can see pretty much everything.
And in any case, if any reputable provider of trust services finds out what you are up to they will not just refuse to do business with you, but in most cases will be under a legal obligation to report your activities to the authorities.
I want to hide from my potential business partners
Your potential business partners cannot see any more information than anyone else.
However, anyone who is interested in doing business with you can always ask you to provide them with a full extract from the register. A full extract contains more detailed information including details of the founder and the beneficiaries. Of course, there is no obligation on you to give this document to them. It’s your decision. But if you don’t provide this document, the business partner may decide not to do business with you. The same rules apply to banks. They will always ask for a full extract and in many cases also for copies of the trust statute and even the trust contract.
I want to hide from family members
This is an interesting one.
There are many valid reasons why you might not want other family members to know about your trust.
For example, it might be that you are worried that if someone discovers that they are a beneficiary of your trust that it might affect their life in a negative way. For example, they might alter their behaviour and spending patterns in anticipation of some future big gain from the trust.
Another problem is in the case of discretionary trusts. As a general rule, it is a good idea to make the group of potential recipients as wide as possible. Often that means that people are included in these groups who, in reality, have no actual prospect of ever getting money from the trust. Why should you have to tell them all about it?
One more example is the case of trusts set up for minor children who are in the custody of an ex-spouse. Often, we do not want the ex-spouse to know about the trust, but as the legal guardian of the children, how can we keep this information from him or her?
The answer is simple:
The relevant parts of the Civil Code are:
Section 1463
(1) Supervision over the administration of a trust is exercised by the founder and a person designated as the ultimate beneficiary, or by other persons if so determined by the by-laws.Section 1465
(1) The trustee shall, without undue delay, deliver to the person with a statutory right to supervise the administration of the trust a notification in which he shall state at least the designation, purpose and duration of the trust and his name and address. The notification is not necessary if the person authorised to supervise is already aware of these facts.
(2) On the request of the person with the right to supervise the administration of the trust, the trustee shall allow the documents of the trust to be checked and submit to him the requested accounts, reports or other information.
This means that if the person in question is a beneficiary, then you have to tell them about the trust and, if they ask for it, you have to give then access to the trust minute book.
However, if that’s a problem, perhaps for the reasons above, it is easy enough to solve. Instead of making the person a beneficiary, you make them an eligible person instead.
If someone is an eligible person, you don’t need to give them any information at all about the trust or even inform them of its existence. They have no more right to anything than any other member of the general public.
Don’t forget though, that if you actually want to provide a benefit to one of these people, the trustees will have to appoint them as a beneficiary (and let them know about the trust) first.
I want to hide from my creditors
This is another interesting one. A lot of trusts are established to protect families against attacks in the future from creditors.
Does that mean that we have to tell them about the trust?
The short answer to the question is no. While there might be some situations under insolvency law where it would be dishonest or fraudulent to not tell a creditor, under trust law you have no obligation to tell them anything . . . but, there is a potential catch as we will explain.
Remember, the reason we set up the trust was to protect the family assets from attack. It is going to be pretty hard for the creditor to attack the trust if he doesn’t know about it!
If you are very clever in constructing your trust, you might be able to achieve this, but in reality, in most cases, it is going to be pretty obvious to creditors what you have done. That’s because you will have put things like your family home into the trust.
The creditor can simply look up your address on the land registry and notice that it is owned by a trust. Another big clue will be that the previous owner, before the trust, was you.
Of course, the creditor cannot see any more information about the trust than anyone else, and the fact that he knows about the trust does not help him to get at the money. He still needs to make a legal connection between the trust and you, and then go to court. If the trust has been properly set up, then the creditor will fail anyway.
But, if the creditor figures out you have a trust, can he then access detailed information about it?
The relevant clause here is from Act No. 304/2013 Coll., on the Public Registers of Legal and Natural Persons and on the Register of Trusts:
§ 65e
(3) Only the trustee or a person with legal interest in obtaining the full copy of a record or instrument . . . . . can obtain such a full copy. . .
Notice the words ‘legal interest’. Does a creditor or executor who is trying to recover money from you have a ‘legal interest’ in viewing all the details of your trust?
We don’t really know, because it is not clear what ‘legal interest’ means in this context and it is not defined anywhere in the Act. However, we think the answer is probably yes, a creditor does have a legal interest.
Notice that the section above only entitles the creditor to a full extract from the register of trusts. It does not extend as far as the rights of the beneficiaries and so the creditor probably doesn’t get access to the trust minute book. And of course, don’t forget that the creditor has to apply to the court to get this access in the first place.
Finally, remember that, even if a creditor does get access to the information on the register, in order to attack your trust, they still need to go to court and, if the trust has been correctly structured in the first place, they are unlikely to succeed.
What about Journalists?
The only approach for journalists would be to claim that they have a legal interest in the same way as creditors. This point is untested, but our feeling is that journalistic interest probably doesn’t qualify as a ‘legal interest’.
So in summary, Czech Trusts offer pretty good confidentiality for most people, or at least most people who are engaged in honest and legal activities on behalf of their families.
Here are a few of the photos from the latest APRSF Trustee and Trust Adviser Seminar. Thanks to everyone who participated. It was a great course.
Since they were introduced in the Czech Republic in 2014, interest in and the use of Czech Trusts has increased strongly. One of their main uses is to own real estate. This is done for a variety of reasons including asset protection, inheritance, and confidentiality.
There have been other presentations on Trusts in the past, but this one is focused specifically on the area of real estate. It is designed for real estate professionals including agents, developers, and property managers, and also for the owners of real estate who might be considering using a Trust. It will present the topic from all angles, explaining both the positives and negatives of using Trusts in this way.
The seminar will cover:
There will also be time available for questions and answers
Both presenters are experts in this field and this seminar provides a unique chance to benefit from their experience and knowledge.
Date: 8 September 2020
Time: 09.00 – 12.30
Venue: Praha, bude upřesněno
Seminar Language: Czech
Presenters:
Mgr. Eva Hrušková,
Partner, Svěřenské fondy a trusty s.r.o.
Matěj Nešleha
Jednatel, Tax Adviser, KODAP Jihlava, s.r.o.
Registration: by email to: info@trusty.cz
Seminar fee: 2.900,- Kč
The seminar will be held in the centre of Prague. The exact location will be advised to participants in August.
As a number of people have asked us for an update on this topic, we have prepared one.
Note that the situation in this area is constantly changing. It is a complicated issue which has the potential to affect all trusts in the Czech Republic. However as things currently stand, none of those effects are negative.
We are constantly monitoring the situation and we will be advising our clients once it becomes clear what action, if any it is necessary to take.
There are two aspects to this issue:
The current law on this area is set out in zákona č. 304/2013 Sb., o veřejných rejstřících právnických a fyzických osob a o evidenci svěřenských fondů.
This existing law requires the trustees of trusts to register their trust on the Evidence skutečných majitelů before 1 January 2021. As a result, we had been encouraging clients to file their registration and offering to assist with this process, and many, but not all our clients have already registered.
However a new draft law has been introduced. This draft law, if it is passed in its current form, will remove the obligation for most clients to do anything. This is because the register of skutečný majitel will automatically use the data already held by the state on the Evidence svěřenských fondů. Under the draft law, it would only be necessary to file something in very rare cases when the data transferred by this process would lead to an incorrect result.
We applaud this step as it removes unnecessary duplication of paperwork for most clients.
Since we became aware of the draft law, we have been advising clients to take no action. That is because the new law is scheduled to take effect in December 2020, meaning that the January 2021 deadline contained in the existing law would cease to be relevant.
There are a few exceptions to this. Some banks etc still require registrations under the current law, and in such cases, we are able to assist you with this.
Both the current register and the register proposed by the draft law are non-public in the case of trusts, so in essence, for most clients this is a welcome change, with no negative effect.
BUT
As you will see from the points below, it is now uncertain if the new law will take effect in time (e.g. before the January deadline). If it does not, or if it looks likely that it will not, from our next quarterly review in September we will be recommending to existing clients that they file on the register before the deadline. We have also asked the Ministry of Justice to provide some clarity on this point.
The second issue is more complicated and applies specifically to clients whose trusts own shares in their family companies. It is not relevant to other clients.
Under the draft law, the evidence skutečných majitelů will be publicly accessible for companies, but not for trusts. We agree with this approach and especially the continued confidentiality for trusts.
That is because unlike companies, almost all trusts are private/family structures, and there is no public interest in making the details public. In addition, the protection of the right to family privacy associated with most trust is enshrined in both Czech and EU law.
In our opinion, this protection of family trust data should also apply where the trust is the owner of a company. As we mentioned above, under the draft law, the skutečný majitel of the company will be publicly visible. If the owner of the shares is another legal entity, then the skutečný majitel of that legal entity will also be visible. However in the case where a trust is the owner of the shares, the current draft of the new law says that the protected people on the register of trusts (e.g. the Founder and Supervisor if any) should not appear as the skutečný majitel of the company.
This makes sense to us as anything else would indirectly expose the trust to public scrutiny and defeat the privacy protections mentioned above .
The problem that arises in the case of Agrofert is that the shareholders of Agrofert are probably trusts established by Mr Babis. As Mr Babis is (again we are guessing) probably the founder of the trusts, then the Trusts will appear as the skutečný majitel of the company but Mr Babis will not appear (or at least will not appear publicly) as the skutečný majitel of the trusts, and therefore also not of the company.
Various people, rightly or wrongly, disagree with this. It is not for us to express an opinion on this, mainly political, argument.
However what concerns us would be any ‘blanket’ solution which would affect not just Agrofert and other large companies of national significance, but would also affect many smaller family companies.
Remember that the organs of the state will have full access to the data, so this is not a question of what is the true situation, but only a question of what the general public can see.
In the case of trusts It will still be possible for trustees to voluntarily provide this information to banks etc, but it is not appropriate for nosy neighbours etc to have free access to this information which is in any case protected by both Czech law and the EU Convention on Human Rights.
Our hope is that the draft law will go through in its current form, or, if it is changed to accommodate these concerns, the changes should apply only to large companies, not to family businesses.
Again, we are monitoring this situation and will report on developments in our quarterly reviews (or sooner if necessary).
In every life we have some trouble
But when you worry you make it double
Don’t worry, be happy.Bobby McFerrin
In 2003, Cornell University professor Karl Pillemer began a 10-year project interviewing the elderly. The result was his book; “30 Lessons for Living: Tried and True Advice from the Wisest Americans.”
He interviewed people who had lived not just through the Spanish flu pandemic but also the Great Depression, World War II and the Holocaust. It seems to us that the wisdom of these people is especially relevant in these troubling times.
The COVID-19 pandemic has had a devastating impact on many of us. It has highlighted that even the best managed and most successful businesses can fail, through no fault of their own. It has also highlighted that none of us are immortal. As a result, many people are now worrying about what will happen if they no longer able to run their business or it fails.
This worry might be natural, but one of the lessons from Prof Pillemer’s book is summed up by the quote from the well-known song at the beginning of this article. We should try not to worry.
Prof Pillemer’s interviewees all had the experience of worrying about an event, then going through that event and dealing with the fallout. According to Prof. Pillemer, they overwhelmingly agree: At best, worrying wastes time; at worst, it increases your suffering.
“They found that the best antidote to gnawing worries was taking action,” Pillemer said. “Preparation for the worst doesn’t just make sense for your protection; it also makes you feel empowered. From their experience of crisis, they advise that conscious, rational planning greatly reduces free-floating worry.”
For business owners, this is especially good advice. Both business succession planning and family protection are important topics, but they are also easy to overlook as something that you will ‘get around to later’. Most people know they are important but the pressures of day to day life have meant that these topics moved down the priority list.
In our experience, there are some things that bump these items back to the top of the list.
One of them is the failure of a friend’s business – and the often terrible consequences for the friend and his family.
Another is personal experience of an unplanned succession involving a friend’s business. People see and learn from the catastrophic consequences when tragedy strikes unprepared. They see the significant family conflict, the substantial financial losses, the distressing breakdown of previously strong relationships and ultimately the closure of successful businesses.
Given the current uncertainty we now face, there has never been a better time to develop plans to deal with these issues. Doing this will not just avoid a lot of potential financial and emotional heartache, but will also, at least according to both Prof Pillemer and Bobby McFerrin, make you feel much better.
Business succession and Asset Protection plans must always be tailored to suit your own individual business and family. As a first step, you need to ask yourself the following questions:
A comprehensive plan will have procedures in place to deal with all these issues that are relevant to you. We are always available to help you refine your thinking and to answer any questions you might have.
When you are thinking about your objectives you should focus on what it is that you would actually like to happen, without the limitations of what you think might and might not be possible.
That’s because this process is focused on the destination, not the route. Once we understand where you want to go, we can almost always find many ways to get you there. Our job is to show you’re the alternative routes and then help you choose the best one.
If you would like some more inspiration to your thinking, we are happy to send you some more tools including a much more comprehensive list of ‘questions to ask’.
If you would like these materials, if you would like an initial consultation with us, or if you have any questions, please contact us.
We are running our next two-day seminar in June.
Due to uncertainty over the next six weeks, we have decided to reschedule this course which was originally scheduled for late May. The seminar will be delivered in Czech.
Click here for more information on the seminar.
As everyone reading this is aware, we are in uncharted waters at the moment. The coronavirus is having impacts on our lives, on families and on businesses that would be impossible to imagine just a few months ago.
One of the few positives for us at SFT is that we can now see the protective functions of some of our clients’ SF coming into effect. These families’ trusts will help keep them safe and protect their assets through this very difficult time.
In this blog post we will try to explain how this works and how we are helping many of our current clients feel a little more secure in the current environment.
In 1907, Robert Baden-Powell came up with a motto for his new organisation, the Scouts. “Be Prepared”.
On hearing the motto, someone asked Mr Baden-Powell the inevitable follow-up question: “Prepared for what?”
“Why, for any old thing,” he replied.
The motto is still used now, more than 100 years later. It is still used because it is good advice, not just for the scouts, but for all of us. Often, when we speak to clients who are establishing trusts, we need to remind them that their trust could last for 100 years – or sometimes even longer. 100 years is a long time. Think for example about the events of the last 100 years. For someone founding a trust in 1920, it would have been impossible to foresee the dramatic events laying in wait on the road ahead.
We have clients who do business in a range of different sectors. Some are not affected by current events, but most of us are suffering financially, some to a lesser extent, others very substantially.
For example, we have clients with businesses in the travel and tourism sector.
When they set up their trusts, these clients’ businesses were generally very successful and profitable. Recent years have been very kind to the tourism sector in the CR. They had no real reason to fear and their futures looked bright. Even so, some of these business owners followed the Scout motto and established asset protection SF.
Now those businesses are in trouble. In most cases, they have lost 100% of their revenue but not 100% of their costs. Perhaps the Government will help? But even if it does, it will take a long time to recover, and most probably some of these (otherwise sound, well-managed) businesses will fail.
But for our clients, the ones who cleverly ‘bought an umbrella while the sun was shining’, their family assets, and to some extent their existing lifestyles, are protected.
It’s probably too late now to set up protection against the current crisis. But it is not too late to protect your family against the next one – whatever it is.
If you are stuck at home with time on your hands, we are available to talk by Skype, Whatsapp, and of course telephone.
We wish you good health and all the best through these challenging times.
