Dear Clients,
Due to the current situation, we are trying to limit personal contact as much as possible.
That’s why we’d like to remind you that we are available for initial consultations and other meetings via Skype, Whatsapp and other online video applications.
To arrange a meeting or if you have any questions, contact us at info@trusty.cz
Fashion designer Karl Lagerfeld died last February aged 85, and since then there have been many rumours on the internet that Mr Lagerfeld left most of his fortune to his cat, Choupette.
Choupette is not a typical cat. Unlike many other pets she has her own housekeeper, her own chef, her own bodyguard, her own Wikipedia page, and her own Instagram account. She also has her own makeup line and her own agent. She needs the agent because, according to the New York Times she earned more than USD 3 million in 2015.
Mr. Lagerfeld’s style consultant says that Choupette changed Lagerfeld’s life, making him happy in a way no one thought possible.
This is all very interesting, but it will be even more interesting to see what happens as the administration of the Estate continues.
In most countries, including the Czech Republic, Choupette would now be facing a rather big legal problem. Because she is a cat, not a human being, she does not have legal personality and therefore cannot own things – or at least not legally important things. And if, because she is a cat, she cannot own things, then she can’t inherit them either. We are not sure where Mr Lagerfeld’s estate is being administered, but this rule applies in most countries in the world . . . unless of course he set up a Trust.
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But . .
Even setting up a trust usually doesn’t solve this problem. This is for exactly the same reason. Choupette is not a person. She cannot own assets. She therefore cannot inherit assets, and nor can she be the beneficiary of a trust. So, in most places, the problem remains.
Like Choupette, Czech Trusts are Special
The Czech Republic is unusual because it is one of the few places in the world where a trust for Choupette, if correctly prepared, would actually work. That is because in the Czech Republic is possible not just to set up a trust for a person or people (the beneficiaries), but it also possible to set up a trust for a purpose.
What is a purpose is limited only by your own imagination. Here are some examples of purposes:
What happens after Choupette passes on? That’s a good question and one of the reasons why proper drafting of the Trust is so important.
We don’t see that many trusts being set up this way for animals, mainly we think that most people don’t love their pets enough to justify the cost setting up the trust, but the important thing to know is that Czech law makes this, and all the other things on our list above, possible.
While trusts for cats don’t make sense for most people, trusts for some of the other purposes above do – something that is not possible in most other places
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We are running our next two-day seminar in December. The seminar will be delivered in Czech.
Click here for more information on the seminar.
Here are some photos from the last APRSF course for trustees and trust advisers which took place in December 2019.
Congratulations to the ten people who graduated! The next course will be on 10-11 March 2020.
We are running our next two-day seminar in March. The seminar will be delivered in Czech.
Click here for more information on the seminar.
In most practical ways, Czech trusts are identical to trusts from other countries.
However, there are a few ways in which Czech trusts are different. One of the most important is in the area of making changes to your trust
In most countries, after you set up a trust, you can change it quite easily. For example, you can change the terms and conditions of your trust and even add or remove beneficiaries. But once you (as the founder) die, the terms of the trust then become more or less fixed.
In contrast, in the Czech Republic, the situation is more complicated, and this is sometimes presented as a major negative of the Czech system.
The truth is that the Czech system is not worse than the international system. It’s just different. Provided those differences are considered at the time the trust is established, there are no problems. (Yet another reason to make sure you work with an experienced professional when you set up your trust).
To understand the Czech system, it is important to know that there are three main documents associated with most trusts; the Statute, the Contract, and the Memorandum of Wishes.
The Statute
This is a notarial deed. It sets out the key features of your trust. The three most important features are the name of your trust, its purpose, and your beneficiaries and eligible persons.
It is the Statute that is difficult to change.
The Contract
This is a contract between you (as the founder) and your trustees. It is this document that contains almost all the actual content of your trust. Because this is a normal contract, you can change it at any time and for any reason you like.
The Memorandum of Wishes
This is a letter of guidance provided by you to your trustees. You can also change this any time you want
So, it is only the Statue that creates a potential problem here.
The first and most important solution is to draft the Statute well. As far as possible, we avoid putting any detail in the trust statute, and where things must be included, we word them in the most general way possible – so that the wording covers only just the current situation but also possible changes in the future.
Lawyers usually don’t like vague documents, but this is an exception to that rule. A vague statute is great because it is flexible. The vagueness doesn’t matter because you can then be as precise as you like in the contract – which you are free to amend at any time.
The Statue really only contains four important elements.
So, our first conclusion is:
There are only a very few things you cannot change, and if you prepare your trust properly, you won’t need to change them
Section 1469 of the Civil Code is the part that deals with changes. It suggests (it is not actually 100% clear on this point) that only the court can change the statute.
This seems to be consistent with practice so far. For example, one client who came to us was unhappy with the name of their trust. The person who set up their trust told them (incorrectly) that they had to include their surname in the name of their trust. In this case, we applied to the court for permission to amend the name of the trust in the Statute. This permission was granted at a relatively minimal overall cost.
The other point is to note is that section 1469 is not completely clear. Some notaries tell us that if you want to change something fundamental such as the purpose of the trust, you have to go to court, but that it is possible to change some more ‘cosmetic’ without going to court, provided the statute itself includes provision for this. Obviously the statutes we prepare include such a provision.
So the second conclusion is:
Even if you do need to change something it might not be that difficult
Can I just cancel my trust?
Of course, one of the biggest changes you can make is to cancel your trust.
What if your family or financial situation changes and a trust no longer makes sense? What if you just change your mind? What if the tax or other laws change in the Czech Republic?
Both CZ and International Trust law allows trusts to be either revocable or irrevocable. If a trust is revocable it means that you can cancel your trust any time and get all your assets back.
That sounds nice, but you need to be very careful with this. For example, a revocable asset protection trust is unlikely to be effective.
But there are plenty of other ways to build in the flexibility you need. For example, if your spouse is a beneficiary, then the trustees can simply pay 100% of trust assets to him or her, and then wind up the trust. Your spouse can then give the money back to you. You achieve the same result (cancelling your trust and getting everything back) without the risk of making the trust revocable.
Of course, if asset protection is not your objective, you can simply make your trust revocable.
Another possibility is to ‘resettle’ your trust. This is what you would do if Czech tax laws changed and you wanted to move your trust to a different country. This is also possible to do but again, only if your trust documents allow it.
As this article demonstrates, when you set up a trust there is a lot to think about. It is important to make sure you get professional help to make sure your trust actually works and achieves your goals.
We are happy to help you set up a trust you can change. Or if you already have one that was set up by someone else, we are happy to review it, and if necessary, repair it.
Just contact us at info@trusty.cz
A lot of people ask us what the correct price is for a trust.
Trusts are still quite new to the Czech Republic. At the beginning, back in 2014 and 2015, there was a lot of confusion as to what was the ‘right’ price for a trust. Some people considered that a trust was a bit like a company and using the cost of establishing a company as a guide, they were charging in the range of 20-30,000 CZK.
Since then, the market has matured, and people have realised that setting up a trust correctly is more complicated than a company. Many companies are ‘standard’, most trusts are not.
We have heard of people charging hundreds of thousands for a trust. Our company normally charges around 50,000 CZK for a relatively non-complicated trust. Some of our competitors charge more, up to 75,000 CZK, others a little less. On top of this cost, you need to factor in the cost of the notary (normally in the range of 5-10,000).
If our hourly charge out rate is 2,000 ZK per hour, then that would suggest we spend 25 hours working on the establishment of each trust . . .
But the truth is that in most cases we don’t spend this long.
So if you are not paying for our time, what then are you paying for?
Our company offers access to professionals who have collectively many many years of establishing trusts, both here and in other countries. Between us we have established thousands of trusts and we have met many different clients with many different situations and needs.
Because of this experience, we know how to build trusts correctly. We have also invested hundreds of hours developing our documents to ensure that the are strong, that they deal with unforeseen circumstances, and that they achieve the results that our clients want. Each of our clients benefits from this wealth of experience, which we think makes our services look pretty cheap. In most other countries in the world, you can expect to pay around 100-150,000 CZK to set up a trust
Some of our competitors offer similar levels of competence and experience. Many do not.
We have linked here to a trust statute from the public register of trusts. This is one of many examples of ‘not so great’ trusts, often the result of someone trying to save money.
You may ask us how we can show you someone’s trust document. That’s because whoever established this trust omitted to inform the court that the document should not be published (Mistake number 1).
Because we very much doubt that the clients involved actually wanted their private affairs to be public, we have redacted their names and other identifying details. If you are curious you can find this, and many other similar trusts open to public view on the register of trusts
Ignoring the notarial preamble, this document has two pages of actual content. In our experience, it is impossible to make a robust trust with less than 10 pages, and our documents typically run to about 30-40 pages. This one is much too short (Mistake number 2). If your trust is less than 10 pages long, we recommend you seek help immediately.
The beneficiary of this trust is also the only trustee. That is directly in conflict with the provisions of the Civil Code which require there should be at least one independent trustee in such a case. That means that this trust probably isn’t valid at all (Mistake number 3)
Another problem stemming from this is that the Civil Code says that a trustee cannot make a decision to benefit himself. That means that even if this trust is valid – which we doubt – there is no way to make any payment to the beneficiary (Mistake 4)
When the founder signed this document, he put all the assets in at the beginning meaning that he paid a lot more in notarial fees than was necessary (Mistake 5). There is no reason to do this. In addition to saving a lot of money, it normally makes much more sense to set up the trust first and then put the assets in later. We suspect that this trust may have been done directly by the notary without any legal or expert input. The notary probably did quite well financially from this, but not the client.
This trust has just one beneficiary. What happens if he dies? If his Father (The Founder) is still alive it will go back to him, but if not, then the assets will go to the Czech State. Probably not what the client wanted! (Mistake 6)
There is no mechanism for replacement of the trustee. So what happens if the Trustee dies or retires? If the Founder is no longer alive they’ll have to go to court to solve that one and end up spending a lot more money than they ‘saved’ (Mistake 7)
Beyond that, there are many many things missing that should be here. Exactly what else is missing is difficult to guess without understanding the client’s objective when he set up the Trust.
If the reason for setting up this trust was, or included, protection of the assets against external attack, we doubt very much if this will be effective. There is only one beneficiary who is also the only trustee. This means that in effect, the assets are ‘his’ and are therefore very vulnerable to attack, plus in any case, as discussed above, this probably isn’t a valid trust anyway.
We have no idea how much these people paid for their trust. We hope not much. Even if they paid a very small amount it wasn’t good value for money!
Don’t accept the cheapest offer. Cheap, as we have demonstrated, is not always better! Sometimes its worth spending a bit more to get something done professionally.
Also, if someone gives you less than 10 pages to sign, run away quickly!
We are running our next two-day seminar in September. The seminar will be delivered in Czech.
Click here for more information on the seminar.
Henokien companies are those which have continuously operated and been family-owned for 200 years or more and in which the descendants of the founder still operate at management level. Their name comes from the biblical patriarch Enoch (Hénoch in French), who lived for 365 years before he was taken by God instead of dying.
They are represented by the Henokien organisation which was established in 1981 by the then-chairman of Marie Brizard. The association started with four French member companies but now has 47 members. Its oldest member is the Japanese Hōshi ryokan (founded in 717), and the most recent the Austrian jewellery firm A. E. Köchert (founded in 1814).
In many countries, there is a strong tradition of family businesses that have passed from one generation to the next, and then to the next, and so on. The memory and vision of the original founder of the business, who created the initial wealth, lives on, usually at the very least in the name of the business. Future generations are entrusted with the management of the business and in many cases successfully build on and expand that original base, sometimes creating enormous, multinational businesses.
One example of many is Maison Louis Latour, a French winemaker from Burgundy in France. The business was founded by Louis Latour in 1797 and is currently managed by the seventh Louis Latour, Louis-Fabrice Latour. The company has been family-owned and family-run since it was founded and has built a reputation for tradition and innovation.
In contrast, the regime changes experienced by the Czech Republic over the past 150 years have played havoc with Czech family businesses. As a result, we now have very few local examples of such multi-generational businesses. One exception is renowned piano maker Petrof, spol. which was nationalised in 1948 but has been back in the hands of the original family since 2001. Other exceptions include the Joch family’s UNESCO World Heritage recognised modrotisk printing business in Strážnice, which was reclaimed by the family in 1994.
Sadly however, most Czech family businesses now have much shorter histories, usually spanning just one generation, but increasingly now, sometimes two.
Family dynasties like the Latour’s and the Petrof’s don’t happen by chance. They need a plan and a structure – most often (but not always) involving a trust. Without a plan the opposite happens: We know from international data that 70% of family businesses which do not have a structured succession plan fail to survive the transition to the next generation. Most of those businesses are sold, broken up or destroyed. Jobs are lost, factories close, and the wealth that has been created by the founder is destroyed. We also know from international data that 85% of those families experience ‘serious family conflict’
Perhaps things will begin to change now in Czech? However, so far it looks like a slow process. The tools you need to build a robust structure for a multi-generational business are new, and as of now, 74% of Czech Family business still do not have a succession plan.
We hope that Czech family businesses will start to take succession planning more seriously, and that in time there will be Czech Henokiens.
If your company would like one day to become a Henokien, here are two tips:
If you’d like to get started, we can help you. Contact us for more information.
We are running our next two-day seminar in June. The seminar will be delivered in Czech.
Click here for more information on the seminar.
Seventy-five-year-old Rolling Stones rocker Mick Jagger and his 30-year-old girlfriend Melanie Hamrick recently welcomed a baby boy – Deveraux Octavian Basil Jagger – the eighth addition to Jagger’s ever-expanding brood of children.
Jagger has been married (and divorced) once and has also had several other relationships. In total, including Deveraux, he has now had eight children with five women. He also has five grandchildren, and became a great-grandfather on 19 May 2014, when his granddaughter Assisi gave birth to daughter Ezra Key. Jagger’s net worth has been estimated at $360 million.
With the arrival of his 8th child, and with his other descendants to cater for, Jagger’s finances must be getting into a bit of a mess. Not only that, but with his recent heart value surgery he’s probably starting to feel a little bit more mortal.
But how can he ensure his beloved are provided for and his wealth is distributed among his children?
He’s lucky he doesn’t live here in the Czech Republic as our forced inheritance rules would make the administration of his large and complex estate into a big mess. As we explained in our 2014 article about another music icon, Karel Gott, complicated families can be difficult to deal with.
We have no idea what Mick’s plans are for his inheritance, but like many people (not just rock stars), he will probably decide to give the greater portion of his wealth to family members who are in a less financially secure position, such as minor descendants.
If that’s the case, there are a number of ways that he could do this. He could use his will to divide his estate into percentage shares and allocate a greater share to the younger children. Another – probably better idea – would be to set up a discretionary trust.
A discretionary trust is a very flexible form of trust. The trustees have discretion as to who, within a potential class of beneficiaries will get money, how much, and when. The person setting up the trust provides guidance to the trustees as to how they should use their discretion by way of a non-binding ‘letter of wishes’. Such trusts are useful when a person has identified a group of people they wish to benefit, for example, children, grandchildren, etc, but are not certain which of them will need financial help in the future or what help will be required. It also works across generations: not just for his current wife and children, but also for grandchildren, great-grandchildren and even yet unborn great great grandchildren.
The other benefit of a discretionary trust is that it makes sure that money doesn’t go to places that it shouldn’t. It might be that there are some of his children than Mick doesn’t want to benefit. Perhaps because they already have enough money, perhaps because they are financially irresponsible, or perhaps because the family relationship is not that great. There might be others who Mick thinks need the money more. The money can also be paid out in various ways; as cash; as the right to use an asset such as a house; to support education or even to support the children’s business or music career. It can also be used alongside the family goals to support the charitable and other causes that Mick cares about.
A discretionary trust provides a great tool to ensure that the money ends up in the right place while at the same time avoiding unpleasant lawsuits and family conflict.
You don’t need to be a millionaire rock star to set up a discretionary trust. They work just as well for normal families.
For more information on discretionary trusts and other tools to help you take control of your inheritance, contact us.
