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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:

1. Have a look at the Henokiens website.  They have a list of 51 questions you should be thinking about.  Unfortunately, it is available only in English and French (not in Czech) but can be found here.  It is a very long list and not every item is relevant to every business, but it is a good place to start
2. Get some professional advice. Creating a multi-generational succession plan is usually a complicated process and requires the input of a team of advisers; lawyers, tax advisers, trust specialists
3. such as our company, and others.

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.

1.4.2019

Svěřenské fondy a trusty s.r.o.today announced that on behalf of a client who wishes to remain anonymous, it has established a trust for the purpose of owning Io, the moon of Jupiter.  The moon will be held in perpetuity for the benefit of all mankind

Ima Dzoker, Director of Space Operations at  SFT said today “With the increasing threats to the continued existence of life on earth due to global warming, pollution, and conflict, it is wonderful to know that we, the human race, now have a backup plan”

The moon is now owned by the Io Sverensky Fond.  The Trust is a public benefit trust which, as well as providing our client with some interesting taxation benefits, means that the moon will be protected in perpetuity against misuse and exploitation.

In due course, SFT Spacelabs (an operating subsidiary of Svěřenské fondy a trusty s.r.o.) plans an exploratory mission to Io.  Their main objective for this launch will be the planting of a Czech flag on the surface of the moon.  “This will be an important step in legitimising and legalising our claim under international law” says Ms. Dzoker .

The exact date of the launch will depend on the success of a crowdfunding campaign through which the trust hopes to raise sufficient money to pay for the launch rocket.

It is truly gratifying to work with visionary clients who see the tremendous potential for using Trusts to help their fellow men.

We are quoted in today’s E15 which is focused especially on the rapid growth in the number of trusts over the last six months.  Unfortunately, the article is only available in the print version

Some photos from last week’s APRSF seminar for trustees and trust advisers:

Dean Smith was a very successful and well-known coach of the University of North Carolina basketball team. During his career, he coached many successful teams and players including Michael Jordan.

Coach Smith is now also remembered for leaving a token of appreciation to former players. During his lifetime he established a trust. Amongst other things, his trust directed that, following his death, the trustees of his trust should send $200 to each of the players who played for him with the message to “enjoy a dinner out compliments of Coach Dean Smith.” Coach Smith died in 2015 and soon after that many former players received a letter in the mail which said:

“Each player was important and special to Coach Smith and when he prepared his estate plan, Coach (Smith) wanted to reach out to each of his lettermen. Accordingly, Coach directed that following his passing, each letterman be sent a two hundred dollar ($200.00) check with the message ‘enjoy dinner out compliments of Coach Dean Smith.’ Enclosed is a check in the amount of two hundred dollars ($200.00) with the notation ‘Dinner out.’

“Please enjoy your dinner out.”

Coach Smith’s gesture is a nice reminder of some of the more unusual things you can do with trusts, including providing happy surprises and fond memories

This is an intensive course suitable both for professionals who want to improve their ability to advise clients on trusts and also for people acting in the role of trustee.

The course provides an in-depth understanding of the structure, history and practical applications of Trusts in the Czech Republic as well as detailed coverage of the duties and obligations of trustees.

We will be presenting the seminar together with Deloitte and J & T Family Office.  The seminar is endorsed by and leads to APRSF accreditation.

If you are a trustee, then (depending on the wording of your trust documents), the costs of your participation can normally be covered by the Trust.

The seminar will be delivered in Czech in Prague 28 Feb – 1 Mar 2019.

If you are interested in the seminar please see the detailed information here.

If you wish to register for a seminar, please contact us at info@trusty.cz

Over the last five years we have written many articles about the positive uses of trusts.

Trusts can be used to do many great things including;

• solving inheritance problems – especially for ‘complicated families’
• protecting children from others, and sometimes also from themselves
• protecting family assets from business and other risks
• owning family businesses
• passing business smoothly from one generation to the next – avoiding family conflict and business disruption
• caring for disabled children
• charitable purposes
• and many others

However, we thought it might also be helpful to make a list of things that trusts should not be used for.

We are prompted to do this partly to help remove some confusion about trusts, and partly also because we have noticed some people marketing trusts as offering benefits which in reality simply do not work.

So here is our list of things you should not use Czech trusts for:

1. Tax ‘Optimisation’

In many other countries trusts offer some very helpful tax benefits. In a few countries trusts are not taxed at all. In other countries, it is possible for example to use trusts to spread income around family members without actually paying it out. This means that you can take advantage of children’s lower tax rates to reduce the overall family tax burden.

None of these benefits apply in the Czech Republic.

There can be a few very small potential tax benefits associated with holding the shareholding of a family company through a trust, but these would only ever be an ‘extra positive’ rather than the main motivation for doing something.

What about using international trusts for tax optimisation? Generally speaking, this is quite complicated and expensive and for most people, it will deliver limited, if any, benefit. That is because most gains generated in the Czech Republic and all income received here will still be taxable here. In fact, if done incorrectly, using international trusts can sometimes deliver a far worse result than doing nothing.

2. Owning Investments

A number of financial advisers and others are suggesting that Czech Trusts are a good tool for holding investments (investment portfolios, investment real estate etc). This is not correct.

The reason is simple. If you own an investment asset directly, you will pay tax on your earnings from that investment at 15%. If you own the investment via a trust, the trust will pay 19% and then, when it distributes the money to you, you will pay another 15%. That comes to a total of 31.15%. (It is not 19% + 15% = 34% because the 15% is only charged on the net amount.

So, unless there are very compelling other reasons for setting up the trust, we don’t recommend using a Czech Trust for holding assets in this way.

Some companies are suggesting that you can place your investment assets in your trust but leave the returns from those investments outside the trust. Such strategies are potentially very risky for clients and run a high risk they could be considered tax avoidance or even tax evasion. If someone is trying to convince you that this strategy works, you should insist on seeing a written opinion from a tax adviser confirming that it is OK. If they cannot show it to you, walk away.

If your investment portfolio is substantial (meaning >20 million CZK) then in some circumstances it IS possible to implement a structure using international tools to hold your investments in trust. However, as we mentioned above, this will not reduce your tax to zero, but it will keep the tax to 15% when you receive the money. The reason for the 20 million limit is that the costs of setting up such a structure are quite high, and not justified for lower amounts.

3. Defrauding Creditors / Defrauding the ‘Future ex Wife’

As we frequently emphasise, one of the main benefits of trusts is that the assets you place in the trust are no longer yours.

This is very useful if, in the future, you come under personal financial attack from creditors or others. We strongly encourage people in high risk jobs (company directors, property developers, surgeons etc) to protect their families.

The important thing though is to set up the protection structure ‘while the sun is shining’. By setting up the trust, you are protecting your family against future risks and if a creditor decides to lend you money at a time when your trust already exists, he can hardly complain about it later.

However, if you wait until it’s ‘raining’ it will be too late to buy the umbrella. Czech insolvency law allows creditors and others to ignore transfers to trusts that happened (depending on the circumstances) in the last 2 or 5 years. In addition, any attempt to put assets into a trust in order to deliberately frustrate the interests of a creditor (or future ex-spouse) will also be set aside.

4. Stealing your sibling’s inheritance

We have seen some clients come to us with parents in tow, suggesting that a trust be established in order to make sure all the money goes to that child and not his or her siblings. This can sometimes be entirely fine, but it does sound a few alarm bells in our minds.

Trusts are a great tool for managing the inheritance process, but the trust must always be designed to reflect the true wishes of the founder (in this case the parent). If the parent wants to benefit one child at the expense of the others, that’s not a problem. There are many perfectly legitimate reasons why they might want to do this. However, what is important is that the parent is doing this because THEY WANT TO – not because they are being pressured to do so by children. In cases such as this, we always do our best to ensure that the parents are making their own decision and are not being pressured by children and that the reasons for their decision are logical, and fully documented.

If we are not satisfied that the parent properly understands the implications of what they are doing, or if we suspect there may be undue pressure applied to them, then we will refuse to help establish the trust.

5. Money Laundering / Tunnelling / Other Illegal purposes

We would not accept these people as clients as a matter of practice.

However, we also think they are like Unicorns. A lot of people talk about them, but we have never so far met any of them, and we’re not sure they even exist!

When trusts were first introduced into the Czech Civil Code, there was much discussion, including in the media, about possible or even probable misuse by criminal elements.

We like to liken this to frozen fish:

Frozen fish are highly dangerous and have the potential the potential to kill people if used as a weapon.

Therefore, we should ban frozen fish.

It is true that you could kill someone with a frozen fish*. But of course, this is a silly argument because it ignores the overwhelmingly positive benefits of frozen fish, and also the fact that there are many better ways of killing people than using frozen fish.

Trusts are the same. It is true that you can use Czech trusts to do illegal things, but why would you?

All the parties involved in a Czech Trust are completely transparent to the Czech State

The potential for personal liability and the level of personal responsibility (including criminal liability) placed on trustees is much higher than for companies

There are still, unfortunately, many better tools for doing illegal acts including offshore (and even Czech) companies.

So that’s a summary of some of the reasons for using a trust that just don’t work. There are probably others and we may add to this list in the future.

Like the frozen fish though, there are many many excellent reasons for using trusts, and as time passes people are becoming increasingly aware of them – as evidenced by the doubling of numbers of trusts in the last six months.

* We carefully searched the internet and did not manage to find any actual examples of this (let us know if you do!). Frozen sausages have been used as a weapon (although not to kill). In Roald Dahl’s ‘Lamb to the Slaughter’ a woman killed her husband with a frozen leg of lamb and then cooked it and served it to the detective who came to investigate the crime.

There has been considerable media interest in the dramatic (100%) increase in the number of trusts in the Czech Republic in the second half of 2018.

Trusts have also been in the news due to the ongoing discussions around Prime Minister, Andrej Babiš and his use of trusts.

Much of that media coverage features comments from our company and from members of our team. Some of it is featured here:

Babiš jako reklama na svěřenské fondy. Zájem o ně v Česku rychle roste

17 ledna 2019

Babiš jako reklama na svěřenské fondy. Zájem o ně v Česku rychle roste ● Online ● Ekonom ● 17.1. 2019 ● Vydavatel: Economia, a.s. ● Autor: Jan Němec

Lidé si postupně uvědomují přínos a využití svěřenských fondů

14 ledna 2019

Lidé si postupně uvědomují přínos a využití svěřenských fondů ● Online ● Tyden.cz ● 13.1.2019 ● Vydavatel: Impression Media, s.r.o. ● Autor: ČTK

Svěřenských fondů výrazně přibývá, počátkem roku jich bylo 1369

14 ledna 2019

Svěřenských fondů výrazně přibývá, počátkem roku jich bylo 1369 ● Online ● Blesk.cz ● 13.1.2019 ● Vydavatel: CZECH NEWS CENTER a.s. ● Autor: ČTK

Svěřenských fondů výrazně přibývá, počátkem roku jich v Česku bylo už přes tisíc

14 ledna 2019

Svěřenských fondů výrazně přibývá, počátkem roku jich v Česku bylo už přes tisíc ● Online ● iROZHLAS.cz ● 13.1.2019 ● Vydavatel: Český rozhlas

Nejen Babiš. Svěřenských fondů výrazně přibývá. Řeší dědictví nebo nezodpovědné potomstvo

13 ledna 2019

Nejen Babiš. Svěřenských fondů výrazně přibývá. Řeší dědictví nebo nezodpovědné potomstvo ● Online ● Echo24.cz ● 13.1.2019 Vydavatel: ECHO MEDIA, A.S.

Svěřenských fondů výrazně přibývá, za půl roku jich vzniklo 829

08 ledna 2019

Svěřenských fondů výrazně přibývá, za půl roku jich vzniklo 829 ● Online ● Kurzy.cz ● 7. 1. 2019 ● Vydavatel: Kurzy.cz, spol. s r.o. ● Autor: Jiřina Kavková

In February, we will be running together with partners a seminar for expats in the Czech Republic.

The seminar will cover the key issues around inheritance and estate planning for expats living in the Czech Republic.

We encourage you to think about whether any of these things are true for you:

1. I do not have a will
2. I have a will, but it has not been updated since 2012
3. I am married to a Czech (or I am a Czech married to an expat)
4. He or she does not have an up-to-date will
5. I have children from a previous relationship
6. I own a business in the Czech Republic
7. I own real estate in the Czech Republic
8. I have children living outside the Czech Republic
9. We do not have a coordinated plan for our family’s inheritance

If you are permanently resident in the Czech Republic and some of these things apply to you, it is a strong indication that you should seek advice – either by attending one of our seminars or contacting us for an individual consultation.

This seminar will be closed – and accessible only to members of Democrats Abroad.  However, we are always willing to run similar seminars for other groups.  For more information, email us at info@trusty.cz