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.
- The name of your trust
- The purpose of your trust – this can be worded in very general terms so as to cover every possible situation. You say essentially that the purpose is to ‘provide benefits to the beneficiaries’
- The beneficiaries and eligible people – these groups, and especially the group of eligible persons should be wide enough to include not just everyone you plan to benefit, but anyone who might possibly one day in the future become a beneficiary; cousins, spouses, domestic partners, unborn children etc, etc. It is really important to understand that people in the group only have the future possibility of benefiting from the trust. They do not have any right to anything.
- The method of appointment of trustees. This needs to be very comprehensive and well-drafted, (in which case changes will never be needed).
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
