Trust fund

The trust fund is the ideal means of ensuring the administration, protection and appreciation of your property, or of securing your family economically. It can be used, for example, to secure offspring so that they are paid money or transferred designated property after meeting the conditions set by the founder, to support an illegitimate child, to support another anonymous person, to maintain the family business after the founder's death or to protect property from possible business failures and obligations to satisfy creditors.

 

The trust fund can also serve as a means of securing debt, when assets are allocated to the fund, which will be paid out / transferred to creditors after meeting the conditions specified in the statute. The trust fund can also be used for business (where the main purpose is to make a profit). Therefore, a trust fund can be used instead of establishing a business corporation. The great advantage of the trust fund is the anonymity of the allocated property, where this property is not punishable (if all legal conditions are met) by execution or insolvency. In the case of the so-called inheritance trust funds, the so-called indispensable heirs (the testator's children and their descendants) who are otherwise entitled to a compulsory share in the estate can be bypassed through this institute.

 

A trust fund is created by separating assets from the founder's property by entrusting the trustee with the assets for a specific purpose by contract or acquisition in the event of death, and the trustee undertakes to hold and administer the assets. This property becomes "nothing" because it is neither the property of the founder nor the trustee. In certain circumstances, the trustee may also be the founder himself. In such a case, the trust must have another trustee, who is a third party, and the trustees must act jointly. The Civil Code also allows the trustee to be intentional at the same time. Therefore, if the founder still wants to have control over these assets even after the allocation of his assets to the trust fund, he can designate himself as a trust administrator in the statute (subject to the appointment of another administrator) and continue to dispose of the assets as a fund administrator. However, they must comply with the conditions and purpose of the fund set out in the statutes.

 

Any property of the founder can be allocated to the trust fund, eg money, movable and immovable property, shares or participations in a company, plant, etc. The founder may allocate certain assets from his property to the trust fund, but may also reserve the right to such property, in particular the right to the fruits or benefits of the allocated property arising. The establishment of the trust fund creates a separate and independent ownership of the allocated property and the trust administrator is obliged to take over this property and its administration. Ownership rights to the assets in the trust fund are exercised in the trust's own name and on behalf of the fund; however, the assets in the trust fund are not the property of the trustee, the founder or the property of the person to be paid from the trust fund.

 

The issue of ownership is interesting, when the separation of property leads to the anonymization of the owner, as such property is no longer owned by the founder (it is not, for example, punishable by execution), but is managed in accordance with the statute by the trustee. However, the Act also provides for the protection of creditors in the case of trust funds, where according to § 1467 of the Civil Code it applies that if a trustee, founder or deliberate participant acts in intentionally damaging the founder's creditor or damaging the trust, they are jointly and severally liable. In addition, the creditor may object to the so-called relative ineffectiveness of the legal action against him. If the debtor's legal action shortens the satisfaction of the creditor's enforceable claim, the creditor has the right to demand that the court determine that the debtor's legal action is not legally effective against the creditor. The creditor has this right even if the third party's right is already enforceable or has already been satisfied.

 

The purpose of a trust fund can be public benefit or private. A trust fund set up for a private purpose serves the benefit of a person or in his memory. This fund may also be established for the purpose of investing for profit to be distributed among the founders, employees, partners or other persons. On the other hand, making a profit or operating a plant cannot be the main purpose of a public benefit trust fund.

 

The trustee is appointed and removed by the founder. The trustee is entitled to full management of the assets in the trust fund. Full administration includes the obligation to take care of its reproduction and application in the interests of the intended person.

The founder has the right to appoint the intended and determine their performance from the trust fund. The persons of the intended persons may freely change or specify another way of their determination. For example, the children of the founder may be considered, when the trustee pays them certain remuneration in accordance with the statute, or sends funds for studies, etc. A private trust fund can also be established for profit, when shares or stakes in business company or real estate. Dividends, gains from shares and rents are the profit of the trust fund, from which they are then paid to the intended party. Both natural and legal persons can be intended.

 

From a tax point of view, the trust fund is treated as a legal entity and its profits are subject to corporate income tax. The income intended from the profit of the trust fund is then subject to a withholding tax of 15%. Exceptions also apply here, however, in the event that the intended family is a relative of the founder in the direct line and in the secondary line in respect of siblings, uncles, aunts, nephews or nieces, spouses, spouses, spouses 'parents, parents' spouses, or the founder is a person with whom the intended person has lived for at least one year before obtaining gratuitous income in a jointly managed household and for that reason cared for the household or was dependent on that person for maintenance. However, if it is income from the fund's assets (not from profit), then this income must be seen as a gift.

As regards the tax on the acquisition of immovable property, in the case of the real estate being allocated to a trust fund, only the acquisition for consideration is subject to tax. Therefore, if the transfer to the trust fund is free of charge, then such acquisition of assets is not subject to tax.

 

According to the Accounting Act, a trust fund is an entity and is required to keep accounts. The trustee is responsible for keeping the accounts.

According to the Real Estate Cadastre Act, the so-called trust fund administration and the person of the trust administrator are registered in the cadastre with regard to real estate invested in the trust fund. In the case of assets in a trust fund, the trustee is indicated as the owner.

As for the financial complexity of establishing a trust fund, everything depends on the value of the allocated assets. It is entered in the statute, which must be drawn up in the form of a public deed (notarial record). For the drafting of a notarial record, the notary is entitled to a fee in the amount stipulated by the implementing regulations to the Notarial Code (MS Decree No. 167/2009 Coll. On Remuneration and Compensation of Notaries and Heritage Administrators). If the value of the allocated property is, for example, CZK 100,000, the notary's fee would be CZK 2,000 + VAT. However, if the value of the property were, for example, CZK 60,000,000, the notary's fee would be CZK 74,800 + VAT.

 

However, high initial costs can be avoided. The Act for the Establishment of a Trust Fund does not stipulate the obligation to set aside a specific amount, as is the case with business corporations, and therefore only CZK 100 can be invested in the fund when it is established. Other assets can be invested in the fund, for example, as a gift. Here, however, it is necessary to think about the tax aspects, when such a gift will be subject to corporate income tax. From the tax point of view, the trust fund does not seem to be any more advantageous compared to other forms of business, but it certainly has, with the good intention of the founder, a very wide use.