Trust funds

A trust fund is a form of administration of property detached from the property of the founder, whose identity remains anonymous. The property thus allocated ceases to be the property of the founder of this fund and becomes anonymous property.

Trust funds are used as a tool for the protection and long-term management of family or company property, to maintain the confidentiality of property information or to safely and stably structure the future transfer of property within the family and to prevent the dilution of family property.

A trust fund may be created by a legal or natural person who, at his will, allocates his property or part of it for a specific purpose. This person becomes the founder of the trust by this legal action.

The property in the trust fund is neither the property of the administrator, nor the property of the founder, nor the property of the person to be fulfilled from the trust fund - ie the beneficiary.

According to the purpose, trust funds are divided into funds established for private purposes and funds intended for public benefit purposes.

Trust fund benefits

• When investing real estate, 4% tax is not applied on the acquisition of real estate, as is the case, for example, with a contribution to the share capital of a business company.
• Public supervision is almost ruled out, the court may intervene in special cases (especially during changes and termination of the trust fund).
• No one has ownership rights to the assets allocated to the fund. The assets of the fund, which must be registered in official registers (eg real estate in the real estate cadastre), are registered under the name of the trustee with the addition that he is trustee. Ownership passes directly to the fund itself, which does not have legal personality.
• Another advantage for the founders is the reduction of the tax base, and therefore lower tax levies. By establishing a trust fund, its founder gets control over the capital and income paid to the intended trust fund.
• When a fund is set up for the case of death, entities often avoid lengthy inheritance proceedings and the payment of inheritance costs.

Establishment of a trust fund

The trust fund is established, as mentioned above, by separating the property from the founder's property. This can be done either by contract in the form of a notarial deed or a will.

• Establishment of the fund by contract: a contract is concluded between the founder and the trustee on the entrustment of assets to the trustee
• Establishment of a fund by will: at the time of death, the fund does not enter into inheritance

A business plant can also be invested in the fund, and the trustee then enters into the rights of the employer. It is possible to establish a fund with CZK 1 by the founder. Then it is possible to get property from other people.

The contract defines the purpose of the fund (public benefit or private), the designated trustee undertakes to hold and manage these assets.

The trust fund shall be created by entry in the relevant public register.

The creation of the trust fund creates a separate and independent ownership of the allocated property and the trust trustee is obliged to take over this property and its administration. Ownership rights to the assets in the trust fund are exercised in the trustee's own name on behalf of the fund.

A trust fund set up for a private purpose serves the benefit of a person or in his memory. This fund can also be set up for the purpose of investing for profit to be distributed among founders, employees, partners or other persons, which is not quite common in practice.

Founder of a trust fund

The founder can be a legal or natural person. There can be more founders.

Founder's rights:

• Define the beneficiary and determine his benefits; he has the right to change or cancel this decision
• Oversee the activities of the administrator
• Change the fund rules

Trustee

Any fully legally competent person or investment company can become a trustee, it can also be its founder or even a person to be fulfilled from the trust fund, ie beneficiary. In such a case, however, the trust must have another third-party trustee, and these trustees must legally act jointly. The trustee is appointed and removed by the founder, who may, however, specify in the statute another method of appointment or removal of the trustee.

The trustee is registered in a public list (eg real estate cadastre) or in another register as the owner of the property in the trust fund with the note "trustee". The trustee manages the assets in accordance with the generally applicable obligations set for the management of third-party assets and other obligations required by the relevant legal regulations, eg towards the persons supervising the management of the trust fund.

Beneficiary

The founder appoints the beneficiary and determines the benefits from the trust fund, unless the statute of the trust fund provides otherwise. The beneficiary may be granted the right to fruits or benefits from the trust fund or the right to property from the trust fund, or to shares in it. The right of the beneficiary to the benefits from the trust fund arises under the conditions determined by the statute.

If the trust fund has been established for a private purpose, the right of the beneficiary to the fruits or benefits shall expire at the latest one hundred years after the establishment of the trust fund. In case of natural person, however, such a right can last until his/her death. For the duration of the trust fund, the beneficiary has the right to demand the relevant payments in accordance with the statute.

Changes in the trust fund

The purpose of the fund, ie whether the fund is established as private or public, cannot be changed during its existence. However, what can be changed is an increase in the fund's assets through new contributors. The person contributing to the fund may contribute after its creation, either without the right to consideration, or in order to become the intention of this trust fund himself. The person contributing to the fund does not become the founder of the fund, nor does he have the rights of the founder of the trust fund. Whoever increases the assets of a trust fund by contract or acquisition in the event of death is not its founder. The property thus acquired is subject to administration in accordance with the statute and the law.

Dissolution of the trust fund

The management of the trust fund ends when the period for which it was established expires, when the purpose for which it was established is achieved, or if the court so decides. If a trust fund has been set up for a private purpose, its management shall end even if all considerations waive the right to benefit from that fund. However, the termination of the management does not lead to the extinction of the fund at the same time, because at that moment it would lose the nature of independent ownership.

Upon termination of the management of the trust fund, the trustee shall release the property to the person entitled to it. It is considered that the beneficiary has the right to the property and, if such person does not exist, the founder of the trust fund. If none of them exists, the property belongs to the state. The trust fund thus ceases to exist only through the transfer of property to the ownership of the entitled person and the subsequent deletion from the public register.