How to Protect a Company’s Assets from Inheritance Disputes and Ensure Their Smooth Transfer to the Next Generation

Family councils within fund structures enable better cooperation between the trustee and the beneficiaries. Regular meetings increase transparency and help set long-term goals for asset management. Lucie Krotilová, a lawyer at PORTOS law firm and senior consultant at CCS PREMIUM TRUST, discusses how to prepare for establishing a fund and what not to overlook during this phase.

What do initial meetings with clients interested in setting up a fund structure look like?

A client comes to us who has reached a point where they want to address their property issues, either due to their age or because they have reached a certain level in their business. When they plan to pass the family assets to the next generations, they inquire about the available options.

We analyze their situation from a legal and tax perspective to determine which fund structure is most suitable for them. At the beginning, we clarify the client’s expectations, their asset portfolio, and plans, and whether some family members want to be involved in the fund structure or the business. Based on this, we establish the next steps and propose a specific structure. We do not limit ourselves only to Czech trust and foundation funds but also consider foreign alternatives.

Which questions do clients often not think about in advance, but should?

For example, initially they want to protect a specific asset but realize that the structure is suitable for their entire asset portfolio. Sometimes they come wanting to pass on a business but then realize it’s good to protect other private assets within the fund structure—family houses, cottages, apartments abroad. All of this can be protected with such a structure. When we know the entire asset portfolio we can work with in the future, it is easier to define a specific fund structure suitable for the client.

When does a family charter precede the establishment of a fund?

We meet clients who first decide to create a family charter and subsequently establish a fund structure. Or these two institutions can function side by side. For property arrangements, you can have a fund structure set up, and alongside it, for organizing family relationships and setting rules, you have a family charter.

What does the process of creating a family charter look like?

For example, a father, the owner of a company, comes to us with the idea of setting rules in the family business—decision-making processes for company management, potential future involvement of family members in the family business. A family charter does not create any legal entity, but rules are drafted similarly to a contract. Over time, other family members can join these rules and add perspectives to the father’s ideas about managing the family business. This ensures that in the future, they will work better together and be able to follow the founder’s ideas.

If a company decides to establish a trust fund, what are the basic steps involved? Also, it does not have legal personality.

Yes, that’s true, but you can imagine it like a legal entity. A trust fund does not have a statutory body, but there is always a trustee who manages the assets placed into the fund. The trustee acts on behalf of the fund. However, in trust funds, there are beneficiaries who have rights to payments from the fund structure.

Is the first step the notarized deed for establishing the fund?

Typically, a father of the family with an asset portfolio comes to us. After clarifying the basic questions and expectations, we determine the most suitable fund structure—trust or foundation. Then we start working on the documentation, founding deed, and statute of the fund.

How long does this process usually take?

It varies greatly. Some clients can put it together in two months, others take longer. Sometimes it’s because they need to answer more questions themselves about how they want to manage assets and the company. We can meet over six months, during which we finalize the documents. When ready, the notarized deed is signed and the entity is registered—either in the foundation register or the trust funds register.

Can the fund be created during the founder’s lifetime or after their death?

Both situations can occur. Most founders decide on creating the fund during their lifetime, so they can “test” how the structure works and fine-tune processes. The second option is also possible: funds can be created upon the founder’s death and then registered.

What are the options when creating a fund structure—who will be the trustee, beneficiaries, and what are the rights and obligations of each party?

It is important to choose a trustee you trust. This is fundamental since the trustee manages all the assets within the fund structure. Founders often serve as trustees themselves at the beginning. Alternatively, the founder can appoint a professional trustee experienced in managing such structures.

Could the company founder be the trustee for the entire period? Does that happen?

For trust funds, it is mandatory that if the founder acts as trustee, a third independent person must simultaneously perform oversight. This is not the case for foundation funds, where the founder can manage the structure alone. To ensure continuity in case of the founder’s death, it is advisable to have a third person overseeing the fund’s operation and asset management so that it can continue smoothly.

And what about the beneficiaries?

Beneficiaries primarily have the right to payments from the fund structure. They also have oversight rights and can supervise the trustee’s activities. If problems arise, they can go to court to reverse trustee actions. Usually, after the founder’s death, beneficiaries can appoint or remove the trustee.

Are there clients who have both trust and foundation funds?

We have encountered such cases. For example, a client divided family assets into a trust fund and alongside it set up a foundation fund to manage an art collection. But this is not very common. Usually, after analyzing the asset portfolio and related tax issues, we find that one specific structure suits the client best.

Foundation funds, unlike trust funds, have legal personality. What precedes their establishment? Is the process similar?

It’s similar, but yes, a foundation fund is a legal entity. This legal personality can be a big advantage for some clients, especially those with foreign assets managed in other jurisdictions. For example, we had clients who purchased an apartment in Spain within the fund structure; Spain does not recognize entities without legal personality, so such alternatives must be chosen.

To sum up, what do you see as the greatest advantage of establishing a fund and managing company assets this way?

It’s asset protection and intergenerational transfer. Without such a structure, the assets would be subject to inheritance proceedings after the founder’s death, which is risky. Disputes may arise, company or holding operations may be blocked or limited, which is a loss. Sometimes the business ends. If a fund structure is established, rules are set that apply regardless of whether the founder lives or not, allowing the asset portfolio to continue prospering.

Is this solution only for family businesses?

We also have clients managing several real estate properties. When arranged within a fund, they avoid losing strength that comes from unity and integrity of assets.

This article titled We Know How was created in collaboration with a commercial partner on the website Trend.sk.