Jakub Hollmann: Trust Fund in Times of Crisis? Why Not, but It Is Necessary to Have a Clear Vision and Goal

Interest in trust funds is rapidly increasing in the Czech Republic. While there were only a few dozen on the domestic market in 2014, by the end of the first half of this year nearly two thousand four hundred trust funds were registered. According to experts, they are finally losing their aura of secrecy and opacity, and instead are fulfilling their original purpose — ensuring effective protection and management of multimillion assets. Their importance is therefore deepening especially during the current crisis caused by the impacts of the coronavirus pandemic. In an interview for ekonomickymagazin.cz, you can read about how trust funds can help entrepreneurs in these challenging times, what to watch out for when establishing them, and why their popularity continues to grow.

It seems that trust funds have fully established themselves in the Czech Republic. Why is that?

There are several reasons. First, they have gained the trust of people who want to safely, permanently, and above all meaningfully store their hard-earned wealth. It’s not about cleverly hiding money and real estate; the essence is clear and efficient management and administration of all assets. Second, trust funds are increasingly popular abroad, specifically in Liechtenstein and Switzerland, where they have a long tradition. And because the world is becoming more globalized and business experiences are shared on many levels, the use of trust funds is also on the rise here.

Will the current crisis caused by the coronavirus pandemic affect the increase in trust funds?

I don’t think so. Many entrepreneurs, especially from the older generation, have their money invested in various investment funds, stocks, or real estate. However, as stock markets decline and, according to analytical forecasts, real estate prices are likely to decrease as well, businessmen need to find suitable tools to protect their wealth. This is no longer just about portfolio changes but about comprehensive and stable care for many years ahead. Trust funds could be a kind of guarantee against asset depreciation.

So, could we say that trust funds are, to some extent, a safeguard against crises like the current one?

To some extent, yes. Trust funds are usually established by entrepreneurs to better protect private assets they want to preserve for future generations. They place all their financial resources and real estate into the fund to protect them from various unexpected risks. In practice, they usually serve as a means for the elegant and safe transfer of family businesses across generations. This should also apply during crises, which – as is well known – reduce the value of many investments. Properly structured trust funds can help prevent these threats.

Moreover, no one else can access the assets without authorization. Does this also apply to creditors who might try to claim part of the assets during a crisis?

Yes, a great advantage of a trust fund is that it enables effective management of private or business assets while providing strong protection for the founder, for example, against unauthorized creditors. In this respect, it is a significantly better tool than inheritance law instruments. In other words, the fund ensures the survival of the assets into the future, and professionals can take care of all the entrusted assets throughout the fund’s duration.

Is a trust fund so secure that it cannot be stolen?

It is definitely safer than managing assets through a limited liability company, for example. I have heard concerns about forgery of the trust fund manager’s signature or the manager becoming ill, which could jeopardize asset control. These concerns are valid, but they can be easily addressed by designing the fund’s structure from the beginning, including signature verification requirements and other safeguards against potential risks. If all potential dangers are considered in advance and adequate management is established accordingly, a person can rest assured knowing everything is safely stored in one place and under a roof that doesn’t leak.

Speaking of the founder of a trust fund, who can become one?

Both legal entities and individuals can become founders by voluntarily allocating their assets to the fund with a clearly defined purpose. However, the founder loses ownership rights to the allocated assets. The assets are managed by a trustee for the benefit of beneficiaries who can enjoy the assets. However, beneficiaries do not become new owners of the fund. Full management of the fund remains with the trustee appointed by the founder. This might sound a bit complicated, but the rules are quite clear and in practice – if the fund is properly established and properly maintained – it works well.

Right – if the fund is properly established. Is there a universal, tested template that can be offered to all potential founders?

It’s not that simple. Each entrepreneur has different assets, goals, and reasons for setting up a fund. Therefore, it’s necessary to listen to and understand each individual story well to tailor the trust fund accordingly. Otherwise, the fund may fail to fulfill its purpose and become more of a burden than a benefit.

And what happens after the fund is established? Who takes care of it to ensure everything complies with regulations and laws?

A crucial step is to set up fund management efficiently and ensure professional oversight of the fund at a high level of expertise. Many entities on the market today can establish a fund. What they are less able to do is to comprehensively design the principles of trust fund management. To propose a suitable structure and set up an appropriate way of managing the trust fund, one must know not only the asset structure in detail but also the long-term intentions and vision of the client.

At the beginning of 2018, there was an important change – the introduction of trust fund registries effectively disrupted the general principle of anonymity of founders and beneficiaries. What does this mean in practice?

The public can learn from the registry the name of the trust fund, who its trustee is, and what its purpose is. However, many details remain hidden from the public, especially information about the founder and beneficiaries. This is by no means dangerous or something that would jeopardize the assets in favor of outsiders. Trust funds have simply become more transparent in this regard so as not to give the impression that assets are hidden illegally.

Can we expect any tightening of regulations for trust funds in the future due to some media scandals?

I don’t think there is a reason for that. Trust funds are a legally defined form of asset allocation and management, so it’s inappropriate to think of them as something shady. Of course, someone might try to misuse a trust fund or use it illegally, but then they must expect to break the law and face consequences. In the Czech environment, the parameters for establishing and managing trust funds are set optimally. However, I do not rule out that rules for their governance may change over time, as has happened abroad. It is necessary to take this into account when establishing a trust fund and adjust the founding documents accordingly.

Source: ben; jab

https://ekonomickymagazin.cz/2020/07/jakub-hollmann-sverensky-fond-v-dobe-krize-proc-ne-je-vsak-potreba-mit-jasnou-predstavu-a-cil/