The will is unpopular among entrepreneurs. They protect their assets using old-fashioned methods.

Inheritance proceedings discourage family business owners due to potential disputes among children, as well as various taxes and fees.

Most entrepreneurs sooner or later reflect on what future awaits their company without their presence. After years of work, they want to see a reward in the form of a secure family and a thriving business. However, Jakub Hollmann, chairman of the board of CCS Premium Trust, warns that reality can often be different—especially when family relationships are complicated by sudden death or divorce. Therefore, he advises entrepreneurs interested in protecting their assets not to expose functioning relationships to unnecessary tests, but rather to set clear rules for their family. CCS Premium Trust is a partner of the TREND Family Business of the Year 2023 award.

The issue of asset protection is becoming increasingly relevant given the changing economic and social situation. Where should interested parties start?

The first step is to bring the assets, so to speak, “under one roof,” that is, to consolidate them. This means clarifying both the assets themselves and the structure of the relationships between the individual assets, so that managing them is as cost-effective as possible. Only then can an individual begin to consider solutions for protecting their assets.

What step should one explicitly avoid during this process?

It still holds true that every prudent manager should diversify their assets, but within a suitable asset structure. The worst thing an interested party (hereinafter “interested party”) can do is diversify in a way that results in tax consequences that ultimately burden them. Therefore, they should not forget the issue of tax efficiency, so that the potential returns generated by the assets are not consumed by tax obligations.

When should an interested party seek expert help?

For context, it should be noted that both Czechs and Slovaks have been living in a free country for 33 years now, which brings free entrepreneurship and issues that were not previously common to address. Among these is the question of what to do with acquired assets, which we have been trying to answer in our conditions since 2014. Although this is a decade-long period, it is still less than a century, during which interested parties abroad have been addressing this topic. Therefore, advice should be sought not only by those who think about their assets as something that needs to be protected but also by those who see their assets as a value they have acquired during their lifetime and do not want it to disappear after their death.

What does such cooperation look like?

If an interested party is considering an asset structure, based on the initial data they provide, we prepare a proposal that suits them in terms of tax, legal, accounting, and user aspects. We only need information about their activities, assets, and, of course, the circle of people they want to appoint as users of their assets. Besides immediate or extended family in the traditional sense, this can also include employees, life partners, or friends—basically, people who, according to the client’s wishes, should benefit from their assets for a set period.

Is there something that interested parties should not expect from this cooperation?

Asset structures do not allow people to circumvent the law or avoid tax obligations. These are myths that no longer hold true. Instead, we aim to inform interested parties about the benefits these structures bring, such as tax efficiency, which cannot be achieved if assets are organized in a horizontal structure. Through consolidation, one can create this efficiency. Another topic is the so-called inheritance tax, which interested parties will face in the coming years.

What is this about?

Slovakia, together with the Czech Republic, is one of the last countries in the European Union where inheritance tax is not imposed on the first class of heirs—spouses and children of the deceased. However, the trend suggests that it is only a matter of time before this tax is introduced here as well, which will again motivate people to pay more attention to asset protection through asset structures. These structures can eliminate inheritance proceedings and the associated taxes and fees because ownership transfer does not occur. The assets “live on” within the fund or other structure.

Does this mean asset protection is just a matter of time for many interested parties?

This is evident, for example, from the number of wills, which wealthy individuals understandably are losing interest in. Besides the costs of inheritance proceedings, they try to avoid potential disputes between heirs and disregard of their will. They want to prevent the assets they built all their lives from destroying family relationships. They also do not want a notary to decide about their assets. Wills are therefore being replaced, following the example of Western countries, by asset structures such as trusts and foundation funds.

What problems or demands do clients most often bring to you?

The first area is the intergenerational transfer of assets, as business owners want to avoid the mentioned inheritance proceedings. On the other hand, they want to pass on their philosophy and life values to their successors. The second topic is liability with assets. If you have assets stored in an appropriate structure, you are liable with those assets for any breach of duties that would result in damages. This topic is most often of interest to clients who undertake various risks in their business activities. They consider the possibility of encountering adverse situations such as enforcement or insolvency. Therefore, it is appropriate for their family and assets to be protected.

Have you encountered any curious conditions that clients demand from their children or employees?

Of course, occasionally such cases arise. Most often, these relate to relationships before divorce proceedings, where one partner wants to hide assets within the mentioned asset structures. However, these structures are not a solution for such cases. We try to prevent curious conditions by reminding clients of two old principles: trust but verify, and be prepared. If a client explains that they have no issues in the family, we advise them not to expose those relationships to unnecessary tests.

What changes should they be prepared for?

For example, they should be prepared for a period when they may no longer be able to provide their family with a certain standard of living, such as paying for vacations or housing. Also, they should consider future partners of their descendants. Naturally, it is very difficult to have such changes fully under control, but it is advisable to set rules for drawing benefits from the assets to avoid unnecessary conflicts.

Do family members have to comply with these conditions?

They can freely decide how to approach them. If they agree, they can draw benefits provided by the asset structure, such as housing or financial rent. If they refuse, this option is significantly limited.

How do life changes such as marriage or divorce affect asset protection?

Today, people often find it socially inappropriate to discuss prenuptial agreements with their partners. It is too pragmatic a conversation, which one would prefer to avoid but at the same time wants to protect their assets. Asset structures allow interested parties to avoid such discussions. The founder can set asset protection conditions without questioning their future spouse’s motivation for marriage. This is a common way for owners of multigenerational family businesses to keep their assets under control.

How does Slovak legislation fit into this entire asset protection process?

All the mentioned asset structures are commonly used in Slovakia, even though they are not codified in Slovak law. To be clear, these are foreign asset structures established under different laws. In practice, this means certain benefits that depend on the specific legal system and client needs. Some clients may be concerned about political or economic situations in the country and decide to protect their assets through foreign asset structures. If a Slovak wants to establish one, they must seek the services of foreign companies. Domestic law will then respect it, with all tax matters remaining under Slovak control.

Which foreign legal systems are most popular with interested parties?

In recent years, the Czech Republic has led among Slovaks with its trusts and foundation funds. Close behind is Liechtenstein with its family foundations and trusts. These are mostly of interest to clients conducting their business or private activities, such as real estate purchases, abroad. This brings many benefits as these asset structures are among the most trusted in foreign markets.

Would it be beneficial for Slovakia to introduce these methods of asset protection?

It is nothing new since this institution existed in Czechoslovakia until the 1950s. It would just be a return to previously existing legislation. However, I do not expect its restoration in the near future as there is currently no political will for it in Slovakia.

Author: Kamila Oláhová

You can read the full article on trend.sk (October 29).