Almost two-thirds of Czech entrepreneurs wish to pass their family business on to their descendants. However, according to statistics, only one-third of companies survive the transfer to the next generation. During the pandemic crisis, interest among Czechs in intergenerational transfer of assets increased not only through wills but also with the help of trusts. While interest in wills at notaries rose by 12% year-on-year, for trusts it increased by as much as 40%.
Family businesses make up 85% of all private companies in the EU. However, only one-third of them survive the transfer from the first to the second generation, and the process becomes increasingly complicated with each subsequent generation. According to data from the Association of Small and Medium-Sized Enterprises (ASMP), more than half of business owners do not have a sufficiently thought-out succession plan. Succession does not always have to be direct—that is, from parents to children—it can involve the wider family and may also include company managers. This then raises the need to address shares both in the ownership and management of assets and in running the company.
Nevertheless, nearly two-thirds of Czech entrepreneurs wish for their descendants to take over the leadership of the company. However, this also comes with risks. Comprehensive solutions are offered by trusts, with the establishment and management of which our law firm has many years of experience both in the Czech Republic and abroad.
“Gaining trust in the abilities and responsibility of their descendants does not come automatically to owners of family businesses,” explains Jakub Hollmann, partner at our law firm, in an article for Česko v datech. “Founders of family businesses often use trustees who participate in managing the company until, according to predefined conditions, the descendants demonstrate the proper ambition, experience, and skills to manage the company independently.”
Many forms, benefits, and opportunities
The use of trustees is just one of the many advantages trusts offer. They represent primarily the most flexible form of asset management and transfer (including the aforementioned family businesses). They give their creators far more opportunities to transfer assets safely and efficiently according to rules they set themselves. They eliminate disputes in inheritance proceedings, protect assets from external influences, business risks, and possible imprudence of heirs.
In addition to commercial and family trusts, there are also security trusts established for the purpose of securing or repaying a debt. Last but not least, it is important to mention investment trusts, which help with the diversification of investment risks.
Over the past year, the number of trusts in the Czech Republic has increased by almost 40%, and due to better awareness and preparation by banking institutions, this trend is expected to continue in the coming years.
