A major amendment of the Civil Code, the Act on Public Registers and other legislation that will have a major impact on, among other things, trust funds is currently waiting discussion by the government. The amendment will, above all, introduce mandatory registration of trust funds in a Register of Trust Funds and also regulate the compulsory data that is to be entered in this register.

Reasons for the change

Based on the explanatory memorandum to the amendment, it appears this change has been proposed in response to comments by certain ministries and the Supreme Public Prosecutor’s Office in Prague regarding the non-transparent ownership structure of trust funds and the possibility of their misuse for the purposes of legalising the proceeds of crime.

As presented below, the issue of the anonymity of the founder (settlor) and beneficiaries was not overcome by the obligation to draw up statutes in the form of a public document as the ownership structure can still only be ascertained through the concrete notary who drew up the statutes. This is problematic for both potential creditors, limiting their ability to claim invalidity (formerly contestability) of legal actions, as well as for criminal justice authorities.

So, what will change?

In terms of specific changes, this will primarily mean the mandatory registration of trust funds in a register, which will be of a constitutive nature, meaning that the trust fund will only be constituted on its entry in the register. Where a trust fund is currently constituted on the trustee’s acceptance of trust fund management, in the future this will simply set up a trust fund prior to its constitution. However, in case of a trust fund set up in the event of death (in a will, by bequest, inheritance agreement), the fund will be constituted on the testator’s death; mandatory registration will be of a declaratory nature only.

Of the data that will be required to be entered in the register, the most important information will be the identification of the founder, beneficiary/beneficiaries and trustee(s). Nomination of the beneficiary/ beneficiaries will be effective on entry in the register. The amendment will therefore eliminate the anonymity of trust fund beneficiaries and allow anyone to uncover the fund’s ownership structure, which will significantly reduce their attractiveness to potential founders.

However, a beneficiary/ beneficiaries need not be entered in the register if the trust fund is set up for other than private purposes, mainly because, in such cases, there are numerous beneficiaries, and their structure and number often changes over time.

In addition to these major changes, the amendment also introduces a new obligation to specify the number of trustees in the statutes of the trust fund and, in case of more than one trustee, the manner in which they will act. This information will also have to be entered in the register, which is hoped will provide greater protection and a degree of legal certainty for third parties. Aside from the constitutive entry of trust funds in the register, the amendment also naturally covers their constitutive deletion from this register.

The following data will therefore now be entered in the Register of Trust Funds: the name of the trust fund, its purpose, the date of the commencement and termination of the trust fund and its identification number, identification of the founder (settlor), the number of trustees and the manner in which they will act, identification of the trustees, and in the case of a trust fund for private purposes, identification of the beneficiaries and other facts required by law or requested by the trustee.

For existing trust funds, the amendment stipulates mandatory registration in the register within six months of its entry into force, with the same period given for the entry of the beneficiaries of existing trust funds. If an application for registration is not filed within this period, the amendment strictly stipulates that management of the trust fund will expire in this case. Similarly, if an application for the registration of beneficiaries in not submitted within this period, the effects of their nomination or other designation will also expire.

The amendment is currently before the government for discussion. Comments closed on 8 December 2014, but it has not yet been scheduled on the government’s agenda. In view of the Czech Bar Association’s disagreement with this amendment of trust fund legislation, we cannot really say what fate awaits the amendment on its discussion in the Chamber of Deputies.

For more information, please contact our office’s partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz ; tel.: +420604242241.