Another Successful Course

I was very pleased to participate in the most recent APRSF Trustee Accreditation Course along with Eva Hruskova from Svěřenské fondy a trusty, Ivan Kovar from BDO, and Alena Popelkova from J&T.

We had a fantastic group of participants and a very enjoyable two days!

APRSF Trust Accreditation Course

There are a lot self-titled trust and succession planning ‘experts’ in the Czech Republic, many of whom lack the basic knowledge and skills to do a competent job for their clients.

If you would like to join the ranks of the real experts, come along to the APRSF Accreditation Course on 29-30 January.  The details are here.

STEP / CAK Prague Event 10 November 2023

It was a great pleasure to be invited back to speak at the third iteration of this informative and well-organised event.  It featured great speakers from all over the world including the USA, UK, Liechtenstein, Cyprus, Poland and the UAE

Many thanks to Stepan Holub and his team for the hard work putting this together.

We are all looking forward to an even bigger event next year as we celebrate the tenth year of Czech Trusts. Here’s to the continued growth and success of this invaluable event!

Wealth Structuring: Trusts and Foundations in Czechia and abroad

I am very pleased to have been invited once again to speak at this annual November event organised in Prague by the Czech Bar Association and STEP.

Based on past experience, I highly recommend this event to anyone interested in trusts and foundations.  The event is free of charge and packed full of valuable information from a range of expert international presenters.

Details of the event are here.


A Matter of Trust

When you are the trustee of a trust and you do something dishonest or something especially stupid, then it is you, personally, who are responsible. If the trust has lost money, then you will be responsible for repaying that loss from your own pocket.

That’s quite frightening.

When I was a junior lawyer, many years ago, the partner in charge of my department acted as the trustee of our clients’ trusts. Alister (for that was his name) was, and remains to this day, a very highly experienced and competent lawyer. He acted as the trustee of hundreds, probably thousands of client trusts. In fact, he was the trustee of so many trusts that I am sure he could not possibly remember each one.

Yet even so, Alister was a relaxed man. He did not fear his role. He was not afraid. He did not even worry about his role.

I contrast that with an interesting and rather sad situation that is currently evolving in the Czech where a number of trustees, each of whom acted as the trustee of a much smaller number of trusts than Alister, are now very worried indeed. (If they are not worried, then they should be).

Those trusts may have lost money. I anticipate that these trustees will most likely have to compensate the trusts for any such losses out of their own pockets. And it seems that there may be a lot of losses.

So why was Alister so relaxed, and these people so nervous?

In English, the word for svěřenský fond is trust. It is not a coincidence that that word also means:

“Firm belief in the reliability, truth, or ability of someone or something; confidence or faith in a person or thing”

When someone appoints you as a trustee, it is a great honour. That’s because the person is telling you that they have confidence and faith in you and in your ability to look after their best interests. A trust is not a business deal – it is something much more personal than that.

Being a trustee is a rewarding and satisfying role. As a trustee, you are expected to do your best. You are not expected to be an expert in all things and nor are you expected to be right all the time. It is perfectly OK to make mistakes. As long as you were trying your best and being sensible, that is fine.

So to repeat: There is nothing to fear from being a trustee.

Or perhaps I should rephrase. There is nothing to fear from being a trustee provided you act sensibly and put your client’s interests ahead of your own.

Alister was relaxed because he had a system in place to make sure that a few simple and important things were done properly. He didn’t even do the work himself – he delegated it to the junior people in the team such as me. But what he did do was to make sure that there were processes and systems. That meant for example that every trust investment was made according to a system which ensured that the diversified investment portfolio was appropriate for the trust, and using the services of a professional investment expert. Alister did not try to do the investment himself (he is a lawyer, not an investment expert) and he did not receive any money or commission from the investment companies. He did lend trust money, but when he did so he made sure he would get paid back – usually by taking security. He reduced risk by diversifying – never putting all the eggs in one basket.

If the value of the investments went down, Alister was not nervous. That is because he had done his best, in a professional way, to manage the money in his clients’ best interests. Again, as a trustee, you are required to be sensible and careful. You are not required to be right.

In contrast, at least according to the information we have, the Czech trustees mentioned above:

  • Lent all the trust money to a single partner without taking security
  • Accepted large personal commissions for doing so

They seemed to think that by passing the money on, they were somehow absolved of responsibility.

That is not so.

I hope the money will be found to repay the trusts, but if it is not, then this will be a very painful lesson to all those involved not to forget the meaning of the word trust.

Finally, a word on administration.

Part of the key to Alister’s success was that he had a team of people checking that everything was being done correctly and warning of any possible problems. If the Czech trustees mentioned in this article had used a professional administration service, they would have been warned of the risks of what they were doing.

My former colleagues at Svěřenské fondy a trusty offer exactly this service.  If you have a trust but do not have professional administration, I would strongly recommend getting in touch with them.


Photo credit: Alon

STEP Europe Conference 2023

I am delighted to have been asked to present at this year’s STEP Europe Conference.

I will be presenting jointly with JUDr. Petr Jakubec on the topic: Current issues for trusts and foundations in the Czech Republic – Confusion, anxiety and opportunity

The conference takes place in Budapest on 12-13 October.  It promises to be very informative and enjoyable.  If you are interested in trusts, come along. There are more details here.

Yes please, I would like to pay more tax

I will confess to being a little ‘old school’ in my approach to trustees’ duties.  Because trustees are handling other people’s money, I really like black-and-white rules.

Of course, in real life there is a lot of ‘grey’, but this grey can usually be solved – after a little consideration –  by a policy that says “If in doubt, don’t do it”.  In this way the grey is all converted into black, life is simple, and the beneficiaries benefit from the most risk-averse approach, which in most cases should guarantee their interests are protected.

But perhaps I am a dinosaur?  Perhaps the fiduciary world is changing and I have failed to keep up?

A recent decision of the Royal Court in Jersey: Re May Trust [2021] JRC137, has forced me to rethink a few things.  This decision seems to have slipped under the radar, but I think it is very significant for trustees.

Let’s explain using hypotheticals:

 Hypothetical 1:  Money in the bank

I am managing $1 million of a client’s money which is in a bank account.  Let’s assume that keeping the money available at call is important in this case and that the money is sitting in an operating bank account (0% interest).

I am aware that the bank in question has an overnight call facility that offers 5%.  Switching the money to this account does not affect risk or liquidity.

What should I do?

In my black-and-white world, there is no option here.  I MUST put the money in the call facility.  If I do not do that, I am in breach of my duty to act in the best interests of the trust and of the beneficiaries – and I believe that I would be personally responsible (and personally financially liable) if I failed to do it.

Hypothetical 2: Paying Tax

I have two different ways of doing a transaction.  One way would result in a tax liability for the trust, and the other way not.  In all other respects, the two versions are identical

What should I do?

In my black-and-white world, I MUST choose the tax-free method – based on the same logic as hypothetical 1.

However, we live in a changing world.  A world in which ESG is not just a word but it is also a new way of life.  It is not all just about money anymore.  Other things are important too – stakeholders, society, the environment and moral principles.

Here is the third hypothetical:

Hypothetical 3 – Paying Tax – Version 2

I have two different ways of doing a transaction just as in hypothetical 2. One results in tax liability, and one does not.

The difference here is that the founder of the trust asks me to choose the taxable way.  Her reasoning is that she feels that by paying tax, the trust, and therefore indirectly her family, is delivering a social good.  She points out that the family constitution envisages a wider role for the trust – not just securing the family’s financial future but also achieving socially beneficial purposes.  I check the trust deed and find there is nothing (except my internal ‘moral alarm’) that would prevent me from doing what she asks.

In my black-and-white world, I would think long and hard on this point, but in the end, the dinosaur me would choose the tax-efficient way.  That’s because my duty is not to the founder.  Instead, it is collectively to the beneficiaries as a whole – including small children and the unborn.  Paying unnecessary tax might not be in their best interests (I have no way of knowing) and therefore I would most likely refuse to do so.

But perhaps I am wrong?

The facts of the case Re May Trust are not quite the same as hypothetical 3, but they are getting close:

The trustee in that case was asked to make a distribution to a charity that was a beneficiary of the trust.  The trustee had the power to make the distribution and was happy to do so.

The trustee could have made the distribution to the charity directly – with no tax consequences.  However instead the principal beneficiary asked that the distribution be made to him personally on the basis that he would then personally donate it to the charity.  Doing it this way meant that the beneficiary (not the trust) would have a significant tax liability – and it was a lot of money (£ 75 million).

In my black-and-white world, I am not so sure that this is a problem, but some thinking is required.  The reason it might be OK is that there is no negative impact on the trust itself as the tax obligation falls on the beneficiary – and what he wants to do is arguably between him and the tax authorities.  On the other hand, if you think of this as a way to get money from the trust to the (beneficiary) charity, then it is a problem because the charity ends up with 25% less money this way.  Finally, my objective as a trustee is to provide benefits to beneficiaries. Is providing money so that they can pay unnecessary tax providing a benefit? I really don’t know. Neither did the trustee, which in that case was IQEQ.  So they went to the court for guidance.

The court decided that the distribution (including by implication the money to be paid in tax) did qualify as a benefit to the beneficiary.  Not every benefit needs to be a financial benefit. The court said that meeting the family’s social justice aspirations is also a benefit.

Does that affect my decision in hypothetical 3?  Perhaps it does, but only if the family as a whole (not just the founder) supported the tax payment – as they did in the May case.

I see this as a really positive development.  Families and their trusts and foundations are not always just about money and they never have been – and it is great to see the courts recognising this.

On the other hand, this new world creates some new challenges for us dinosaurs.  Here’s hoping we manage to adapt.



Masaryk University Seminar on Beneficiaries

Last week I attended Masaryk University’s seminar on “Beneficiaries of trust-like and foundation structures”.

This is the second such event I have attended.  They are very extremely informative and also professionally organised and presented, and I am truly grateful to prof. JUDr. Kateřina Ronovská, Ph.D. and her colleagues for the opportunity to participate.