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There are few comments from me in this interesting article looking at how Andrej Babiš might go about dealing with conflict of interest issues.

I recently joined a webinar on trusts in Quebec. This was an interesting topic for me as there is a close connection between Quebec trusts and Czech trusts due to the fact that our trust law is heavily inspired by the Civil Code of Quebec.

One point that stood out was that in Quebec, the client and the founder of a trust are not always the same person. This led me to think about how the situation works in the Czech Republic, where the same observation can apply.

In most countries, the person who establishes a trust is also the person who adds the assets. That person is called the settlor. However, it sometimes happens that one person starts the trust by contributing some assets, and then someone else later adds more assets. In such a case, both the people are then settlors, since it is the act of contributing the assets that makes you a settlor, irrespective of what the documents might say.

In Czech and Quebec it’s a bit different. We don’t use the word settlor here, but rather the word founder (in Czech zakladatel). There is a good reason for this difference in vocabulary. The founder is the person who establishes the trust. Czech law then allows for another person who contributes assets to the trust.

The Czech Civil Code says at § 1468 that “A person who increases the assets of a trust . . . is not its founder . . “ So in Czech we have two people – the founder (zakladatel) and the contributor (vkladatel).

That’s all very interesting, but at this point you might be asking “So what?”

As I said above, most of the time, the founder and the contributor are the same person. But sometimes not. The reasons and consequences are varied, and in some cases a little problematic. Here are some examples:

Example 1 – Public Benefit

If I establish a trust with the purpose of achieving some publicly beneficial purpose, then it makes sense that I would want to encourage other people, people who also share my interest in the purpose, to contribute to my trust.
In such a case it makes a lot of sense that I am the founder, and the other people do not also become founders simply by virtue of making a contribution.

If they did you might end up with tens, or even hundreds of founders, which would make no sense.

Example 2 – Husbands and Wives

This is probably the most common situation in which the founder and the contributor don’t match. In these cases, one spouse alone, usually for practical reasons, establishes the trust, but it is then the spouses, together, who contribute their matrimonial property to the trust.

Even though this is quite a common scenario, it is worth noting that there are some disadvantages of doing things this way. In particular, the founder has certain rights (supervisory rights, rights to information, and in many cases the right to dismiss the trustees). If only one of the spouses has those rights, then it doesn’t matter . . .until they get divorced . . . when it suddenly matters a lot.

It is also important to mention the founder’s position as default beneficiary of last resort. If a trust is badly constructed, and if there are no remaining beneficiaries, then the founder gets all the money. And if there is no living founder, then the money goes to the state. Again imagine a situation where the spouses are divorced, but one of them gets all the money, or even worse, if the founding spouse is dead, all the money might go to the state.

These things are not necessarily a problem because they can all be solved by good documentation, but they are important to think about.

Example 3 – the Straw Man or White Horse

In Czech, a “bílý kůň” (a white horse) means a “front man” or “stooge” — a person whose name is used for shady business deals, while someone else secretly controls things. Interestingly, there is no direct equivalent in English. The closest I can think of is ‘straw man’

The way Czech law works right now, I can get someone else – it does not matter who – to establish my trust. It might be a family member or a friend. It might even be some random person I find on the street. I can then write lots of rules into the documentation to ensure that I keep complete control, but what’s important is that I will not be recorded on the trust statute or on the register of trusts as the founder. I can then, in a separate transaction, contribute the assets.

This matters because the founder’s name is entered into the Czech register of trusts, but the contributor’s name is not .

Why might I do this?

• I might simply want a higher level of personal privacy than the standard method. This is not always a bad thing. Privacy is very important to many wealthy people who are rightly concerned about financial attacks, and in extreme cases, physical threats, including kidnapping.
• I might be creating my trust for asset protection purposes, and want to make it harder for my future creditors to attack me, or
• I might be a criminal

In my experience, I have not seen criminals using trusts in this way. I certainly wouldn’t work with anyone wanting to use a trust for criminal objectives, (but so far nobody has asked me).

But if you are a criminal – be careful. If you build your trust badly, it might happen that your white horse actually ends up with all the money!

I am very pleased to be one of the moderators at this year’s Prague STEP Conference.

Registrations are now open – I hope to see you there! Here’s the program and registration link.

In this news update, I share a recent positive development.  It’s a technical issue, but also an important and—at least in my view—quite interesting one.

In a nutshell: for now, there is no longer any need to file information on the Czech Register of Beneficial Owners.

For the longer explanation, please read on.

European AML laws originally required member states such as the Czech Republic to establish registers of beneficial ownership and also to make them available to any member of the public.  The Czech legislator implemented this rule in section 14 of Act No. 37/2021 Coll. The Act on the Registration of Beneficial Owners (ZESM).

I was never a big fan of this requirement for public disclosure.  In the context of GDPR and so many other legal protections of personal data, it seemed intuitively wrong that there was a law on the books which required the public distribution of such sensitive data.  There is a legitimate public interest in the state holding this data. But I cannot think of any justification for allowing my neighbour to look me up online and see sensitive data including my date of birth and assets.

Therefore, I was not surprised when, in 2022, the European Court of Justice ruled that such a broad disclosure of beneficial ownership data interferes with the right to protection of private and family life and the right to the protection of personal data, guaranteed by Articles 7 and 8 of the Charter of Fundamental Rights of the EU.  The court declared the relevant rule of the AML Directive invalid.

Most EU member states reacted quite quickly by taking their registers of beneficial ownership offline.

In contrast, the Czech state did nothing at all.

This created a weird situation in which failure to file data on the register was a breach of Czech law, but if you did file it, because you knew that it would then be made public, that would be a breach of EU privacy rights.   In the words of Eleanor Roosevelt, “You’ll be damned if you do, and damned if you don’t”

However, the Czech Supreme Court, in its resolution file no. 27 Cdo 1368/2024, dated 25 August 2025, has come to our rescue.  The court confirmed that the ZESM is contrary to European Union law, in the part in which it allows access to the register by the general public.

The court also ruled that until this defect is fixed, the state may not enforce the obligation to record and maintain up-to-date information on the beneficial owners of legal entities and trusts (Section 9(1) of the ZESM).

So for now, Czech beneficial registration rules are effectively ‘on hold’.  The court judgment suggests that you can continue to comply if you like, but if you do not, then there will be no negative consequences.

It will be interesting to see what happens next.

Photo Credit: European Court of Justice.

 

 

I am delighted to highlight another forthcoming in-person STEP event.

Join us for an Expert Discussion on Prenuptial Agreements: Czech and International Perspectives.

The event is presented by STEP, EMUN and the Czech Bar Association. International experts will explore the differences between Czech and international approaches to prenuptial agreements and identify the strengths of the Czech regime as well as some opportunities for improvement.

The session will include a range of engaging cross-border case studies and legal insights.

Featured speakers:

• Daniel Lehmann, Heuking Kühn Lüer Wojtek, Munich
• John Davies, Farrer & Co., London
• Martin Kornel, Masaryk University, Brno
• Valentina Beccaria, Accolla Law Firm, Milan, Italy

This event, which will be presented in the English language, is open to all. It will conclude with networking and refreshments, offering a chance to continue the discussion in a relaxed, informal setting.

Date:  29 September 2025.  15-18h
Venue: Palác Dunaj
Address: Národní 138/10, Prague
Entry: CZK 500

Click here to register.

Early heads-up for planners: STEP is running a webinar in October on Trusts in Quebec.

For anyone interested in Czech trusts, this will be essential viewing. Not only did the Quebec Civil Code inspire the Czech svěřenské fondy, but Quebec’s law remains the closest equivalent to our own. With over 30 years of experience applying this legal framework, Quebec has much to teach us.

The presenter will be Caroline Rhéaume, a leading expert in Quebec trust law. Her credentials speak for themselves, and she’s also an excellent speaker.

It’s still a while away, but registrations are already open if you’d like to lock the date into your diary. To register, email czsk@step.org.

Based on demand, I’m organising a one-day course in Zurich this autumn, focusing on the Czech wealth planning environment, trusts and foundations.

This course is designed for private bankers, fiduciaries, legal advisors, and wealth management professionals who work with Czech clients. Knowledge of the domestic environment and the available local structures is an essential part of developing comprehensive solutions for these clients.

Please see the flyer for full details.
Alternative dates and in-house sessions in other locations are available upon request.

I am pleased to be lecturing again this year at the International Management of Family Wealth program offered by the International University of Monaco.

The program provides a great pathway to STEP membership.

If you are interested in learning more about the program, you can download more information here.

In this article I explain the basis of the role of a protector in a trust or foundation. I will explain what protectors are, what they do, and help you decide whether including one in your trust or foundation is a good idea.

What is a Protector?

A protector is also sometimes called a supervisor.  As this second name suggests, a supervisor is a person who supervises your trustees as they administer your trust. Their role is to ensure that your trustees follow the rules you set when you created your trust.

Protectors typically have the power to:

• Monitor the actions of trustees
• Ensure trustees comply with your instructions
• Replace trustees if they fail in their duties
• Approve major decisions made by trustees

Although the Czech Civil Code does not explicitly outline the role of a protector in trusts, it also does not prevent them from being appointed. On the other hand, if you are using an international structure, protectors are a very common feature in most trusts and foundations. (In Czech Private Family Foundations, a protector is a legally required part of the structure).

You may see both terms—‘Supervisor’ and ‘Protector’—used interchangeably. Legally, they describe the same role. The choice of wording reflects the role’s intended function. But because the role is not legally defined in Czech, you can choose something else if you like in a Czech structure, for example ‘Lord of the Trust’ or ‘Head Honcho’!

Supervisors are especially useful in two key areas:

• Asset protection
• Multi-generational family succession planning

In this article, I will be focusing on this second use.

Much of my practice is focused on helping families design and implement their business and wealth succession plans.

Depending on how complicated your life is, your family succession plan can sometimes be quite straightforward, but in other cases, especially if you have a successful family business or a lot of accumulated wealth, it can be much more complicated.  In these more complex cases your succession plan will often involve a range of legal structures such as holding companies, family councils, trusts and foundations.  You will also typically write a number of important documents – including your family constitution and your letter of wishes.  All these structures and documents are designed to help you give effect to your goals.

However, when you start peeling away the surface layers of this onion, you will find that what is underneath it all is really just a set of rules – because that’s what your succession plan really is; a set of rules, made by you, perhaps together with your family members, which creates a road-map for the future of your family’s wealth.

When you create rules, it’s a good idea to have someone to enforce those rules.  It’s just like in the community in which we live.  We have rules (laws) and most of the time, we can rely on people to follow those rules.  So we don’t kill each other, we don’t steal things from each other, we don’t drive through town at 150 kph, and so on.  But we also know that it can happen that sometimes there is a temptation for some people to break those rules.  And that’s the reason why, in our society, we have police.  It’s their job to make sure the rules are obeyed.

During your lifetime, you are the one who makes sure your rules are followed.

But what happens when you are gone?  Who takes over as ‘policeman’ then?

One of the most common mistakes I see in succession planning is that people don’t have a policeman.  Instead, they pass complete control to their children after they have gone.  Of course, for some families, that’s fine.

But if that’s fine, then did you go to all the trouble of creating a multi-generational family dynasty structure in the first place?  In most cases, you did it to protect your children from themselves, and to ensure the survival and success of your family enterprise.  You did it because you wanted to benefit, but not harm your children, grandchildren, great-grandchildren, and future generations.

If you pass absolute control to your children (if there is no policeman), there will be a very strong temptation for them to destroy everything you have built and to just grab the money.

Trust protectors exist in these situations not just to monitor your trustees, but also to stop your children from doing that.  A trust protector is a person (or sometimes a company) that acts as your ‘voice from beyond the grave’ enforcing not just your rules but sometimes also reminding others of your guiding ethical and moral principles.

How does it work in practice?

A protector is usually someone independent from outside the family.  Quite often it is a professional trust adviser or trustee company. The protector may not have any power at all until the founder has died

After that, the protector holds the set of rules and guidelines that you, as the founder, created during your lifetime.  These rules might say specific things like ‘don’t sell the business for at least 15 years’ or they might be more general ‘Give my children enough support to allow them to lead rich and fulfilling lives, but do not give them so much that it spoils them’

The protector then takes on quite a passive role.  They are not proactive. They do not create recommendations. Like the police in our analogy, they don’t interfere, (and don’t need to interfere) unless something goes wrong.

Instead, they simply allow the family and the trustees to do whatever it is they want, and what they think is best within the confines of the rules.  They watch and monitor and usually consult, but they do not need to interfere until the family or the trustees try to do something (for example sell the business or grab all the money) that conflicts with your rules.  In that case, the protector has a ‘veto’ power, to help make sure that things stay on the right track.

Of course, in an extreme case, your protector also has the power to fire the trustees.  But in real life, this power is almost never used, just in the same way that the police rarely need to arrest people.  It is the rules and the system that prevent the bad things from happening – long before the protector’s powers ever need to be used.

In many cases, the protector also helps support and guide the family and the trustees in their discussions and decision-making.  It is sometimes useful to have a wise, experienced and independent person to turn to for advice.

The role of protector is often formalized in the legal documents that create trusts and foundations, but I recommend giving the protector a wider role.  This can be set out in your family constitution and means your protector can be active in overseeing the management of family companies or your family governance structures.

 

Do I need a protector in my family structure?

The answer is that it depends.  Every family is different, and every family sets different rules for its own future.  However, as you set your rules, beware of accidentally creating ‘democracies’.  If you give future generations absolute power to do whatever they want, there is a risk (probably a pretty high risk) that they will do something different from what you would have wanted.  If that concerns you, then incorporating a protector into your family structure may be a wise decision.

 

Any questions?

If you have any questions or would like to talk about building a protector into your family structure, please just let me know.