I was really delighted, along with Dagmar Goldmannová of Via Clarita, to organise the recent visit of Gina Pereira to Prague.
Gina is based in Bermuda and is the Chair of STEP’s Responsible Stewardship of Wealth Thought Leadership Group.
Thank you for those who attended the events throughout the day. Thank you also to Fichtner for supporting the STEP breakfast. Thank you most of all to Gina for coming all the way from Bermuda (with a stop in Rome) to share this great information with us!
For those wanting to see the slides from the breakfast, they are here.
Here are some photos from the event (higher resolution available on request).
Following the success of the annual STEP conference in Prague over recent years it made sense to do the same thing in Bratislava.
I am very proud to be an ‘Event Partner’ of this inaugural event, which I hope will be the first of many.
This will be a truly international conference focused on the tax and legal implications of using foundations and trusts in Slovakia. The jurisdictions examined will include Czechia, Poland, Liechtenstein, the United Kingdom, and Jersey.
Keynote speaker H.S.H Princess Gisela of Liechtenstein
The conference is in English language without translation.
It has been a great pleasure for me to work with Via Clarita to put together a visit to Prague by Gina Pereira,
Gina is based in Bermuda and is Chair of STEP’s Responsible Stewardship of Wealth Thought Leadership Group. I have heard Gina speak before and know she is a great presenter. She will be bringing us many new and valuable insights into this highly topical theme.
The first of two events is a breakfast. You can find the invitation here
I wish you all the best for a fantastic 2025. To start the new year, here are a few thoughts on family constitutions:
What’s a Family Constitution?
I have been saying for years that if you have a family business it is very important that you have a succession plan for that business . By ‘very important’ I mean that it is even more important than a business plan, a marketing plan, and other similar operational plans. If you don’t have these other plans, then your business will struggle, but if you don’t have a succession plan, it is more likely than not that your business won’t survive .
How do I Start?
One of the most common questions I get from families is ‘How do I start?’
In myexperience, the beginnings of this process often involve some thinking, some family conversations, and also typically a bottle (or two) of wine. How you start is not so important, what is important is that you do start. Don’t delay. Leaving the process too long typically reduces your possibilities and makes everything harder – sometimes much harder.
Once you have begun your journey, you should find a specialist such as myself who can guide you through the process. One of the first things I am likely to do is to work with you to help you put together a family constitution (FC). That document is the subject of today’s article.
Despite what many lawyers think, your FC is not a legal document. That means that you don’t need a lawyer to create it, even if, sometimes, some input from a lawyer can be helpful.
Instead, your FC is an expression of your, and your family’s, vision for the future and the principles that guide future decision-making. It is a living document. That means that it evolves and is updated regularly as your family learns and understands more. Quite often FCs start relatively short; two or three pages. Over time they transform into considerably longer documents; typically in our experience 15-20 pages. That’s fine. A start, even an incomplete start, is the most important thing.
Even though it’s not a legal document, your FC is the most important part of the succession planning process. Lawyers focus on company structures, trusts, foundations, shareholder agreements, family office models and so on. But none of these things make any sense at all without a clear FC at their core.
In fact by building a good FC, you can often save a lot of money on legal fees. That’s because a good FC will create a ‘roadmap’ which will make the design and implementation of legal structures much easier.
Your FC is a written statement that records your family’s history, culture, hopes and goals for the future. It also includes some guidance and plans how to achieve those goals. Sometimes it is dictated by the wishes of the founder of the family business, but more often, it is the result of family discussions; reflecting the wishes of the founder, but also taking into account the wishes and opinions of other family members.
What’s in a FC?
A good FC might answer some of these questions. (You will notice that some parts are in italics. I would say that these parts are the essential core of a good FC and also a good place to start):
Who is our Family? (This varies from family to family, but often means blood descendants of the Founder)
Where do we come from?
Where are we now?
What is our vision for the future?
What are our family values and beliefs
What are our guiding principles?
As a family member, what should I expect from the family?
As a family member, what should the family expect from me?
Should the business always be owned by the family?
Can the family release their interest in the business, and if so, on what terms?
What criteria should there be for the employment of family members in the business?
How do we make decisions?
How often should we meet as a family?
Who leads our family after the founder has passed?
Should there be a family council?
Do we have an ‘enforcer’? If not, how do we make sure that these rules are followed?
What is the role of our family in our community (Philanthropy, ESG, etc)
Though a FC is not binding, these basic rules will help prevent future family conflict. As I said above, they also provide a great ‘roadmap’ for advisers as they develop current and future structures to give effect to the family goals
Involve everyone
As I mentioned above, the development of your FC will vary from family to family. Sometimes the FC can be similar to the tablets of stone that Moses brought down from Mt Sinai – in other words, commandments imposed from above. More often, and in our view much better, is a FC that reflects the input and opinions of all the adult family members at the time it is created. Although not everyone may like the outcome of any particular decision, they will respect that they have been involved in creating the FC, and are less likely to protest if decisions are not in their favour.
Either way, what is essential is that all the family members should sign the FC. The signature indicates that the person understands and accepts the guidelines and agrees to play by the rules. I recommend that signature be a prerequisite for any benefit from the family wealth. As new family members reach adulthood in the future, their signature becomes a symbolic marker that they have become a full member of the family. In this way, we can make sure that the FC is a meaningful document that lives on into future generations.
Let me know if I can help you build a FC for your family.
You can still purchase it in bookstores under the title Svěřenské fondy – krok za krokem (Trusts – Step by Step” – 2nd Edition). But we are also now offering substantially the same book under a new title: Plán – Jak ochránit vše, co za život vybudujete (The Plan – How to Protect Everything You Build in your Lifetime).
We made this change because the old version looked like a legal textbook.
Those of you who have read the book will know that it is nothing like a legal text. Instead, we wrote our book for ordinary people who use, or plan to use trusts. It is full of practical examples and tips. It aims to inspire you and;
to help you protect and preserve your property,
to benefit future generations, and
to strengthen your family and prevent family disputes.
You can now order the new version of the book here. .
It was a pleasure to be a part of the organising team for last week’s STEP Conference in Prague.
It was a great event starting on Thursday with a dinner for the speakers and concluding on Friday evening with a gala dinner to celebrate the launch of the new STEP Czech and Slovak chapter and our new book on Czech and Hungarian trust law.
Tour operator insolvency protection is a hot topic,
Having successfully expanded from the UK to the Czech Republic, PT Trustees is now working on developing a new solution for the Polish market. I am pleased to be supporting this effort with a seminar in Warsaw on 27 November
This is to let you know that our new book, Trust Laws in the Czech Republic and Hungary, has gone to print and should be on the shelves in two or three weeks.
This book is a great example of collaboration between otherwise fiercely competitive people. The authors are the leading experts on trusts in the Czech Republic, so this is without doubt the leading English language text on this topic. (I am very confident on this point since, as far as I know, this is the only English language text on the topic)
The book is divided into two parts which deal separately with Czech and Hungarian solutions and will be available in hardback and as an eBook.
It is not a cheap book, but the good news is that the publisher has agreed to let us offer a 25% pre-publication discount.
Probably you know the fantastic 1989 hit single by German band Nena called 99 Luftballons
If you look at the lyrics of the song[1], you will see that the 99 balloons are metaphors for peace.
Imagine that, inspired by this, you decide that you would like to establish a trust to launch 99 balloons into the sky every Tuesday as a symbol of peace.
Can you?
Czech Trusts are great for Czech people.
On the other hand, they are not normally considered as ‘export’ products. That’s because for people who live outside the Czech Republic there are other jurisdictions that offer more attractive alternatives.
But there is one, not very well known, exception to that rule. It’s an area in which Czech Trusts excel, and in which they are able to deliver outcomes that other countries cannot match. That’s the area of non-charitable purpose trusts
Before we explain what a non-purpose charitable trust is, we need to explain what a purpose trust is. To do that, we need to take a brief look at some important legal theory. We usually try to avoid talking about legal theory in these articles, basically because it is mostly quite boring. But in this case, I think the theory is interesting and it is helpful because it helps us understand the special problem that Czech Trusts can solve.
The piece of theory in question is the Three Certainties.
According to the law in most countries, the three certainties are the three essential things that you need if you want to create a valid trust. If you create something which does not have all three of these things, then you may have created a legally valid thing, but it probably isn’t a trust.
The first certainty is the certainty of intention.
The second certainty, certainty of subject matter.
The third certainty is the certainty of objects
The first certainly, the certainty of intention, means that it must be clear that the person who created the trust actually intended to do that (and not intend to do something else). Sometimes this is a question of mistake or misunderstanding, but more often this issue comes up in the area of asset protection. Was the founder’s goal to really take care of his family? Or perhaps their real intention was to defraud their creditors, rather than to create a real trust for the benefit of future generations?
The second certainty, the certainty of subject matter, means that we need to know what is actually in the trust. If you put a house in your trust, then that is clear enough. However, if you say “All my good stuff”, it’s not clear to the trustees what’s good and what’s not good. If the trustees do not clearly know what is in the trust (and what is not), then it’s not valid.
But it is the third certainty, the certainty of objects, that is the most interesting one for today’s article.
This certainty means that we have to know who the trust exists for. For most trusts, that’s easy to answer. The trust is for the people who will get the benefit, in other words, the beneficiaries. So for a trust to be valid we need to know who the beneficiaries are, or at least have some clear system for working out who they are.
So, to recap, a trust needs intention, it needs some things to be in the trust, and it needs some people who will get the benefit.
And that’s where the idea of a trust for a purpose starts to get interesting.
What is a Purpose?
A purpose is limited only by your imagination.
The Royal Society for the Prevention of Cruelty to Animals (the RSPCA) was founded in 1824 and is the oldest and largest animal welfare charity in the world. According to its website its purpose is:
to inspire everyone to create a better world for every animal.
That’s a fantastic purpose. Here is another purpose:
to hold an annual hockey competition to find the champion team in the Dominion of Canada
Perhaps you know the Stanley Cup? It was established in 1892 as a trust and that was its original purpose
Here are some more purposes:
To award an annual prize to the best female economist in France
To maintain the village tennis court
To encourage the playing of tiddlywinks in Mexico
To support the election of Jára Cimrman as President
To look after my cat Mr Tiddles after I die
To send the President a new pair of socks every Friday
To inflate and release 99 ballons every Tuesday
There really is no limit on what a purpose can be. Some purposes are positive and useful, others are not. Some purposes can be silly. Some of them have a great public benefit, but other purposes can be ‘private’
But we have a problem. Remember the three certainties? Certainty 3 says that a trust must be for someone. A purpose is not a person. (Even though he is lovely, Mr Tiddles is a cat, and he’s also not a person either).
So can you make a trust like this – which benefits a purpose rather than a person?
International Problems
The short answer in many countries is: no, you cannot. Judges in these countries do not like purpose trusts.
There was a quite famous case from 1882 called Brown v. Burdett. In that case the purpose was that a lady wanted her house to be boarded up with “good long nails to be bent down on the inside”, but for some reason with her clock remaining inside, for twenty years.
Unlike some of the purposes above, this one is perhaps not quite so positive and constructive. The judge in that case decided that it was not valid – because it was ‘useless’
There are two reasons that courts don’t like purpose trusts. First, in the case of a normal trust with beneficiaries, we have somebody (the beneficiaries) who can keep an eye on the trustees and make sure that they are doing a good job. With a purpose trust, that person is missing
But more fundamentally, WHO is it actually for? In the opinion of the courts, you can’t just take money and put it in a bucket forever, with no person at the end of the line. And that is the reason that in most of the world, trusts need, in the end. to be for people.
Trusts without people do not satisfy that third certainty – and so, even though they might be fantastically useful – they are not valid.
Exception and Solutions
As you may have noticed, the RSPCA does actually exist. It’s an example of the first exception: charities. In many countries, charities are established as trusts, because a trust is a fantastic structure for running something like a charity. And charities generally, by definition, are established for purposes.
In the UK, for example, there is a list of purposes set out in law, and if your charitable purpose trust complies, then you can establish your trust. However, this is very strictly regulated, controlled and supervised by the Charity Commission. That means that it’s expensive and complicated and beyond the reach of ordinary people. It also only works for charitable purposes.
But what if your purpose is not charitable?
There a couple of additional exceptions in many counties including looking after pets and maintaining graves.
But otherwise, you are out of luck, and I am sorry to inform you that your plan to launch 99 balloons every Tuesday will not come to fruition.
Czech to the Rescue
But that’s where the Czech Republic comes to the rescue.
Your balloon plan won’t work in most countries, but it will work in the Czech Republic
That’s because section Section 1448 of the Civil Code says:
A trust fund is created by setting aside assets from the founder’s ownership in such a way that the founder entrusts the asset to the administrator for a specific purpose
There is no rule in Czech law that says there needs to be a beneficiary and the three certainties do not apply in Czech, so there is nothing to stop you from realising your plan.
Not only that, but we think such a trust could actually be quite tax efficient. It would not make any profit and, because there is nobody who gets the money, there is presumably also nobody who would need to pay tax.[2]
So this is something that is handy, not just for Czech people, but for everyone else in the world who cares about ballons and world peace.
There is no reason either why the balloons need to be released in Czech either. You might live in Albania and you might want to release the balloons there. There is nothing we can think of to stop you setting up a Czech Trust to do this.
So this could even be the Czech Republic’s next great export program!
I am delighted to announce that registrations are now open for the STEP November conference in Prague.
This will be a full-day event followed by a gala dinner to celebrate the establishment of the Czech chapter of STEP and the launch of our new book on Czech and Hungarian trust law.
It’s a fantastic program this year, and seats are limited – so be quick!
For all the details, see the flyer.
