News

It was sad to observe that after 30 years together, former Czech Prime Minister Andrej Babis and his wife Monika have decided to separate.

I am commenting on this news on a website about trusts because this news might also turn out to be interesting from a trust perspective.  That’s because  According to Forbes magazine, the former prime minister’s assets amount to 3.5 billion dollars, making him the seventh richest Czech.  He is also one of the most famous founders of a trust in the Czech Republic.  In 2017, in order to comply with a law regulating conflict of interest, he transferred ownership of his company, Agrofert, into trusts.

It will be interesting to see what happens with this shareholding if Mr and Mrs Babis decide to get divorced.

In other similar high-profile cases, big numbers have been involved.  For example, it is reported that when Jeff and MacKenzie Bezos divorced in 2019, Mrs Bezos received a settlement of $ 38 billion.  Perhaps Mrs Babis is also in line for a large payment?  Of course, I cannot comment directly on the Babis’s particular situation as there are many things I do not know.  Mr and Mrs Babis were together for many years before they got married and I do not know if there was a pre-nuptial agreement between them before they married.  It is also interesting to observe that the trusts were established in February 2017 and the wedding was in July 2017.

I will be watching the next steps with interest.

However, this celebrity news does give me an opportunity to talk more generally about trusts, prenuptials and divorce.

One of the main objectives of setting up a trust is to protect assets from attack.  Mostly when we think about this, we have in mind external attacks.  But divorce can also be an ‘attack’ especially where one person brings more assets into a marriage than the other.

When partners consider getting married, and one of them has a lot of money and the other does not, then there is often a discussion about a prenup.

While such discussions are not uncommon, they can also be pretty unpleasant.  It can also be a highly emotionally charged issue, particularly if one or both of you have been through a divorce and have assets that they managed to salvage from a possibly very unpleasant process.

Many people solve these problems using a pre-nuptial agreement, often called a prenup.  Prenups are usually made before the marriage, but they can be made afterwards, in which case they are technically not pre-nuptial agreements but instead called ante-nuptial agreements

A typical prenup is written by the dominant (richer) partner with the goal of protecting themselves if the marriage doesn’t succeed. These types of agreements typically explain how the property will be divided and if spousal support will be paid in the event of a divorce.

Each individual may also set up their intentions about distributing property after one of them dies. This is particularly an issue for second marriages when one or both spouses want to preserve property for their bloodline children or grandchildren from a former marriage.

This all sounds fine in theory. It doesn’t always go so well in practice.

Prenups destroy trust.

“Honey, I love you. I want to spend the rest of my life with you. You’re the only person that I really love. I will never cheat on you. You are the one and only for me, forever . . . . . But would you mind coming with me to the notary to sign this little legal document? It’s that if we’re not married at least eight years, you don’t get more than 1,000,000 CZK; and you could acknowledge that my son, when he graduates from university, gets the business. . . and . . .and . . ..”

Prenuptial agreements are often good ideas. They often work, but sometimes they don’t work. The one thing, and the only thing, you are almost certain to achieve from a legally robust pre-nuptial agreement is damage to your relationship with your future spouse.  The “poor” spouse now knows for sure that he or she is not trusted. Simply stated: Prenups do not promote great marital relationships. In many cases, even the act of suggesting one creates serious impediments to personal trust. Is this what you want at the beginning of your married life?

An alternative, one that is widely used in other countries, is to establish a trust and place key parts of your wealth in it: the shareholding of your business, artworks, real estate etc.  The trust is established for your benefit, for the benefit of your children, and also for the benefit of your current spouse (whoever that may be).

Setting up a trust in this way can also be done by you and by you alone.  It does not need the agreement of your future spouse and means you do not have to have any of the unpleasant conversations above.  On the contrary, if you do decide to inform your future spouse it can even be presented as a positive – you are putting money aside and protecting it from external attack for the benefit of the whole family, including your new spouse (at least for the time being). Of course, it’s not always practicable or tax effective to put 100% of your assets into a trust in this way. But depending on your personal situation, it may be possible to achieve the result you want.

Remember that the assets you put into the trust before you get married are no longer yours.  That means that there is no way for them to subsequently become community property.  But remember that this applies only to things you put in before the wedding.  If you try to put things in afterwards, you need to be certain those things are not community property.  If they are, you may need your spouse’s agreement.

A trust is also much better than a prenup in ensuring that following your death assets end up in the right hands.

And of course when you set up such a trust it really does protect your whole family from external attack, or at least it does if it is set up properly.

 

 

Image Credit David Sedlecký Wikipedia. 2024. “Andrej Babiš.“

I am delighted to be involved in preparations for this year’s STEP Conference in Prague. This year’s theme is:

How to Properly Structure a Trust or Private Foundation:
International Best Practice

As in previous years, the conference will be run by Stepan Holub and his great team at Holubová Advokáti and hopefully also, once again, with the support of the Czech Bar Association and APRSF.

This year’s conference will be extra special – as we have some exciting news to share.

We have already fixed the date for  8 November 2024, so put it in your diary now!  More details will follow soon.

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!

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.

Watch this space.

I am one of three contributing editors of this first English language book on the topic

It’s still a work in progress at the moment, but we expect publication sometime around autumn 2024.

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!

I am very pleased to be presenting in an APRSF webinar on the topic of Business Trusts in the Czech Republic.

It takes place at 10.00 CET on 30 November and will be delivered in English.

More information and registration details are on the APRSF website.

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.

 

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 https://www.flickr.com/photos/photoloni/6321527653