Trusts vs. trust funds in 2025: Which instrument will better protect your assets and business?

Imagine a Czech entrepreneur who has spent his entire life building a successful company, but now, as he approaches retirement age, he faces a difficult question: How can he effectively transfer his assets and ensure a secure future for his family when his children do not want to take over the business? Many entrepreneurs will face this strategic challenge in 2025. Trust funds or international trusts may be the answer. How can you navigate these options and what pitfalls do they entail? Experts from the ARROWS law firm guide clients through these issues on a daily basis and help them find solutions that ensure not only asset protection but also continuity and family stability.

Author of the article: ARROWS (JUDr. Jakub Dohnal, Ph.D., LL.M., office@arws.cz, +420 245 007 740)

Czech trust fund – A solid foundation on home soil

What is a trust fund and why is it so popular?

In the simplest terms, a trust fund is defined as “a set of assets without legal personality.” It can be thought of as an imaginary safe with a very specific set of rules. The key principle is that the assets are

separated from the founder's ownership and become so-called “ownerless property.” This concept, based on continental law, is fundamentally different from the Anglo-Saxon trust and represents a stable pillar of the Czech legal system.

Trusts are no longer a legislative novelty. They have been operating reliably in Czech law for more than ten years (since 2014) and are based on high-quality, practice-proven legislation. This predictability is a key factor for entrepreneurs. Their popularity is based on three main pillars:

• Asset protection: The fund creates an effective barrier between business and personal assets. It provides protection against future risks such as creditor enforcement or business-related insolvency.
• Intergenerational transfer: It enables the smooth and controlled transfer of a family business or assets to the next generation, especially if the heirs are minors, inexperienced, or if it is necessary to ensure that they manage the assets responsibly.
• Flexibility: The founder can set detailed conditions for the payment of benefits to beneficiaries in the fund's statutes – for example, completion of higher education, reaching a certain age, or even providing care for an aging family member.

Anatomy of a trust fund – Key players

Every trust fund is based on three fundamental roles and one key document:

• Founder: The person who sets aside the assets and, above all, defines the rules of the game in the key document – the statute. They are the architect of the entire structure.
• Trustee: The most important and responsible role. This can be a natural person or a professional institution that manages the fund's assets in accordance with the statutes and must act with “due diligence.” Given their extensive powers, choosing a trustworthy and competent trustee is absolutely essential for the successful operation of the fund.
• Beneficiary: The person or group of persons for whose benefit the fund was established. Beneficiaries receive payments from the fund (e.g., annuities, property) in accordance with the rules set by the founder.
• Statute (Rules of the Game): This document, which must be in the form of a public deed (notarial deed), is the constitution of the entire fund. It precisely defines the purpose of the fund, its assets, beneficiaries, the powers of the administrator, and the conditions for payments. Any ambiguities or errors in the statutes may lead to costly legal disputes and inefficient administration in the future. That is why the professional preparation of statutes by ARROWS experts is an investment in future peace of mind and stability.

Many years of practice show that trust funds have already reached a state of “professional maturity.” More than a decade of existence in Czech law has brought not only stability but also a wealth of Supreme Court case law, which has clarified many previously controversial issues and thus increased legal certainty. At the same time, however, regulatory requirements have also increased. The introduction of strict anti-money laundering (AML) rules and mandatory registration of beneficial owners (ESM) mean that fund management requires a high level of expertise. This combination of factors leads to a clear conclusion: in 2025, there is no longer any room for amateur solutions. The risks associated with an incorrectly established or managed fund, ranging from invalidity to heavy penalties, are too great. Professional management is therefore not a luxury, but an absolute necessity to ensure legal certainty and the functionality of the entire structure.

Case studies – How ARROWS clients use trust funds

Theory is one thing, but the true value of a tool is revealed in practice. The following stories, inspired by real situations handled by ARROWS lawyers, demonstrate the power of trust funds in action.

• Case study 1: Saving a family business A successful entrepreneur wanted to retire, but his children, who were working in other fields, were not interested in running the business. His life's work was in danger of being sold. The solution was to place the company's shares in a trust fund. He appointed a combination of experienced managers and legal advisors as trustees to ensure the professional management of the company. His children became beneficiaries and received a share of the profits. The company continued to grow, the family wealth was preserved, and the founder was able to enjoy his well-deserved retirement knowing that his legacy was taken care of.
• Case study 2: Protection against business risk A female entrepreneur in the development sector was preparing for a large project financed by a significant loan. Although she believed in the project, she was aware of the risks. Before signing the loan agreements, she therefore transferred her family home and her private investment portfolio to a trust fund, whose beneficiaries were her children and husband. When the project ran into trouble due to unforeseen market developments and the company ended up in insolvency, the assets in the fund were protected from creditors. Her family did not lose their home or financial security.
• Case study 3: Fair inheritance in a complex family The founder had children from two marriages and feared that his death would lead to protracted and painful inheritance disputes. Instead of a will, he used a trust fund. In the statutes, he specified exactly which assets (real estate, art collection, financial resources) would go to which child and set conditions for their disbursement (e.g., reaching the age of 30 or using the funds for housing). In this way, he prevented potential conflicts in the inheritance proceedings and ensured a fair and peaceful settlement of the family's property relations.

International trust – Global protection for demanding scenarios

Why are successful Czechs looking abroad?

While a trust fund is a robust instrument of Czech law, an international trust represents a completely different philosophy. Its roots lie in English common law and is not based on “property without an owner,” but on a sophisticated division of ownership into legal (held by a trustee) and equitable (belonging to the beneficiary).

The main motive for considering an international trust is to achieve an unrivalled level of asset protection, especially against future, currently unforeseeable risks and creditors. This is achieved by placing assets in politically and economically stable jurisdictions whose laws are deliberately designed to provide maximum protection for the trust while placing the greatest possible obstacles in the way of creditors.

“Fortress Nevis” – How offshore protection works in practice

To get a better idea, let's take a specific example of a jurisdiction such as the Caribbean island of Nevis or the Cook Islands, which are renowned for asset protection. If a creditor from the Czech Republic attempted to access assets held in a Nevis trust, they would encounter a number of almost insurmountable barriers:

• Non-recognition of foreign judgments: A Czech court decision is generally unenforceable in Nevis. The creditor would have to initiate completely new legal proceedings directly in Nevis, in accordance with local laws.
• High burden of proof: The creditor would have to prove a fraudulent transfer with the intent to specifically harm them, often to a standard of “beyond reasonable doubt,” which is much stricter than in the Czech Republic.
• Short limitation periods: There are very short time limits for bringing an action for fraudulent transfer, often only one or two years from the transfer of assets to the trust.
• Financial barriers: Before the dispute can even begin, the creditor may be required to deposit a cash bond (e.g., USD 25,000) with the court to cover the costs of the proceedings in the event that they are unsuccessful.

The result of this combination of obstacles is that litigation becomes extremely costly, time-consuming, and very uncertain for creditors. This discourages most of them from making any attempt or forces them to settle out of court for a fraction of the original claim.

Myths vs. reality – What an international trust is NOT

In order to build trust and set the right expectations, it is essential to dispel common myths. A properly structured and legally used international trust is NOT:

• A tool for evading existing debts: Transferring assets to a trust in order to avoid paying existing or reasonably foreseeable liabilities would be considered fraudulent and would be legally ineffective.
• A way to avoid Czech taxes: Czech tax residents are required to pay taxes on their worldwide income. The trust's income and distributions must be properly reported and taxed in the Czech Republic in accordance with applicable laws.
• A tool for absolute anonymity: Although a trust offers a much higher degree of privacy than Czech public registers, its existence and assets must be reported to Czech authorities, such as the tax office, upon request.

Navigating these complex international tax and reporting obligations is a key competence. With a global reach in more than 70 countries, the ARROWS team can ensure that the structure is not only effective in terms of asset protection, but also fully compliant with all relevant Czech and international regulations.

An international trust is therefore a highly specialized “surgical tool” for specific risks, not a universal solution. Its extreme protective features are offset by significantly higher set-up and management costs, as well as considerable administrative and tax complexity. This defines the ideal user: a person with significant, often internationally diversified assets who faces high risk (e.g., due to their business or political exposure) and whose situation requires a level of protection that domestic law simply cannot provide. ARROWS' approach is therefore always based on careful diagnosis before prescribing a solution. First, it is necessary to thoroughly analyze whether the client's risk profile justifies the use of such a powerful and costly tool.

Who can you turn to?

Direct comparison: Trust vs. international trust

The following comparison of key parameters will help clarify which tool is more suitable for which situation.

Level of asset protection

• Trust fund: Provides good asset protection, primarily against future risks that are unforeseeable at the time the fund is established. However, Czech law gives creditors clear tools to challenge the separation of assets, for example through the doctrine of contestability (relative ineffectiveness). Court practice shows that courts will thoroughly examine whether the purpose of establishing the fund was to intentionally harm the creditor.
• International trust: Offers excellent, almost absolute protection. It is deliberately structured in jurisdictions that place maximum legal, procedural, and financial barriers in the way of creditors. The aim is to make any attempt to challenge the assets in the trust virtually impossible.

Flexibility and control

• Trust fund: The founder sets the rules in the statute, which is very difficult to change after the fund is established. The law primarily allows for changes only based on a court decision. Although there is professional debate about the possibility of reserving the right to make changes in the statute, this is a legally uncertain area. The result is a rigid but very stable and predictable structure.
• International trust: Often offers a higher degree of flexibility. Many structures use the role of a “protector,” which is a person (often the founder or his confidant) who supervises the activities of the trustee and may have the power to dismiss him and appoint a new one. This gives the founder significant indirect control over the functioning of the trust.

Costs and complexity

• Trust fund: Establishment and administration are relatively straightforward and cost-effective. The costs of establishment range from tens to hundreds of thousands of dollars, depending on the complexity. Ongoing costs mainly include the trustee's remuneration and accounting.
• International trust: This is significantly more expensive. Establishment involves fees for foreign legal and tax advisors and offshore management companies. Ongoing administration is also more expensive and administratively demanding due to international compliance. The total expense ratio (TER) can be a significant item.

Confidentiality vs. transparency

• Trust fund: Offers only a limited degree of confidentiality. Each fund must be registered in the Register of Trust Funds. All key persons (founder, administrator, beneficiary) must be registered as beneficial owners in the Register of Beneficial Owners (ESM), which is partially public and fully accessible to state authorities.
• International trust: Provides a high degree of privacy. Although not absolute (the obligation to report income to the Czech authorities still applies), the details of the trust and its operation are not registered in any publicly accessible European register. Protection is based on legal barriers, not on attempts to conceal information.

Comparison matrix: Czech trust fund vs. international trust in 2025

The following table summarizes the key differences for easier orientation.

Property	Czech Trust Fund	International trust (e.g. Nevis)
Property protection	Good (against future creditors, but contestable under Czech law)	Excellent (high legal and financial barriers for creditors)
Flexibility of changes	Low (changes to the status are difficult, often requiring court intervention)	High (option to use a “protector” for supervision and changes)
Costs (setup)	Lower (tens to hundreds of thousands of CZK)	High (hundreds of thousands to millions of CZK)
Costs (administration)	Minor (administrator's fee, accounting)	Higher (fees to foreign administrators, compliance)
Founder check	Limited (after asset separation)	Significant (indirect, through the role of protector)
Transparency	High (mandatory registration in the Czech Republic – ESF, ESM)	Low (private document, but reporting obligation in the Czech Republic)
Legal certainty	High (based on Czech law and case law)	Complex (requires understanding of foreign legal system)
Ideal scenario	Property protection in the Czech Republic, succession planning, family relationship resolution	Protection of international assets, high risk profile, need for maximum protection

 

Legal and tax minefield of 2025: What you need to know before you act

Establishing a fund or trust is just the beginning. Their administration involves a number of obligations, the neglect of which can have fatal consequences. The administrative and regulatory burden has grown so much in recent years that it has become as important a factor as the legal structure itself.

Tax reality – You can't escape the tax office

Any asset protection plan must be based on a solid tax foundation.

• Taxation of trust funds: For tax purposes, a trust fund is treated as a legal entity. It is subject to corporate income tax at the standard rate. Its local tax administrator is always the Tax Office for Prague 7, with the exception of real estate tax, which is governed by the location of the property.
• Taxation of beneficiaries (critical part): This is where the biggest tax pitfalls lie, but also where opportunities for effective planning arise. It is necessary to strictly distinguish between two types of payments:
• Payments from the fund's profits: This income is subject to a 15% withholding tax, similar to dividends from a commercial company. The trust fund is responsible for withholding and paying the tax.
• Payments from the fund's assets (from capital): This income is considered other income for the beneficiary. The key advantage is that this income may be exempt from tax if the assets were contributed to the fund by the beneficiary themselves or a person close to them (e.g., a parent, grandparent, spouse). This exemption also applies to assets contributed to the fund in the event of death.

The correct setting and differentiation of these payments is crucial for the tax efficiency of the entire structure. This requires close cooperation between legal and tax advisors, which is a key advantage of the integrated advisory model offered by ARROWS.

New regulatory burden: AML and Beneficial Ownership (BO)

The era of discreet asset structures is over. Transparency is now a key requirement of regulators.

• AML obligations: A trustee is a “mandated person” under the Anti-Money Laundering Act (AML Act). This entails serious obligations: to identify and verify the client (i.e., the fund and its structure), to identify and verify the beneficial owners, to continuously monitor transactions, and to report any suspicious transactions to the Financial Analytical Unit (FAÚ). Failure to comply with these obligations is subject to heavy penalties.
• ESM – End of anonymity: From 2021, all trust funds and their beneficial owners (founders, administrators, beneficiaries, and other persons with influence) must be registered in the Register of Beneficial Owners. This register is accessible to public authorities and, in part, to the public.
• Upcoming changes for 2025/2026: It is important to note that this area of law is not static. New European directives and regulations that will be transposed into Czech legislation will further tighten and harmonize the rules across the EU. This only underscores the need to rely on experts who actively monitor legislative developments.
• Maximum penalties: The consequences of failing to comply with ESM obligations are draconian. If the beneficial owner is not properly registered, the trustee may not exercise voting rights attached to shares in commercial corporations held by the fund, and the fund may not receive any share of the profits. In practice, this can completely paralyze the functioning of a company held by the fund.

When things go wrong – Lessons from Supreme Court case law

Trust funds are not untouchable black boxes. Recent Supreme Court practice shows that courts are not afraid to intervene in their operation.

• Court jurisdiction: It is essential to note that the court may, in any proceedings, assess for itself whether a trust fund has been validly established. It is not bound by mere registration in the register.
• Invalidity and fraud: A key ruling (e.g., file no. 24 Cdo 1754/2022) clarified that if a fund is established fraudulently or its founding act is invalid, an action may be brought directly against the trustee as a natural person to claim the return of the property. This is important protection for founders against dishonest trustees, but also a warning to those who would like to abuse the fund.
• Creditor protection: Case law has repeatedly confirmed that a trust fund protects assets from future risks, but is not and cannot be a shield against existing debts or a tool for fraudulently transferring assets away from creditors. The courts have effective tools at their disposal to declare such transfers ineffective.

This development in court practice means that trust fund structures must be designed with a view to how they would stand up to possible judicial review. ARROWS lawyers monitor case law very closely and propose structures that are robust, legally sound, and capable of withstanding future legal challenges.

Conclusion: Your next steps on the path to asset protection

The analysis shows that in 2025, Czech entrepreneurs will have two powerful but fundamentally different tools at their disposal. The Czech trust fund is a reliable, predictable, and cost-effective solution for the vast majority of scenarios, from intergenerational business transfers to the protection of family assets within the Czech Republic. An international trust, on the other hand, is a highly specialized tool for specific situations characterized by a significant international element, a high risk profile, and a need for protection that exceeds the capabilities of Czech law.

There is no universally correct answer. The optimal choice depends entirely on your unique situation – the structure of your assets, family relationships, the nature of your business risks, and your long-term goals.

The most valuable asset you have right now is the ability to make the right and informed decision. Protecting your life's work and legacy is too important to be left to chance or guesswork. The first and most important step is therefore a thorough analysis of your situation with an expert who understands not only the legal but also the tax and strategic implications in both the Czech and international context.

The team of more than 60 specialists at ARROWS is ready to provide you with this clear vision. Contact us to arrange a non-binding consultation, during which we will work together to build a strategy that will truly secure your future.