Czech Trust Funds: Benefits, Setup Steps and Common Pitfalls

14.4.2026 | ARROWS law firm

In recent years, the trust fund has become a key instrument for managing family assets and for intergenerational business succession in the Czech Republic. It offers a higher level of control, flexibility, and legal protection than traditional inheritance or gifting. Assets contributed to the fund no longer belong to the founder and therefore are not subject to the founder’s personal creditors and remain unaffected in the division of the estate. This article will guide you through how it works, its advantages, and common mistakes that can even lead to the structure being invalid.

The illustrative photograph depicts specialists in the field of trust funds.

Article contents

How a trust fund works in practice
Key benefits for the family and the business
Practical steps to establish a trust fund
Tax aspects of a trust fund in a family business
Risks of a poorly structured trust fund
A trust fund as protection for a family business: practical examples
How to avoid misuse of the fund by creditors or the state

Quick summary

A trust fund is a legally effective tool: Assets separated into it are no longer part of the founder’s personal property, are not inherited, cannot be seized by the founder’s personal creditors (provided creditors have not been prejudiced), and remain governed by the rules set out in the deed.
Flexibility in generational succession: The founder can set precise conditions—when and to whom profits from the business will flow, who may decide on its sale, how the assets are handled upon the death of any of the entitled persons, and how family disputes are resolved.
It carries risks if set up incorrectly: The most common mistakes (an unclear deed, lack of oversight, an unsuitable trustee, formal deficiencies) can lead to the fund being paralysed, legal disputes, or even invalidity. The attorneys of ARROWS advokátní kancelář eliminate these risks from the outset.
It is part of a long-term strategy: A trust fund is not a one-off action—it requires legal preparation under Czech law, tax considerations, and subsequent professional administration to ensure it serves its purpose and is effective.

How a trust fund works in practice

In its basic form, a trust fund is a separated pool of assets without legal personality, administered by a person appointed by the founder (the trustee). The founder draws up the deed—a legal document in the form of a notarial deed—which contains all the rules on how the assets are managed and who benefits from them.

The key legal effect is simple: by transferring assets into the fund, the founder ceases to be their owner. The assets become autonomous—they cannot be seized by the founder’s personal creditors and are not part of the founder’s estate. Ownership rights are exercised by the trustee “for the benefit” of certain persons (beneficiaries, also referred to as the entitled persons), in accordance with the deed determined in advance by the founder.

In a family business, this can mean the following: the owner of a company cannot imagine their life’s work falling apart after their death among five adult children with different views. They therefore place the business interest into a trust fund with a deed stating: “The assets will be administered by one trustee, profits will be distributed according to a specified key, the interest will not be sold without the consent of the protector, who will be the eldest child, and upon the death of any child, their share will not pass to their descendants but will return to the fund for redistribution among the remaining ones.”

This approach prevents an outsider from forcing the company to be liquidated, while also avoiding lengthy and costly inheritance disputes. In a family business in the Czech Republic, a trust fund typically serves precisely to maintain continuity of management and keep assets together—even if circumstances genuinely trigger changes. When setting up who and how will exercise the rights associated with a business interest held in a trust fund, the broader group arrangement and corporate governance are often addressed as well, for which an overview within corporate law, holdings and structures may be helpful.

Key benefits for the family and the business

Once assets are transferred into a trust fund, they cease to be part of the personal property of the founder, the trustee, or the beneficiary. This means that if the founder later faces debts, insolvency, or enforcement proceedings, their personal creditors cannot claim the separated assets. A company or assets held by the fund therefore cannot, without more, be sold or encumbered by the founder’s personal creditor.

This protection is particularly valued by entrepreneurs, where personal and business risks overlap. By separating family wealth into a trust fund, you protect it in advance—regardless of what happens to your business in the future.

However, it is essential to understand that this protection applies only prospectively and must not be misused to prejudice creditors. If you already have due debts or enforcement is underway, transferring assets into a fund may be assessed as a legal act prejudicing creditors. The article Transfer of a business interest in a family business: How to set the legal steps correctly and avoid tax and asset risks also follows on from the practical impacts of transferring an interest and the related asset and tax risks in family businesses.

Such conduct may be declared ineffective under Section 589 of Act No. 89/2012 Coll., the Civil Code, as amended, which means the assets could still be subject to enforcement. In addition, in such a case the founder may also face criminal liability for the offence of harming a creditor under Section 222 of Act No. 40/2009 Coll., the Criminal Code, as amended. In situations where, alongside civil-law impacts, potential criminal-law consequences of asset transfers are also being addressed, it is advisable to consult the approach with experts in criminal law.

Anticipating inheritance and preventing family disputes

In traditional inheritance, assets are divided under the law or a will among all heirs, often in equal shares. This means that a family business founded by one person is suddenly split, for example, among three children with different interests and ideas. One is satisfied with the returns, the second wants to play manager, the third wants to sell the company. The result is often a conflict that can last for years. For dispute prevention within interconnected companies and for setting contractual relationships within a group, the additional article Dispute prevention in a holding: Setting contractual relationships between connected companies may be useful.

A trust fund bypasses this problematic division. The company remains under the trustee’s control and only profits are distributed—not a share in the fund’s assets. In the deed, you can specify exactly how profits are distributed, who has the right to participate in decision-making, and under what conditions.

Continuity of management without interruption after the founder’s death

When a founder dies, their assets usually become part of the estate and the “clock” for probate proceedings starts running. During these months or years, decision-making in the company is often paralysed—no one is sure who is legally authorised to act in respect of assets that have not yet been distributed.

A trust fund prevents such delays. The company carved out into the fund remains under the management of the trustee without any abrupt interruption. This helps avoid lengthy inheritance disputes that could otherwise paralyse the business—the trustee continues managing the company in accordance with the deed.

Practical steps to establish a trust fund

1. Precise preparation and defining the purpose

Establishing a trust fund “just because” is a mistake. First, you need to be clear about what exactly you want to achieve. Is your goal to protect the company in the event of your premature death or disability? A gradual transfer of the business to the next generation? Separating personal assets from business risks? Preventing family conflicts?

Each of these objectives affects how you draft the deed. If the primary aim is to protect the company in difficult life situations, you will focus on very strict limits on what the trustee may and may not do. If you want a gradual handover, you will instead set conditions under which the beneficiaries progressively become involved in decision-making.

The attorneys of ARROWS advokátní kancelář assist you at this stage in identifying what you truly want and, based on that, propose a deed structure that will be effective and secure under Czech law.

2. Selecting the trustee – a crucial decision

The trustee is the person or institution that actually manages the fund’s assets. They are not the owner, but they exercise ownership rights—for example, voting as a shareholder, deciding on sales or acquisitions, and managing finances.

In practice, common mistakes are made when choosing a trustee:

A spouse or adult child without instructions. The family may think it will be easier, but without clear rules and experience, the administration becomes chaotic and can lead to confrontation within the family.
A single trustee without safeguards. If you have only one trustee and they resign or fail, the fund becomes paralysed. It is better to appoint multiple trustees or include a mechanism for replacement.
A legal entity without a tax analysis. Some families choose a bank or a professional trustee company, which can be a solid option, but costs and tax implications must be considered.

Experienced attorneys at ARROWS advokátní kancelář can help you select the trustee and at the same time ensure they are suitable and have the necessary guidance on how to proceed.

3. Drafting the deed – the most common mistakes

The deed is a notarial deed that describes the rules in detail. It is not only a legal formality, but also your key document for managing future relationships within the family and in relation to the assets.

Typical mistakes include:

Vague conditions. If you write “the child will receive income if they behave properly”, a court later will not know what you meant, and a dispute will arise.
Unclear designation of beneficiaries. If you do not identify the beneficiaries clearly in the deed, someone may later claim they should have been included and challenge the entire structure, which can even lead to the fund being invalid.
Missing dispute-resolution mechanisms. The deed does not describe what happens if the trustee fails, or how decisions are made when beneficiaries disagree.
Lack of oversight. If no one has the right to monitor what the trustee is doing, the trustee may abuse their position and no one will detect it.

The attorneys at ARROWS advokátní kancelář will draft the deed precisely to your needs and help you avoid legal pitfalls under the Czech legal system.

4. Registration in the Register of Trust Funds

A trust fund is created only upon registration in the Register of Trust Funds maintained by the Ministry of Justice of the Czech Republic. Without this registration, the fund is legally ineffective and the assets “contributed” to it are not actually segregated.

The registration is carried out by a notary or the trustee by filing an application. In practice, this is usually handled by the notary who drafted the deed, but it is important to know that:

Without registration, the fund does not exist.
The register is only partially public—information about the founder and beneficiaries is protected.
The fund is automatically assigned an identification number (IČO) and must register for corporate income tax.

Tax aspects of a trust fund in a family business

For income tax purposes, a trust fund is treated as a fictitious taxpayer—a legal entity without legal personality—under Act No. 586/1992 Coll., on Income Taxes, as amended. This means that:

Contributing assets is not subject to income tax.
The fund’s profit is taxed at the 21% corporate income tax rate (valid as of 2026).
Distributions to beneficiaries are subject to a 15% withholding tax.

In practice, it is more complex, especially when the fund holds ownership interests or shares. There are situations (for example, where the fund holds at least a 10% stake in a subsidiary for 12 months) in which the gain on the sale of such interests is fully exempt from tax. However, this requires correct legal and tax structuring from the outset.

Important note: As a separate corporate income tax taxpayer, a trust fund must register with the tax authority and comply with all tax and record-keeping obligations. If you plan to contribute foreign assets to the fund or intend to operate the fund cross-border, you should consult tax specialists.

Risks of an improperly structured trust fund

Risks and sanctions	How ARROWS can help (office@arws.cz)
Invalidity of the trust due to formal defects – for example, a key mandatory element of the deed is missing (e.g., clear identification of the purpose or beneficiaries), the notarial deed is not properly drawn up, or the trust is not entered in the register. The result is that a court may later declare the trust invalid from the outset, the assets return to the estate, and the beneficiaries receive nothing. In some cases, the registration court may refuse to register the trust at all.	The attorneys of ARROWS, a Prague-based law firm, review all formal and substantive requirements of the deed and registration from the very beginning. They ensure the trust is legally accepted and subsequently properly recorded in the register.
Paralysis of the trust due to a conflict between the trustee and the beneficiaries – without clear rules, it becomes unclear who can decide what, and lengthy disputes arise during which no dealings with the assets are permitted.	ARROWS, a Prague-based law firm, will structure the deed so that each party’s powers are clearly defined and dispute-resolution mechanisms are built in (e.g., decision-making on new investments, sale of the company, appointment of a new trustee).
Abuse by the trustee – the trustee acts for their own benefit, invests trust assets into their own projects, or misappropriates assets. Beneficiaries often learn about it only later, when remediation is already complicated.	ARROWS, a Prague-based law firm, sets out oversight and transparency obligations in the deed – for example, regular reporting, annual audits, or beneficiaries’ rights to know what is happening with the assets. It can also propose multiple trustees or an independent protector/supervisor.
Tax disputes and unexpected obligations – the trust is established without considering tax consequences, and later the settlor or beneficiaries realise the taxation is not optimal or that penalties may arise for non-compliance with tax obligations.	The attorneys of ARROWS, a Prague-based law firm, assess the tax implications already when establishing the trust and propose measures that minimise the tax burden and ensure compliance with all registration obligations (VAT registration, income tax, record-keeping obligations).
An attempt to conceal an ineffective transaction – the settlor believes they can “hide” assets from creditors in a trust when they already have debts, or to avoid enforcement. Such a transfer of assets is ineffective under Section 589 of Act No. 89/2012 Coll., the Civil Code (Czech Republic), and there is a risk of criminal liability for harming a creditor under Section 222 of Act No. 40/2009 Coll., the Criminal Code (Czech Republic).	ARROWS, a Prague-based law firm, will ensure the trust is established fully legitimately and at the right time. This protects you so that the trust is not later challenged as an ineffective transaction and so that you do not expose yourself to personal liability.

A trust as protection for a family business: practical examples

Case 1: A company with multiple owners in the family

The owner of a mid-sized manufacturing business is considering that he wants to pass the company on to his three daughters in the future. He is concerned that if it is done through a traditional inheritance, each daughter will inherit one third and all three will have to agree on every important decision. By placing the company into a trust, a trustee is appointed (for example, the eldest daughter or an external person) who will manage the company without unnecessary conflicts. The deed will specify that profits will be divided into three parts, but that the sale of the company or fundamental decisions will require the consent of at least two of the three daughters.

Case 2: Protecting assets from debts

An entrepreneur runs a company where he is personally liable for obligations. As part of his business strategy, he wants to keep the family house and certain investments as his own assets that creditors could not reach in the event of problems with the company. He places them into a trust. From that moment, they are protected from his personal creditors, provided the trust was established in time and without the intent to prejudice creditors. If the company later went bankrupt and creditors obtained authority to seize the settlor’s assets, they cannot claim the real estate or investments placed into the trust because they are no longer part of his personal property.

Case 3: Gradual transfer to the younger generation

The founder of the company is now older and wants to place the company into a trust so that it gradually passes to his son, who is young and inexperienced. The deed will provide that for the first five years the company will be managed by an external professional trustee. After that, management gradually transitions to the son, who has already gained some experience. In this way, the company is not handed over to an inexperienced heir and continuity is ensured.

Our specialists for you:

Mgr. Jan Medek

associate, partner

medek@arws.cz

JUDr. Ondřej Stehlík, LL.M., MBA

associate, partner

stehlik@arws.cz

How to avoid misuse of the trust by creditors or the state

Attorneys most often encounter situations where someone wants to get rid of debt by transferring their assets into a trust during enforcement proceedings or when insolvency proceedings have already been initiated. As mentioned above, such conduct is ineffective under Section 589 of Act No. 89/2012 Coll., the Civil Code (Czech Republic), and the assets may still be reached by creditors. In addition, the settlor faces the risk of criminal prosecution for the offence of harming a creditor under Section 222 of Act No. 40/2009 Coll., the Criminal Code (Czech Republic).

However, if you establish the trust before any problems arise, and if you establish it for legitimate reasons (asset protection, generational transfer, management of a family business), it is entirely legal and safe.

The attorneys of ARROWS, a Prague-based law firm, ensure that the trust is established correctly and at the right time. If you suspect it could be challenged later, they will advise you how to structure it so that it is resilient to all potential attacks.

A trust or an endowment fund – when to choose which?

In practice, owners of family businesses face the question: is a trust better, or an endowment fund?

A trust is better when:

You want high flexibility and discretion.
You want the assets managed primarily for a particular family.
You want to minimise administration.
You have plans for how to transfer the assets gradually.

An endowment fund is better when:

You want stronger legal certainty and an institutional framework (an endowment fund has legal personality; a trust does not).
You also have public-benefit objectives (support for culture, science, education) – this is even a basic prerequisite for an endowment fund.
You want the fund to operate more autonomously, with more firmly defined management rules.
You plan to cross national borders (foreign assets are handled better through an endowment fund).

The attorneys at ARROWS, a Prague-based law firm, will help you choose the right structure. In some cases, they recommend a combination of both.

Final summary

A trust is an effective and flexible tool for managing family assets and ensuring business continuity across generations. When properly structured, it protects assets from the settlor’s personal creditors, prevents inheritance disputes, and allows the settlor to clearly set out how the assets will be handled in the future.

At the same time, it is a legal instrument that entails significant risks: an error in the deed, incorrect registration, an inappropriately chosen trustee, or a lack of oversight may lead to the paralysis of the fund, lengthy legal disputes, or even the invalidity of the entire structure. The attorneys at ARROWS advokátní kancelář have gained experience with these risks and know how to prevent them.

If you want to ensure that your assets are safe, transferred to the appropriate generation without disputes, and structured in a tax-efficient way, focus on high-quality legal preparation from the very beginning.

The attorneys at ARROWS advokátní kancelář will assist you with this complex process—from the initial consultation, through drafting the deed, to registering the fund and its subsequent administration. Contact us at office@arws.cz so that we can assess together what your trust fund should look like.

FAQ - Most common questions on the practical use of a trust fund in the family

1. As the founder, can I participate in decision-making even though I have transferred assets into the fund?

Yes, but only within the scope you set yourself in the deed. For example, you may reserve the right to approve investments above a certain amount, or a veto right over the sale of a company. However, you must not “normally” manage the assets—this is the role of the trustee, who administers the assets in accordance with the deed and with due managerial care. The attorneys at ARROWS advokátní kancelář can help you define such rights clearly so that they are legally effective.

2. What happens to the trust fund when the founder dies?

That depends on how the deed is drafted. Typically, the fund continues without changes—the trustee continues to manage the assets for the beneficiaries. If you have specified in the deed that the fund ends upon the founder’s death, then the assets are distributed to the beneficiaries or other entitled persons. If this is not addressed in the deed, legal uncertainty and potential disputes may arise.

3. Can I change the deed after the fund has been established?

Amending the deed of a trust fund is heavily restricted. The founder may expressly reserve in the deed the right to amend it (to a limited extent), but without such a reservation, an amendment is very difficult. In that case, only a court may amend the deed, and only under precisely defined conditions—for example, if you demonstrate that the amendment benefits the purpose of the fund or is necessary for its operation (§ 1466 of Act No. 89/2012 Coll., the Civil Code, as amended). For this reason, it is critical to draft a good deed from the outset. If you later find that it is flawed, it can be very problematic and costly.

4. Can I terminate the trust fund if I change my mind later?

Terminating a trust fund is a complex process and depends on the provisions of the deed. If the deed does not allow the founder to terminate the fund, termination is possible only under specific conditions set by law, e.g., by agreement of all beneficiaries and the trustee, or by a court decision. In practice, terminating a fund is difficult, especially if there are active beneficiaries who do not agree with the termination. Therefore, it is again critical to be sure in advance whether you truly want the fund.

5. Do I have to tell all beneficiaries that the fund exists?

No. Beneficiaries may be designated in the deed even without their knowledge. For example, you can write “my future grandchildren,” and the beneficiaries will learn about it only later. However, this entails risks—if you are not sure that you will inform all relevant persons, it may trigger later disputes and uncertainty.

6. What happens if one of the beneficiaries comes forward and demands more assets than the deed grants them?

In such a case, you will need to address the situation with the trustee or through court proceedings. If the deed is clear and legally robust, it will be difficult to demand a change. But if the deed is vague or contains inconsistencies, litigation may arise. That is why the attorneys at ARROWS advokátní kancelář anticipate all such scenarios during the drafting of the deed and define them precisely.

Notice: The information contained in this article is of a general informational nature only and serves as basic guidance on the topic based on the legal status as of 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client protection we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damage arising from the independent use of the information in this article without prior individual legal consultation.

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