Protecting corporate and family assets:

Family wealth requires careful planning. Many successful Czech entrepreneurs are now looking for ways to secure their assets for future generations and protect them from risks. One of the most effective tools offered by Czech law is a foundation fund. This guide explains what a foundation fund entails, how it differs from a traditional foundation or trust fund, what advantages it offers entrepreneurs, what legislative and tax aspects to keep in mind, how to set up a foundation fund step by step, and what risks and mistakes to avoid. The aim is to provide a clear and professional overview that will motivate you to actively protect your family assets.

Author of the article: ​ARROWS (JUDr. Kateřina Müllerová, office@arws.cz, +420 245 007 740)

What is an endowment fund and how does it differ from a foundation and a trust fund

According to the Czech Civil Code, an endowment fund is a legal entity established with separate assets for a specific purpose. Unlike a traditional foundation, an endowment fund is not established for the permanent service of a public benefit purpose with permanent existence, but may also serve temporary or private purposes. While a foundation usually requires permanent founding capital (endowment capital) of at least CZK 500,000 and fulfills its purpose solely from the income of this capital, an endowment fund has no mandatory endowment capital or minimum deposit – it can be established with a deposit of as little as CZK 1. All of the assets of an endowment fund are “single-component” and may be used over time to fulfill the specified purpose. In other words, an endowment fund may use the capital itself, not just its income, unlike a foundation, which must preserve the endowment capital.

A foundation fund is more flexible than a foundation in terms of legislation. The purpose of a foundation fund may be public benefit (e.g., charitable) or private, provided that it is socially or economically useful. The law therefore allows a foundation fund to be used, for example, to manage family assets and support descendants. A foundation fund is also not restricted by law in the provision of benefits from the fund (so-called foundation contributions) – it may also provide contributions to its founder, members of its bodies, or employees. In contrast, a foundation may not provide financial benefits to its founder or related persons (except in exceptional circumstances). A foundation fund is also not required by law to prepare an annual report or have statutes, whereas a foundation is. This results in less administrative burden and greater discretion – foundation funds are less bound by public registration obligations (for example, they are not required to publish a detailed annual report with a list of donors, as foundations are).

Another related instrument is the trust fund (the Czech version of a trust). A trust fund is created by setting aside assets and entrusting them to an administrator for a specific purpose, without legal personality – it is property without an owner, managed by an administrator in accordance with the fund's statutes. Trust funds offer a high degree of privacy, as they do not create a separate legal entity registered in the commercial register. A foundation fund, on the other hand, is a legal entity registered in a public register (foundation register). This has the advantage of easier asset management abroad and greater “clarity” – foreign counterparties or authorities can easily understand that a foundation fund is a legal entity that can own assets. In some jurisdictions, trust funds may encounter misunderstandings or legal complications because they are not separate entities. On the other hand, trust funds offer greater discretion – for example, the founder of a trust fund does not have to be publicly disclosed, whereas the founder of a foundation is listed in the foundation deed filed in a public register. When choosing between a foundation and a trust, it is therefore necessary to consider what is more important to you: legal personality and easier international acceptance, or maximum privacy and flexibility of internal rules. In practice, however, both instruments serve similar purposes – asset protection, succession planning, and setting rules for the management of family wealth. Many experts today consider endowment funds to be an effective and modern alternative to trust funds, especially for family asset structures in the Czech environment.

Advantages of endowment funds for entrepreneurs

1. Protection of assets against risks and fragmentation: An endowment fund acts as a protective shield for family assets. By transferring assets to the fund, you separate them from your personal property, thereby better protecting them from personal risks. At the same time, the endowment fund prevents fragmentation of assets due to family disputes or inheritance. If an entrepreneur dies without planning, statutory inheritance takes effect, which often leads to the division of the estate between the spouse and children in equal shares. For example, a successful entrepreneur with a wife and two children would, upon his sudden death, leave half of the joint property to his wife and the other half would be divided into thirds between his wife and children – the wife would thus end up with 4/6 of the property and each child with 1/6. Such division of ownership often does not correspond to the intentions of the company founder and, moreover, opens the way for further fragmentation in the future (further marriages, divorces of children, deaths in the family, etc.).

An endowment fund prevents such scenarios – the property remains intact under the fund's wing and the family benefits from it according to pre-determined rules. The fund prevents “unwanted” persons from entering into property relationships – for example, ex-spouses of children or distant relatives. It also protects assets from the negative consequences of family disputes or personal failures (so-called “family storms”) – if one of the descendants makes problematic decisions, the fund does not have to release further funds to them, thus preserving the rest of the estate for the others. In short, once something is placed in an endowment fund, it is better protected against unforeseen external and internal influences.

2. Intergenerational transfer and continuity of management: An endowment fund is an excellent tool for the smooth transfer of a business and wealth to the next generation. It allows for the continuity of management of family assets, as the fund survives even after the founder's departure and can operate indefinitely. Entrepreneurs can set up mechanisms in advance to determine how the assets will be managed and who will make decisions about them. A combination of a family holding company and an endowment fund is often used—the holding company (family “bank”) concentrates business activities and assets, and the endowment fund holds shares in the holding company and oversees the fulfillment of the family's purpose. This ensures that even after the founder's retirement or death, the family business will continue to operate under the leadership of professionals or prepared successors, instead of having to be divided hastily. The endowment fund can appoint a board of directors or other successors who will take over management according to the founder's instructions.

 

The founder himself can head the fund during his lifetime and gradually “pass on the baton”—for example, by involving his children in decisions about some of the investments or letting them hold positions in the fund's bodies to gain experience. However, statistics show that only about a third of families actually take over the business in full. The endowment fund therefore provides a backup solution, whereby the management of the assets can be entrusted to a professional manager or administrator if no suitable successor can be found within the family. This allows the assets to continue to grow and serve the family even if the descendants are not interested or capable of running the business themselves.

In addition, a properly set up endowment fund allows for long-term planning. The founder can define family rules in the fund's statutes (foundation charter) – for example, the conditions under which money will be paid to descendants (for education, to purchase a home, as a regular pension to ensure a dignified life, etc.). It can be decided that descendants will not receive everything at once, but gradually according to merit or life milestones, so that the family wealth supports several generations. It is also possible to incorporate family values and visions into the fund's mission – a kind of “family constitution” designed to maintain family unity and a responsible approach to property. All these elements strengthen intergenerational cohesion and eliminate the risk that the ill-considered actions of one generation will undo the lifelong efforts of the previous generation.

3. Tax efficiency and asset growth: When set up correctly, an endowment fund can also bring tax benefits. In particular, if the aforementioned holding structure is used, it is possible to achieve deferral or savings on certain taxes. For example, after placing a family business in a holding company and dividing its assets, the holding company can receive dividends from operating companies without additional tax burden (thanks to the exemption of parent and subsidiary companies) and reinvest them in full. The accumulated profits can then be used for further investments or to pay pensions to family members. The endowment fund itself is not established for the purpose of doing business, and if it fulfills a public benefit purpose, it is considered a public benefit taxpayer—in which case it does not pay income tax on income related to its mission. However, even a family-oriented (private) endowment fund has a more favorable tax regime than a regular company in some respects.

Endowment contributions paid from the fund to family members are exempt from income tax for the recipients (with the exception of any employees of the fund). This means that when a foundation pays a certain amount to a descendant (for example, for education or housing), neither the foundation nor the recipient pays tax on it – unlike if the same amount had to be paid by a commercial company (it would be taxed as salary or dividends). The same applies to the founder: if they need to secure funds from the fund, they can have an annuity or a one-off contribution paid out within the limits of the fund's purpose, and this “lifetime annuity” will not be subject to their personal income tax. Furthermore, the endowment fund itself does not pay gift tax – deposits and donations to the fund are only taxed as part of income tax, and many of them may be exempt if the fund fulfills public benefit objectives. In the case of corporate donors or individual philanthropists, financial donations to an endowment fund (if it is publicly beneficial) can be deducted from the income tax base, similar to donations to foundations or public benefit organizations. This can play a role if an entrepreneur also supports charitable projects through their endowment fund – they gain a positive image and tax relief at the same time.

4. Discretion and anonymity: Although an endowment fund is registered in a public register, it still offers entrepreneurs a higher degree of privacy than direct ownership. Assets held by an endowment fund are no longer formally registered in your name – the fund itself is the owner. The name of the endowment fund, not the entrepreneur, appears in the commercial register or land register for these assets. This can reduce the visibility of your wealth to the outside world and protect you from unwanted attention. Endowment funds ensure discreet management – for example, if the fund pays out funds to family members, this is done in accordance with internal rules and is not publicly reported, unlike the payment of dividends to company shareholders. Of course, transparency towards the authorities is maintained (the fund must keep accounts and register the actual owners), but the ownership structure is less obvious to the general public. This element of anonymity will be particularly appreciated by entrepreneurs who do not want to attract attention as wealthy individuals – the endowment fund acts as an impersonal entity in the background. At the same time, unlike a trust fund, a foundation fund is publicly accessible (the founding document and the names of the members of its governing bodies can be found in the foundation register). However, with the right setup (e.g., by involving trusted associates in the fund's governing bodies), a high degree of discretion can be achieved. Thanks to the endowment fund, the family does not have to relinquish control over its assets, but at the same time, it manages them separately and quietly. This compromise between control and privacy is one of the reasons why endowment funds are gaining popularity among Czech and Slovak entrepreneurs. They are no longer the domain of foreign billionaires – more and more domestic families are using them to cleverly secure their assets.

Legislative and tax aspects of endowment funds in the Czech Republic

Legal regime and obligations of endowment funds

From a legal perspective, an endowment fund is an independent legal entity (a type of foundation) established under the Civil Code. To establish a foundation, a founding legal act – a foundation charter in the form of a notarial deed – is required. The founder (or founders) specifies the name of the fund (the name must include the words “endowment fund”), its registered office, the purpose of the fund, information on contributions (including their amount or the value of non-monetary contributions) and the composition of the fund’s bodies. The law requires a minimum contribution of CZK 500,000 for a foundation, but no minimum contribution is specified for an endowment fund. An endowment fund can therefore start with any amount of assets (large or small) – from a symbolic amount to billions, which the founder contributes gradually.

The bodies of an endowment fund are not prescribed in detail by law – a board of trustees must be established as a statutory body, but the number of its members is determined by the founder in the foundation deed. Typically, the board of directors has several members (usually three or more to ensure collective decision-making), but the founder may also sit on the board (if they wish to have a direct influence on decision-making).

A foundation may, but is not required to, have a supervisory body (supervisory board or auditor) – the law leaves it up to the founder to decide whether to establish a supervisory board or appoint an auditor for oversight. For clarity and internal control, this is recommended especially for larger funds, but for smaller family funds, only an auditor (one person with supervisory powers) is often chosen. All these matters – the number of members of the bodies, the length of their term of office, the method of appointment and dismissal – are laid down in the foundation charter according to the founder's preferences. The law allows a great deal of freedom, so the structure can be tailored precisely to the family (e.g., the founder may reserve the right to dismiss a member of the board of directors at any time, stipulate that upon his or her death this right passes to his or her spouse or another family representative, etc.). It is important to have trustworthy people in the governing bodies – these may be family members, but also professionals (lawyers, family advisors) or a combination of both, in order to ensure both professional management and respect for the family's wishes.

The endowment fund is established on the date of its entry in the public register. After the notarial deed has been drawn up, a proposal for registration is submitted – this can be done directly by the notary (thanks to access to the online system) or by a lawyer, or by the founder himself. The court usually registers the fund within a few days or weeks. From that moment on, the endowment fund legally exists and can act – for example, it can open a bank account, take ownership of the founder's assets (transfers of real estate, shares in companies, etc. to the fund) and commence operations. Fees must be taken into account: notary fees for drawing up the deed (tens of thousands of CZK depending on the value of the assets) and court fees for registration (CZK 6,000). Once the fund is registered, it must also be entered in the register of beneficial owners (here, the founder or persons who have a major influence on the endowment fund are usually registered as the beneficial owners). This register is not accessible to the general public, but is used by the authorities for the purposes of preventing money laundering, etc.

The law imposes only a few basic requirements on the activities of a foundation fund. The fund may not engage in business as its main activity – it may only engage in business as a secondary activity to support its purpose. In practice, this means that a foundation may, for example, lease real estate, trade in securities, or otherwise increase the value of its assets, but the profits from these activities must be used to finance the purpose of the fund (not to enrich any owner, as the fund has no partners). The assets of an endowment fund are bound by its purpose – all expenses must be directed towards fulfilling the mission defined in the foundation charter. In family practice, the purpose is usually defined quite broadly (e.g., “to ensure the permanent management of the Novák family's assets and financial stability, to support the education and development of family members and, where appropriate, publicly beneficial projects”) so that the fund can finance various needs at the discretion of the board of trustees. Importantly, the assets entrusted to the endowment fund cannot be used to secure debts or be pledged as collateral. The fund has no “owner” who can freely dispose of it; the assets are set aside and serve only the permitted purposes. This protects it from the creditors of the founder or family members (who have no legal claim to it), but on the other hand, it means that, for example, the fund's assets cannot be pledged to a bank for a family loan, etc. – the fund must make do with its own capital. An endowment fund also may not collect funds through public collections without meeting the legal requirements (if the fund wishes to accept donations from the public, it is subject to the law on public collections and supervision of its management, especially if it is of public benefit).

Administratively, the operation of an endowment fund is relatively undemanding. The law does not impose an obligation to prepare an annual report (unlike a foundation), unless this is stipulated in the foundation charter. However, the fund keeps accounts and prepares financial statements annually. It is not required by law to undergo an audit, unless it has been stipulated internally (foundations must be audited if their assets or turnover exceed CZK 5 million). In practice, however, larger family funds voluntarily opt for certain reporting, if only for the sake of family oversight and for possible inspection by the tax authorities. Each endowment fund is also required to register with the tax office as an income tax payer (within 15 days of its establishment) and fulfill the usual obligations of any legal entity (file tax returns if it has taxable income, pay payroll taxes if it has employees, etc.).

Tax aspects of endowment funds

From a tax perspective, endowment funds fall under the category of public benefit taxpayers, with the exception of family foundations. According to the Income Tax Act, an endowment fund is a public benefit taxpayer if its purpose is not to engage in business and it fulfills a generally beneficial or charitable purpose.

Although most endowment funds (especially family funds) do not engage in business, if they primarily serve to support the founder or persons close to him or her, the law considers them to be so-called family foundations, which are excluded from the category of public benefit. Simply put, a “private” family-focused endowment fund is not entitled to all the tax privileges of a traditional foundation or public benefit fund. However, some significant tax advantages remain:

• Corporate income tax (CIT): A public benefit foundation does not pay CIT on income used to finance its main purpose (e.g., donations and subsidies for charitable activities are tax-exempt). Only income from secondary business activities or rentals above a specified limit would be taxed. In contrast, a family foundation is taxed as a regular legal entity – but with the proviso that much of its income can be structured in such a way that no tax is payable. For example, donations received for the purpose of fulfilling the foundation's purpose are not subject to tax (as they are not a profit-making activity) or may be exempt if the foundation is not established for business purposes. Income from assets may also be exempt or untaxed: in the case of a traditional foundation, the law expressly exempts income from the foundation's principal, while there is no such special exemption for endowment funds, but if the fund holds, for example, shares in commercial companies, dividends paid to the fund may be subject to a 15% withholding tax (as for any shareholder) and are not taxed further. However, in combination with a holding company, this tax is often eliminated thanks to effective exemption of dividends between companies – when the holding company pays profits to the endowment fund, zero taxation can be achieved if the conditions for participation are met. Profits reinvested within the structure (in the holding company) can thus grow tax-free, and only when they are used for private purposes are they subject to taxation by the final recipients.
• Personal income tax for recipients of payments: As already mentioned, the receipt of a so-called foundation contribution (payments from the fund) is exempt from income tax for individuals, with the exception of fund employees. This is particularly important for family funds – family members can draw funds from the fund (e.g., regular monthly amounts for living expenses or one-off financing of larger expenses) and do not have to pay tax on these gifts. In contrast, if the founder paid the same amount from his company in the form of a salary, he would pay income tax and social security contributions; as a dividend, it would be taxed at a 15% withholding tax. Through a foundation fund, finances can therefore flow very efficiently for tax purposes to those for whom they are intended. However, it is necessary that the payments are actually in line with the purpose of the fund – for example, “supporting family members in securing housing” or “contributing to healthcare” are acceptable, but the fund cannot simply pay out profits to the family without justification in the context of its statutes.
• VAT (value added tax): The endowment fund itself is not a VAT payer unless it carries out economic activities exceeding the turnover limit (CZK 2 million per year, as of 2025). Most family funds do not deal with VAT at all, as their income comes from holding assets (dividends, interest, rents) and providing foundation contributions, which are not taxable transactions. However, if the foundation fund were to engage in business activities such as large-scale real estate rental or the sale of services and exceed the limit, it would become a VAT payer with all the obligations of a regular company. In the context of family asset protection, however, VAT does not play a significant role, as the fund's main activity is not commercial.
• Other tax aspects: When transferring assets to a foundation, the founder does not pay any special tax. The former gift tax has been abolished in the Czech Republic, and gratuitous transfers of assets are either exempt (between relatives) or subject to income tax for the recipient. In the case of an endowment fund, the transferred assets are considered a contribution or donation to the fund – if the fund is not a public benefit organization, large donations could be viewed as taxable income for the fund. Fortunately, the law takes into account that foundations are not established for profit, and donations received to finance the fund's activities are not subject to income tax. A family foundation can therefore “take over” all family assets without tax penalties. Donors (if they are other persons than the founder) may deduct the value of the donation from their tax base – up to 15% of the tax base for natural persons and up to 10% of the tax base for legal entities (this applies only to donations for legally recognized public benefit purposes, which include endowment funds, except for family foundations).

Summary: The combination of the above factors means that an endowment fund can ensure an effective tax regime for family assets. Ideally, business profits are transferred to a “family bank” (holding company) and then transferred to an endowment fund with no or minimal tax. The endowment fund then redistributes these funds to family members without any tax liability on their part. The family can thus reap the benefits of the family fortune much more effectively than if the money were paid out in the traditional way. At the same time, the fund continues to act as a protector of the assets and guardian of the purposeful use of the money, so there is no risk of misuse or hasty spending.

Practical steps for establishing an endowment fund

Establishing an endowment fund consists of several steps. Below is a step-by-step guide on how to proceed. Of course, we always recommend working with a lawyer and notary who can ensure that the process is carried out professionally:

Step 1: Consider the purpose and structure of the fund. First, clarify what you want to achieve with the endowment fund. Is it purely for the protection and transfer of the family business to your descendants? Will the family draw regular annuities from it? Are you planning philanthropic activities (support for public benefit projects) in combination with the family purpose? A clear vision of the purpose of the fund is essential, as it will determine its setup. Also consider what assets you will contribute to the fund – typically these may include shares in companies, cash, securities, and real estate. Consider whether you will include a holding company in the structure to manage these assets (which may bring tax advantages and simplify investment management). At this stage, it is advisable to engage a legal and tax advisor to assess the optimal structure for your situation. Also consider who will manage the fund – do you want to be the chair of the board of trustees? Will you involve family members or independent experts? Clarifying these issues in advance will make the next steps easier.

Step 2: Prepare the founding document. With the help of a notary or lawyer, you will prepare a draft founding document. This is a key document that defines the “rules of the game” – similar to a company's articles of association. The founding document must be in the form of a notarial deed, so it is ideal to work with a lawyer from the outset. The deed must include the official name of the foundation (e.g., “Novák Family Foundation”), its registered office, the exact purpose of the foundation, information about the founder(s) and their contributions (both monetary and non-monetary).

The deed also specifies the fund's bodies, in particular the number of members of the board of directors, naming the first members of the board of directors (and, where applicable, the supervisory board or auditor). The founder may also include other provisions in the deed, such as how the deed or the purpose of the fund may be changed in the future, whether the founder reserves the right to dismiss members of the bodies, the term of office of the bodies, whether the fund will issue statutes, etc. (many of these matters are optional, as the law provides considerable freedom). Be sure to clearly describe the purpose in the deed – for a family fund, it could read, for example: “to ensure the protection and management of the family assets of XY and to ensure the long-term financial security of family members, including support for their education, housing, and health, as well as support for selected charitable activities of the family.” The clearer and broader the definition, the better the fund will be able to function in different situations. Once the draft deed is ready, the notary will draw it up as a notarial deed and the founder (or all founders, if there are several) will sign it. This establishes the endowment fund (it does not yet exist; this will only happen once it is entered in the register).

Step 3: Making the initial deposit. When establishing the fund, the founders must make a deposit or donation to the fund. There is no minimum deposit for endowment funds – it can even be symbolic. In practice, it is recommended to deposit at least the basic amount to cover administrative costs and start-up expenses (e.g., $10,000 for initial fees and expenses). The deposit may be monetary (in which case it is typically deposited into the newly established bank account of the fund) or non-monetary, such as the transfer of securities, real estate, etc. If you are contributing non-monetary assets, their value should be assessed (e.g. by an expert opinion) so that it is clear what value the fund is acquiring. The foundation charter usually specifies the specific contribution of the founder (or a summary of the contributions of all founders) in US dollars. Not all of the intended assets need to be transferred to the fund at the time of its establishment – additional assets can be transferred to the fund later in the form of donations from the founder or other persons. However, it is advisable to “revitalize” the fund with a certain amount of money at the time of its establishment so that it can begin to function (pay the notary, registration, etc.).

Note: Assets contributed to the fund become the property of the fund – the founder loses all direct rights to them. Therefore, always think carefully about how much of your assets you are contributing to the fund so that you retain sufficient personal reserves outside the fund for your immediate needs. The assets in the fund can only be used in accordance with the fund's rules, not at will as if they were your own account.

Step 4: Registration in the foundation register. Once the foundation deed is ready, the notary (or lawyer) will prepare a proposal for the registration of the fund in the register kept by the court. The proposal must be accompanied by a notarial deed (foundation deed) and the consent of all members of the bodies to their appointment (each member of the board of directors, supervisory board, or auditor must confirm in writing that they agree to their appointment). Proof of payment of the deposit (e.g., a statement from the account into which the cash deposit was made) must also be provided. The proposal is submitted electronically to the court with jurisdiction over the fund's registered office. The court fee for registration is CZK 6,000 (the same as for a foundation). In most cases, the notary will submit the proposal and communicate with the court as part of their services. The court will make the registration, assign the fund an IČO (identification number), and publish basic information: name, registered office, purpose, name of the founder, composition of bodies, etc. On this date, the fund comes into existence as a legal entity. You will receive an extract from the foundation register from the court, which is the official “birth certificate” of the fund.

Step 5: Start of the fund's activities. After the fund is established, several administrative steps must be taken:

• Registration with the tax office – within 15 days of establishment, you should register the fund for corporate income tax. If the fund does not have taxable income (which may not be the case at first), this does not mean that there is any immediate obligation to pay taxes; it is only a matter of registration.
• Opening a bank account – set up a separate account for the endowment fund through which the fund's finances will be managed. For practical reasons, it is a good idea to have an account as soon as possible, if only to make the initial deposit. Banks usually open accounts for foundations/endowment funds, but you may need to provide an extract from the register and, if necessary, internal documents.
• Transfer of assets to the fund – if you did not contribute all of the planned assets when you established the fund, now is the time to transfer the remaining assets. For example, real estate is transferred to the endowment fund by a deed of gift (the change of ownership is then entered in the land register). Shares in a company (e.g., stocks or business shares) are transferred to the fund by a contract or declaration of contribution, and the change is entered in the commercial register of the company concerned. Cash or securities can be donated to the fund by transfer to an account, etc. All such transfers should be in accordance with the purpose of the fund and should be formally documented (donation agreements, securities transfer agreements, etc.) to make it clear that the fund has acquired the assets.
• Registration of beneficial owners – within 15 days of its establishment, it is a legal obligation to register the beneficial owners of the fund in the Register of Beneficial Owners (maintained by the Ministry of Justice). In the case of an endowment fund, the beneficial owners are considered to be persons who can ultimately control or benefit from the fund. In a family fund, these will typically be the founder (if they have retained decisive influence) and, where applicable, other family beneficiaries, if defined. The registration is carried out by a notary – usually the one who established the fund; this can be done at the same time as the registration, upon request.
• Other requirements – if the fund has employees (which is not usually the case at the outset, unless you immediately appoint a director as an employee), it must also be registered with the social security administration and health insurance company as an employer. This will only become necessary when the fund employs someone. Furthermore, if the fund plans to hold a public collection or obtain the status of a public benefit organization with special benefits, it must fulfill the related obligations – however, this is not common for family funds.

Step 6: Fund management and ongoing tasks. Once the fund has been established and endowed with assets, day-to-day management begins. The board of trustees is governed by the foundation charter and, if applicable, the statutes (if issued) and decides on the disposal of the fund's assets, investments, the provision of foundation grants to eligible persons, etc. We recommend setting up an internal management and investment plan – i.e., how the fund's money will be invested (conservatively vs. dynamically), how often the bodies will meet, how expenses will be approved, etc. In the case of a family fund, the board of trustees may meet on an ad hoc basis as needed (e.g., when a family member requests funding for a specific purpose, the board of trustees assesses whether it is consistent with the purpose of the fund and makes a decision). At the end of each year, the fund has its financial statements prepared and, if necessary, approved by the board of trustees. Although it is not mandatory to publish an annual report, it is good practice to inform the family internally about the fund's performance in order to maintain trust and transparency within the family. Keep important information up to date – if there are changes in the members of the governing bodies, this must be reported to the registry; if the purpose of the fund changes (which is only possible in accordance with the rules in the deed or with the consent of the court), you must again amend this by a notarial deed. In short, a fund must be managed in much the same way as a company, but with the proviso that it serves specific, long-term goals. With a good advisor or administrator, however, this management is a routine matter.

All of the above steps will be reliably guided by an experienced law firm in cooperation with a notary. Nevertheless, it is good for you, as the founder, to understand the basic stages – this will allow you to make better decisions and actively participate in setting the parameters of the fund.

Possible risks, limitations, and common mistakes when establishing a fund

An endowment fund is a powerful tool, but complications can arise if it is set up or used incorrectly. Here are the most common risks and mistakes to watch out for:

• Underestimating the irreversibility of asset allocation: Once you transfer assets to an endowment fund, you give up direct control over them. The fund has no shareholders or owners to whom the assets can be returned at any time. The founder may have some influence (if they are a member of the board of directors, etc.), but formally, the assets belong to the fund and can only be used for the specified purpose. Beginning founders sometimes mistakenly assume that they can “take money back” from the fund whenever they need it. This is not the case—the fund does not contain “your money,” but rather funds entrusted for a specific purpose. Of course, you can be one of the beneficiaries and have contributions paid out to you, but this must always be done in accordance with the fund's rules. Solution: Carefully consider the composition of the assets you will place in the fund and keep a reasonable reserve outside the fund for unexpected personal expenses. Alternatively, set up mechanisms in the fund that allow you to draw a larger amount in justified cases (e.g., in the event of serious illness, new business opportunities, etc., if this fits the purpose).
• Inappropriately chosen purpose or rules of the fund: When formulating the purpose and conditions for drawing funds, two extremes can be committed – excessive vagueness or, conversely, excessive strictness. An overly general purpose (e.g., “family asset management and charitable activities”) can lead to uncertainty about what specific activities are permissible and to future disagreements between the fund manager and family members. Conversely, overly detailed and restrictive conditions (e.g., setting fixed amounts for children regardless of circumstances, overly strict criteria for disbursement) can tie the hands of the board of trustees in situations that the founder could not have foreseen. The solution is balance—define the purpose broadly enough, but also state the family's priorities and values. For example, you can emphasize support for education, entrepreneurship, and health of family members, but not set specific amounts—leave it up to the board to decide based on current needs. It is also a good idea to include the possibility that the rules can be amended in the future if a certain group of people (e.g., the founder, supervisory board) or a court agrees. Flexibility is important because family situations and circumstances can change over ten or twenty years.
• Inappropriate appointment of fund bodies: The board of directors and, where applicable, the supervisory board are key to the success of the fund. By choosing the wrong people, you risk dysfunction or conflict. For example, appointing all your children to the board of directors seems logical, but if there are disputes between them, this can paralyze decision-making. Conversely, giving full control to an external manager without family involvement can lead to the fund becoming detached from the family's needs. It is also not ideal if the board of directors does not have anyone with expertise in asset management or investments. Solution: Consider a combination of family members and independent experts. An external member (e.g., a family lawyer or financial advisor) can oversee expertise and fair play, while family members bring an understanding of family values. If you appoint more than one person, set voting rules (e.g., majority rule, but key decisions require the consent of the founder or all members, etc.). The people in the governing bodies should definitely be trustworthy and loyal to the family. A common mistake is to overlook what happens after the founder's death – if the founder was the chair of the board of trustees, you should already have specified in the foundation charter who can replace them or give the supervisory board or someone from the family the power to appoint new members. Otherwise, a stalemate or disputes over control of the fund could arise after the founder's departure.
• Failure to address “family politics” in advance: An endowment fund can sometimes cause tension within a family if there is no open communication. Imagine a situation where the founder specifies that one descendant will be on the board of directors and the other will not—the one who is not involved may feel left out. Or if the fund stipulates that only descendants who “live a proper family life” will receive funds, this can lead to arguments about what that means. These family aspects need to be balanced sensitively. We recommend inviting the entire family (spouse, adult children) to discuss the establishment of the fund. Explain why you are doing this, what the benefits are for everyone, and listen to their ideas. A common mistake is to set everything up in secret and present the children with a fait accompli – they may perceive this as mistrust or manipulation and not accept the fund as their own. On the contrary, if all family members are informed from the outset and have the opportunity to express their opinions, they are more likely to respect the fund and cooperate with its governing bodies. The aforementioned “family constitution” can also be part of dispute prevention – writing down common values and principles that everyone voluntarily agrees to before the formal rules of the fund come into effect.
• Attempts to circumvent the law or creditors: Sometimes people may view an endowment fund as a way to “escape” their obligations – for example, to quickly transfer assets to the fund when faced with foreclosure or insolvency. However, such purposeful conduct is not legal and may be invalidated by the courts (these are known as “voidable legal acts” against creditors). An endowment fund should be established as a preventive tool for long-term planning, not as a last-minute refuge. Similarly, it is not recommended to establish a fund solely for the purpose of speculating on tax advantages without a genuine purpose for managing the assets – the financial authorities could consider its transactions as an abuse of rights. Solution: Establish a fund with clear intentions and sufficient advance notice. Do not try to use it to cover current debts or liabilities – this is not what it is intended for, and unethical use could cause you more problems than benefits. On the contrary, a properly managed fund increases your credibility (it shows that you are thinking about the future and want to protect your assets properly for your family). Also avoid any transactions that could give the impression of covert personal enrichment at the expense of the fund – e.g., unusual loans from the fund to the founder without clear conditions, transfers of assets between the fund and the founder's companies under conspicuously unfavorable conditions, etc. Everything should be transparent and defensible.
• Failure to comply with current legal obligations: Legislation relating to foundations and trust funds may evolve. For example, amendments to laws on the registration of beneficial owners, accounting regulations or tax laws may introduce new requirements. It would be a mistake to set up a fund and then assume that “I don't have to worry about it.” It is necessary to monitor whether there is a new obligation to register somewhere, report something, etc. Frequent omissions include failure to register beneficial owners within the statutory deadline or failure to update the registration when there are changes in the governing bodies, which can also lead to fines. Solution: Get expert supervision – either keep yourself informed or, ideally, hire a law firm or fund manager to monitor legislative changes. Most lawyers offer corporate governance services, where they keep track of all deadlines (general meetings, changes, registrations) for you. This allows you to focus on the content (where to invest, who to help) and leave the formalities to the professionals.
• Underestimating administrative costs: Setting up and operating an endowment fund naturally entails certain costs – notary fees, possible remuneration for members of governing bodies, accounting, legal services, and possibly taxes. For smaller estates, the costs may outweigh the benefits of the fund. It is therefore necessary to calculate realistically whether an endowment fund is economically appropriate for your situation. For larger family businesses and assets worth tens of millions of CZK or more, the costs are usually worthwhile, but for smaller assets, a simpler trust fund or just a well-written will may be a better solution. However, there are also endowment funds with smaller assets – for example, when a family has a specific need (such as providing for a disabled family member in the future). Solution: Discuss the costs and benefits with your advisor. The office will usually be able to tell you in advance how much it will cost to set up the fund and how much it will cost to administer it each year. With this information, you can make a rational decision.

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Overall, risks and mistakes can be minimized if you plan everything properly and seek advice from experts. An endowment fund is a proven tool (abroad, family foundations have been operating for generations in dynasties such as the Rockefellers and Rothschilds). Czech law has adapted it to our conditions and, if the rules are followed, it can bring stability and peace of mind to your family business and wealth.

When and for whom is a foundation fund suitable?

Is a foundation fund right for you? This question comes to mind for many entrepreneurs who hear about this instrument. Experience shows that a foundation fund is particularly worthwhile in the following situations:

• You have significant family assets or a company: If you have built a prosperous company during your lifetime or accumulated extensive assets (real estate, savings, investments) and want to ensure that they survive for your children and grandchildren, a foundation is right for you. It will bridge the gap between generations so that the value of your work does not decline but, on the contrary, grows. The assets are not divided, they remain intact and continue to work. For smaller estates (say, a few million dollars), setting up a fund can be relatively expensive, and other instruments (will, life insurance, etc.) are sufficient. However, once the value of the family fortune reaches tens of millions or more, an endowment fund begins to make economic sense – tax savings and the prevention of disputes can far outweigh the costs.
• You want to prevent conflicts and set rules for succession: If you have several children (possibly from different marriages) or complex family relationships, you will appreciate an endowment fund as a neutral platform. The fund sets clear rules, thereby preventing disputes over inheritance and control of the company. For example, if only one of your children works in the company and the others do not, the fund can hold the company and involve the child who is a manager in the management, while paying the others a pension – this way, everyone gets a fair benefit according to their roles without arguing about shares. Or if you are concerned that your son-in-law or daughter-in-law could influence the flow of money in the family in an undesirable direction, the fund will prevent this (no relative of a partner automatically gains access to the assets). An endowment fund is suitable for families who want to keep their property affairs in order and avoid potentially bitter disputes in court. It is a tool for ensuring family cohesion – by binding everyone to the rules of the fund, many areas of uncertainty are eliminated.
• Your descendants are not (yet) ready to take over the company: Many “founding fathers” automatically assume that their children will one day take over the management of the company. However, the reality may be different – children have different career paths or interests. If you feel that the next generation does not yet have the experience or motivation to run the family business, an endowment fund is a suitable solution. Professional managers (e.g., a hired CEO, a family council with advisors) can keep the company running and continue to develop it under the supervision of the fund without the children having to make day-to-day decisions. Your descendants can be gradually involved only in areas they are capable of handling and interested in, such as overseeing investments, family philanthropic projects, etc. The fund thus bridges the period until the younger generation matures, or even continues to operate permanently if no successor wants to run the company. This prevents the hasty sale of the company or its bankruptcy due to a lack of interest on the part of the heirs.
• You want to protect your family assets from external threats: We live in uncertain times – there is a threat of changes in tax laws, political instability, increasing tax burdens on the wealthy, etc. Some advisors therefore recommend transferring assets to foreign trusts (e.g., in Liechtenstein) for protection. However, if your assets and family remain primarily in the Czech Republic, paradoxically, a domestic foundation structure combined with holding assets abroad may provide better protection. Czech foundation funds are fully respected in the EU and, if properly set up, can minimize the risk that future legislation will significantly threaten family assets. For example, if a new wealth tax were introduced, a properly structured family fund (especially if it also serves public benefit purposes) would likely be able to mitigate or spread this burden. For assets abroad (e.g., real estate, accounts), owning them through a Czech endowment fund is administratively simpler than through a Czech trust fund. An endowment fund has legal personality, so it appears in foreign documents as the owner with a business ID number, which is simply more understandable than an abstract trust fund.
• Would you like to support public benefit activities? Many entrepreneurs find it appealing to combine the protection of family assets with a certain philanthropic dimension. A foundation encourages this – you can specify that a certain portion of the annual income will go to charity, establish a scholarship program for talented students from less fortunate backgrounds, etc. This allows you to fulfill a social role (and set a positive example for your family), while also allowing the fund to qualify as a public benefit organization with the aforementioned tax advantages. By comparison, a purely private trust would not allow for anything like this – it has no legal personality or public benefit benefits. So if you want to give your assets a “higher purpose” while also benefiting your family, an endowment fund is the ideal choice.

It follows from the above that an endowment fund is suitable for medium-sized and larger entrepreneurs and investors who are thinking about the future and do not want to leave the fate of their assets to chance. The sooner you start thinking about succession and asset protection, the better – the best time is to deal with it in good time, while you are still in full force and able to make decisions. As experts warn, the most critical situations are those in which a family is caught unprepared by an unexpected event. Nevertheless, statistics and experience show that only a small fraction of entrepreneurs have resolved their property succession in a timely manner. If you want to join the far-sighted minority who play it safe with their assets, a foundation is one of the best tools available.

Conclusion: A family foundation is a modern combination of tradition and innovation. It uses the proven principles of family foundations that have been working around the world for generations and adapts them to the Czech legal environment. It allows you to pass on your values, vision, and wealth to your descendants in a structured way that minimizes risks and taxes. At the same time, it builds trust—both within the family and externally—because it shows that your business does not depend on one person, but on solid foundations. The decision to establish a foundation is a step towards the long-term prosperity and stability of your family's legacy.

If you are considering setting up a foundation or would just like to discuss whether it is right for you, we recommend consulting with experts. Our law firm has extensive experience in setting up family foundations – we have already helped dozens of Czech entrepreneurs safely transfer their businesses and assets to family structures. We would be happy to help you along this path. As the founder, you will have peace of mind that everything is taken care of, and your family will have the certainty that your legacy will live on. Don't wait for the “right time” – the best time to start is now. Your family and its future are worth it.

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