How to set up a trust fund step by step

A trust fund is a modern instrument of asset management and protection, which is gaining more and more popularity in the Czech Republic. It allows you to separate property from the ownership of the founder and entrust it to the trustee of the fund for independent management. Thanks to this, the family or businessman can protect the family property from unexpected events, ensure its transfer to the next generation and set clear rules for its use. Importantly, the assets placed in the trust are no longer owned by the settlor, trustee or beneficiary - the trust is a separate property without legal personality. This unique structure offers a number of advantages, but it also places demands on the correct setting of all conditions.

This article offers a clear step-by-step guide on how an individual in the Czech Republic - typically an entrepreneur or a family with larger assets - can set up a trust. We explain the entire process from the initial legal preparation, through the choice of a trustee, to the final registration. We will also focus on practical advice for founders, highlight the most common mistakes and risks of inadequate preparation, and summarise the legal requirements under the 2025 legislation. The aim is to give you a clear picture of what setting up a trust fund entails and to motivate you to seek professional legal advice for a safe and successful establishment.

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

What is a trust fund and why consider it

A trust fund (sometimes inaccurately called a "trust fund") is a collection of earmarked assets managed for a specific purpose by a trustee. The settlor of the trust transfers a portion of his or her assets to the trust, thereby relinquishing ownership of those assets. The assets so set aside have no owner - neither the settlor, nor the trustee, nor the beneficiary (the person who benefits from the trust). The trustee holds and manages the assets on the basis of the instructions and rules given by the settlor in the constituent documents. The beneficiary is then the person to whom the fund is to benefit (e.g. family members, descendants, or charities, etc.).

Why set up a trust fund? There may be a number of reasons. Many people choose a trust to protect family assets - such as family real estate, savings, securities or the family business - from risks such as foreclosure, business failure or family litigation over the long term. Assets placed in the trust are separate from the settlor's personal assets and thus better protected from creditors or sudden events. Another common motive is the intergenerational transfer of assets - the trust allows the terms of the division of assets for descendants to be set exactly according to the wishes of the founder and bypasses the standard inheritance procedure. For example, it is possible to provide funds to grandchildren directly, even if they would otherwise have to pass through the children's inheritance. Trusts also help avoid family disputes over assets (the settlor determines in advance who gets what and under what conditions) and can preserve the integrity of the family estate so that it is not split among many heirs.

In a business environment, the fund can serve to continue the family business if the offspring have no interest or ability to run the business. The founder can place the business in a trust, appoint a professional trustee to manage it, and specify that profits from the business will flow to the family. This separates the day-to-day management from ownership - the business can continue to thrive under professional management while the family receives the financial benefits of ownership. A trust can also be set up for a public benefit purpose (similar to a foundation) - for example, to support charitable projects, cultural events or the founder's home town. The great advantage is flexibility: the rules of the trust are set by the founder according to his needs and wishes, so that the trust can fulfil virtually any purpose within the limits of the law.

In short, a trust offers a combination of asset protection, discretion and control over how the assets will be used in the future. However, for a trust to truly serve its intended purpose and not get out of hand, it must be set up correctly and all the terms and conditions must be expertly set. We therefore describe the steps involved in setting up a trust below, including important advice on what to look out for.

Procedure for setting up a trust fund

Setting up a trust requires several successive steps. The whole process usually takes several weeks to months, depending on the complexity of the fund and the speed of document preparation. It is advisable to work with a lawyer from the outset - both to comply with all legal requirements and to avoid mistakes that could invalidate the trust or complicate its administration. Here is the basic procedure:

• Step 1: Thorough preparation and planning. Careful legal and strategic preparation before you take any formal steps. At this stage, clarify the purpose of the fund (private vs. public benefit), the range of beneficiaries (who will draw benefits from the fund), and the assets you will allocate to the fund. You can put in funds, real estate, business shares, securities, etc. - The law does not place any special restrictions in this respect. Be aware that by setting aside assets in the fund, you irrevocably lose them as an owner - these assets will no longer be yours but will be managed anonymously in the fund by the trustee. Therefore, think about how much of your assets you will set aside in this way so that it makes sense and you are not deprived of the resources you need to provide for yourself. Also consider the duration of the fund - it can be set up for a fixed period (e.g. 30 years, until a certain target is reached) or for an indefinite/generational period. At the planning stage, it is extremely useful to consult experts: a lawyer can help you set up the fund structure and avoid legal snags, a tax advisor can point out the tax implications. The tax regime for trusts is quite complex and can come as a nasty surprise to settlors or beneficiaries if they do not pay attention to it in advance. For example, the transfer of assets into a trust may be subject to gift tax (if the beneficiaries are to be non-family members) or other taxes, particularly on real estate. Careful preparation will save you a lot of trouble - the trust statute needs to cover as many possible situations as possible for decades in advance, so allow plenty of time for planning and feel free to involve the family members involved.
  
  
• Step 2: Choosing a trustee. The trustee is the person (or more than one person) who will officially act on behalf of the trust and look after the earmarked assets. Choosing a trustee is one of the most critical steps - you can be the trustee yourself, but often someone else you trust or who has the necessary professional skills is appointed. The trustee can be either an individual or a legal entity (e.g. a specialist trust services firm). The key is that it must be a person of character and integrity who accepts a mandate to manage someone else's assets with due care. Consider appointing more than one trustee - for example, one family member and a professional to act jointly or share roles. You can also set up a 'protector' of the fund who oversees the trustee's activities and can remove them if they fail to carry out their duties - but this role must be enshrined in the fund's statutes. When choosing a trustee, think about the future: what happens if the trustee dies, resigns or loses capacity? The statutes should include mechanisms for appointing a successor trustee or a procedure for removing a trustee. Remember that the trustee has fiduciary duties to the fund and the beneficiaries - he or she must act in the best interests of the fund. Yet the settlor should not rely on good intentions alone; set clear rules and restrictions in the statute for the trustee if he or she is to manage the assets only in a certain way. Without explicit restrictions, the trustee is legally entitled to dispose of the fund's assets relatively freely, including investing them or changing their nature. Thus, the right combination of a trustee and firm rules will minimise the risk of the trustee managing the assets inappropriately.
  
  
• Step 3: Drawing up the constitution and statutes of the fund. Once you have a plan and a trustee selected, it's time to formally establish the trust by legal action. If you're setting up the trust during your lifetime, this is done by a contract between the settlor and the trustee (called the settlor's deed). In this, the settlor sets aside the assets, the trustee undertakes to take them into trust and everything goes towards the creation of the trust for a specified purpose. The law requires the written form of such an agreement and, for the trust fund statute, directly the form of a public deed (notarial deed). So, in practice, you will go to a notary public where a notarial deed containing the Trust Deed will be drawn up. The statutes are issued by the settlor and are a key document that details all the terms and conditions of the trust. According to the law, the statute must contain at least the basic elements of the trust, such as the name of the trust, the purpose, the definition of the assets, the designation of trustees, the beneficiaries, the terms of performance for the beneficiaries and the duration of the trust. In practice, we recommend including many other details in the statutes: rules for convening meetings of the trustees (if there are more than one), how the accounts are to be kept, whether and how the settlor or protector can intervene in the administration, the procedure for conflicts between the trustee and the abutters, the possibility of amending the statutes in the future, etc. The more thoroughly you prepare the statutes, the smoother the operation of the fund will be. Caution - additional amendments to the statutes are very difficult and lengthy (in principle, they can only be made through the courts or if you have expressly reserved the right to amend in the statutes). Therefore, do not underestimate the drafting phase. The notary will make sure that the document meets the legal requirements when drafting it. Once the statutes have been drawn up by the notary and the contract with the trustee has been signed, you have formally established the trust, but only 'on paper' for the time being.
  
  
• Step 4: Creation of the fund - acceptance by the trustee and notarial deeds. In order to complete the creation of the fund, the trustee must formally accept the mandate to administer the earmarked property. This act often takes place at the same time as the signing of the agreement with the notary - the trustee's signature confirms that he or she accepts the position. At this point, the trust is deemed to have been established. In the case of trusts established during the lifetime of the settlor, the next step is registration, which we discuss below - it is the registration that officially establishes the trust. (The situation is different for trusts established by death - these are created at the time of the settlor's death and are entered in the register afterwards.) Once a trustee has taken office, it is advisable to physically transfer the assets under management to the trustee or the trust. For example, in the case of real estate, a petition for registration of title in the land register is filed - the new owner will be the trustee with a note that he or she is the trustee for the trust. Similarly, the securities are transferred to the trustee's account, the money to a special bank account of the fund, etc. These transfers will often be arranged by a lawyer or notary in coordination with the trustee to comply with the fund's statute.
  
  
• Step 5: Registration of the fund in the Register of Trusts. The crucial final step is the official registration of the fund in the Register of Trusts, a public administration information system maintained by the Ministry of Justice. The registration is carried out by a notary or directly by the trustee of the trust by filing a petition; it is the trustee of the trust who is legally entitled to file the petition for registration. In practice, the notary often files the registration electronically immediately after the establishment of the trust. The main details of the fund are entered in the register: its name, purpose, date of creation, identification number (ID number assigned at registration), name and address of the founder, name and registered office of the trustee (in the case of a natural person trustee, also date of birth), details of the trustees or the rules for their designation and, if applicable, details of the supervising person, if one has been established. The public sees only limited information from the register - for example, the names of the founder and the abutters are protected and are not included in the public listing. Only authorised authorities (courts, law enforcement authorities, tax administration) or those who can demonstrate a legal interest are allowed to see the full extract or details of the record. After registration, the trust has legal personality for tax and accounting purposes - it becomes a corporate taxpayer and must keep accounts in accordance with the law. This completes the whole incorporation process. From now on, the trustee acts officially on behalf of the trust, manages the earmarked assets and fulfils the obligations under the statute. As the founder, you no longer directly interfere in the day-to-day running of the fund, unless you have reserved some rights to do so (e.g. the right to dismiss the trustee or to change the circle of defendants - but such interventions must be foreseen in the statutes and be supported by law).
  
  

Note: Setting up a trust involves certain costs. Expect to pay a notary's fee for the drafting of the public deed (this depends on the value of the property to be set aside and the complexity of the statute) and possibly an attorney's fee for advice. Also, property transfers may incur administrative fees at the Land Registry. The operation of the fund also includes administration costs (trustee fees, bookkeeping, tax returns, etc.). These expenses should be proportionate to the value of the assets and the purpose of the fund - this is also a good thing to bear in mind at the planning stage.

Practical advice for fund founders

Setting up a trust is a complex process and success depends on the details. Here's some tried and tested advice to help you avoid problems and get everything right from the start:

• Do not underestimate the preparation of the statute and documentation. Many future complications stem from vague or incompletely written fund rules. Take the utmost care in drafting the statute - think through the various scenarios that may arise during the life of the fund and how the fund will respond to them. For example, set out what will happen if one of the beneficiaries dies prematurely, how the fund's assets will be replenished if they decline, or how the trustee can be changed. A well-drafted statute is the best prevention of disputes and confusion in the future.
  
  
• Work with experts. Trusts combine the areas of law, finance and tax, so it pays to have experienced advisers on hand. Contacting a dedicated attorney and tax advisor when first considering a trust is an investment that will pay off in the form of a smooth trust setup and optimized terms. Experts with experience in the trust field will ensure the correct establishment of the fund according to the current legislation and minimize your administrative burden. For example, they will help you set up the fund's tax regime correctly and take advantage of any tax breaks so that the fund does not unnecessarily deduct more than it has to. They will also keep an eye on deadlines for registrations and other obligations.
  
  
• Choose your manager prudently and arrange for an inspection. The trustee plays a key role - he or she must be totally trustworthy, capable and ethical. In practice, it is a good idea to choose a trustee who has experience of managing property or finances, or use a professional trust company. It is advisable to include in the statutes an obligation for the trustee to keep the settlor or protector regularly informed of the management of the fund and of significant developments. You can also appoint an independent supervisor (ombudsman) to monitor the trustee's activities and, in extreme cases, have the power to propose his or her removal. This will increase the credibility of the whole set-up and give the founder and the beneficiaries greater peace of mind that the fund is being managed properly. A professional trustee or supervisor does involve additional costs, but for larger funds it is worthwhile.
  
  
• Consider the tax implications and administration. As already mentioned, a trust is a separate income taxpayer and is subject to specific tax rules. Prepare for the fact that the trust must keep books and file annual tax returns. The income of the trust (e.g. from rental property, dividends, etc.) is subject to corporate income tax. If the fund makes distributions to the donees, there may be tax implications for them as well (depending on the nature of the distributions and the relationship to the founder). We strongly recommend discussing the tax aspects of the fund with your advisor so that you are not surprised by a higher tax burden or surcharge liability.

 

• Think about discretion and privacy. One of the attractions of trusts is a certain degree of anonymity - you do not appear as the owner of the assets in public records. However, current legislation already requires the recording of key information about the trust and its actors (albeit non-public). Therefore, make sure that your internal information protection rules are set up correctly. In the statutes, you can oblige the trustees and the defendants to keep the affairs of the fund confidential under penalty. Professional asset management firms often have elaborate data protection measures; if you self-manage the fund, do not underestimate cybersecurity and keeping sensitive documents private.
  
  
• Do not use the fund to purposefully defraud creditors or otherwise circumvent the law. A trust fund is intended to serve legitimate purposes (family protection, asset diversification, charitable giving, etc.), not to shelter assets just before bankruptcy. If you put assets into a trust only when you are realistically threatened with foreclosure or litigation, a court may declare the transfer void and include the assets back in the foreclosure. Therefore, plan early and strategically with the fund, not hastily under the pressure of an issue. Similarly, it is not advisable to set up a fund with the intention of aggressively circumventing taxes or legal obligations - it defeats the purpose of the legislation and exposes the fund and yourself to the risk of penalties and litigation.
  
  

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Legislative framework and requirements (2025)

Trusts are a relatively new element in the Czech legal system - they were introduced in 2014 by the new Civil Code. Since then, they have undergone several amendments that have clarified their legal regime and introduced new obligations. Here is an overview of the current legislation as of 2025, which should be taken into account when setting up a fund:

• Civil Code (Act No. 89/2012 Coll.) - Sections 1448 to 1474 of the Civil Code set out the basic regulation of trusts. The Act defines the creation of the trust by the allocation of assets and the acceptance of administration by the trustee, sets out the mandatory elements of the statute, the rights and obligations of the trustee and the obligees, etc. It also states, for example, that the fund must have its own name containing the designation "trust fund" and that the settlor may establish the fund by contract or by acquisition on death. The Civil Code also regulates the termination of the trust (by achieving its purpose, expiry of time, court decision, etc.) and the rules for the release of assets to the obligees or back to the settlor on termination of the trust.
  
  
• Act on Public Registers and Registration of Trusts (No. 304/2013 Coll.) - this Act introduced mandatory registration of trusts. It regulates what data is entered into the register, who makes the entry and what documents constitute the collection of the register. Entry in the register is a condition for the establishment of a trust. Failure to comply with this obligation would mean that the fund has not been legally created. The register of trusts is partly non-public; the public can see, for example, the name of the trust, its purpose and its ID number, but not the personal data of the settlor, trustee or the beneficiaries (which are protected).
  
  
• Act on the Registration of Beneficial Owners (No. 37/2021 Coll.) - following European directives against money laundering, a separate register of beneficial owners was established, where the beneficial owners of trust funds are also entered. Typically, these will be the founders or persons who have a significant influence on the management of the fund or benefit from it. From 2021, every trust is obliged to declare its beneficial owner in this register or risk sanctions. This change responded to initial concerns that trusts could be used to hide the identity of asset owners - transparency has been increased. This means an extra administrative step for the settlor, but also increases the trust's credibility.
  
  
• Tax laws and accounting: the Trust is a taxable entity. The Income Tax Act (No. 586/1992 Coll.) classifies it as a taxpayer of corporate income tax. The Trust is therefore obliged to register with the tax office, keep accounting records (according to the Accounting Act No. 563/1991 Coll.) and pay income tax on profits derived from the assets in the Trust. Some of the income of the fund may be exempt (e.g. gratuitous payments when the fund is set up within the family), while others are taxed at the standard rate of 19%. Tax regimes vary according to the purpose of the fund - public benefit trusts may have tax exemptions, while commercial trusts carry normal taxation. Neither the settlor nor the donees are generally considered to be liable to tax on the fund's assets until a distribution has been made - only when the distribution is made to the donees is the taxation of the donees examined. In addition to income taxes, VAT may come into play (Act No. 235/2004 Coll., if the fund is engaged in economic activity) and previously the Real Estate Acquisition Tax Act (No. 340/2013 Coll. - but this was repealed in 2020, so that the transfer of real estate to the fund is no longer subject to the 4% tax). Funds must also comply with obligations under the Reserves Act (No. 593/1992 Coll.) and other regulations relating to legal persons.
  
  
• Other relevant legislation: in practice, a number of other laws may also interfere with the trusts regime. For example, the Trade Licensing Act (No.455/1991 Coll.) - if the fund would exceptionally run a trade, it must meet the conditions as other entities (but this is usually not common, the fund holds shares in companies rather than running a trade itself). The Act on Special Court Proceedings (No. 292/2013 Coll.) addresses, among other things, court proceedings in trust matters (e.g. appointment of a new trustee by the court if absent, etc.). The Cadastral Act (No. 256/2013 Coll.) and the related decree are important for the registration of real estate in the trust - the owner (trustee) is noted in the cadastre that it is a trust fund. A special chapter is the Law on Investment Companies and Funds (No. 240/2013 Coll.) - this refers to trusts that serve as investment funds subject to regulation by the CNB. However, most ordinary family or corporate trusts are not subject to such regulation.
  
  

Overall, the 2025 legislation emphasises the registration and transparency of trust funds while leaving considerable freedom as to the purposes for which the fund can be used. Thanks to the mandatory registers, initial fears that funds would be misused for illegal purposes have been allayed. However, it is crucial for founders to comply with all these legal requirements - in particular to register, report beneficial owners and meet tax obligations. Failure to do so risks fines or other penalties that may outweigh the benefits of the fund.

Conclusion: a safe path to the trust fund

Setting up a trust can be one of the best decisions you can make to protect and manage family assets - if done correctly. It allows you to map out the fate of your assets in advance, provide for your family and avoid many potential disputes or risks. But at the same time, it is a complex legal transaction where a mistake can have far-reaching consequences. Trust, experience and diligence are the key ingredients for success. Trust in the trustees and advisers, the experience of the professional team in setting up the fund, and diligence in every detail of the contracts and statutes.

Remember, you are not alone in this. Our law firm has extensive experience with trusts and will be happy to help you every step of the way - from the initial consultation on your intentions, through the preparation of all documentation, to the final registration and subsequent administration. Trusts are a useful and practical tool when set up and managed with professional care. We will be happy to provide you with the assurance that everything will be done in accordance with current legislation and save you unnecessary administrative burdens. Contact us for a no-obligation consultation - together we will find the optimal way to set up a trust fund tailored to your needs and how best to protect your assets and the future of your loved ones.

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