Trust management, a legal institution that is new in our country, is surrounded by many misconceptions. Interested entrepreneurs have typically heard that this legal institution has many advantages for them, but the first question most of them have is: “Should I choose trust management?” We can only give an adequate answer to this if we ask ourselves additional questions first.
- Is my wealth big enough? One of the most common misconceptions about trust management is that it is only a toy for the super-rich. The reality, on the other hand, is that clients should consider trust management even if they have a few hundred million forints of liquid or illiquid assets. Illiquid assets, for example, mean shares or shares in a business company. This threshold value depends on the exact purpose of establishing the trust management. It is important to highlight that it is advisable to conduct a cost-benefit analysis (for example, in the case of a trust to be established for tax optimization purposes), however, the advantages that come with setting up the structure cannot be quantified in all cases.
- For what purpose do I want to establish a trust? In eight out of ten cases, the first thing that comes to mind when people think of a trust is tax planning. It is a fact that an extraordinary amount of tax can be saved this way. The tax advantages can typically be exploited in the case of a company sale (full or partial exit) or, for example, the sale of stock market shares acquired at a low value.
Many people also use the structure as an alternative to a will. The settlor can determine during his or her lifetime who should receive the assets, in what schedule, and in what amount. This has three advantages: the heirs can access money even before the conclusion of the probate procedure, which can take years, experience shows that the testator’s last will and testament can be enforced to a much greater extent and with much greater flexibility, and there is no need to worry about the will being challenged.
Trust management can also have enormous advantages in terms of asset protection. Before starting a business, the settlor can – as a precaution – conclude a trust management agreement, and in this case the creditors of the new company cannot claim the assets belonging to the managed assets. Avoiding enforcement is only possible if the asset management is carried out before the claims arise. - Am I able to transfer control over my assets to a third party?
The distinguishing feature of a trust management agreement compared to a mandate agreement is that the ownership of the assets belonging to the managed assets is also transferred. This gives the trustee full right of disposal, meaning he can sell, encumber, or give away the assets. Although there are limitations to this ownership right – the trustee must manage the assets in accordance with the provisions of the trust management agreement, for the benefit of the beneficiaries, and is also liable for this – the trustee will exercise the settlor’s rights after the trust management is established. In other words, after a business company is placed under asset management, the trustee will vote at the general meeting. - Is there a trusted person in my environment who can perform the asset management tasks? Reading the above, almost everyone comes to the conclusion that they would only hand over their assets to a person they trust unconditionally. It is definitely recommended to appoint someone as a trustee who is the settlor’s confidant, good friend, business partner, or family member. If there is no such person, then all is not lost, there are two ways: a reliable business-like trust manager – a company that manages several assets at the same time and carries out this activity with the permission of the Hungarian National Bank – is reliable, and the Civil Code does not explicitly prohibit the case where the trustee and the settlor are the same person, if there is a beneficiary other than the settlor.
- What are my plans for my assets for the next 5, 10 and 30 years, and how do I intend to transfer the assets to my designated successors? One of the characteristics of trust management is that it can be established for a maximum of 50 years. Although the contract can be freely modified over the years, it is worth creating a system when starting the trust management that the settlor is satisfied with even if he will not be able to modify it in the following years.
In the asset management contract, the settlor has the opportunity to determine how the asset manager should implement the short-, medium- and long-term plans related to asset management, and also has the opportunity to take care of the issue of company succession through the asset manager.