Member Article

On July 1st 2021, the Russian President signed a draft law on amendments to the Russian Civil Code, establishing the possi-bility of creation of a new type of non-commercial organization - a personal foundation- from March 1st 2022.

Purposes of using personal foundations

The personal foundation will become a new asset planning instrument, after the detailed legislation comes into force. The foundation can carry out its activities both during the life of the founder and, in case of force majeure (for example, loss of legal capacity). A personal foundation can be created for achieving the following goals:

• Structuring of consolidated ownership and professional management of wealth;

• Transfer of family assets to future generations;

• Arrangement of financial maintenance of family members and philanthropic activity.

According to the amendments, personal foundations can be created for a certain period, or indefinitely, by an individual when alive, or by a notary after the founder’s passing away, if the creation of such a foundation is provided for in a will. If it is created after death, the personal foundation will be considered to be an inheritance foundation (the rules on inheritance foundations came into force on September 1st 2018). A foundation, established during the life of the founder, may either continue, or terminate its activities, if the founder dies - depending on the provisions of the foundation's constituent documentation.

The personal foundation can be established by only one person, except for spouses who transfer common property to the foundation.

The property transferred to the foundation, by the founder, is held by such foundation under ownership right.

The value of the founder's property, transferred to the personal foundation, shall be at least 100 million Roubles. This value shall be confirmed by an independent appraiser’s report.

Personal foundation’s management

The governing bodies’ structure(s), their competence, and the procedure of appointing members of the governing bodies, shall be determined by the founder. He/she is not entitled to act as the sole executive body, nor as a member of the collegial executive body of the personal foundation. However, the founder has the right to become a member of the supreme collegial body and/or the fiduciary board, if the foundation's Articles of Association provide for the creation of these bodies.

Unlike an inheritance foundation, for which management bodies are formed after the testator’s death, the management bodies of the personal foundation will work during the founder’s lifetime. That means that the founder will have opportunity to amend the management procedure of the personal foundation, if necessary.

Beneficiaries

Individuals/ legal entities, except commercial organizations, or certain categories of persons, can be appointed as beneficiaries of the personal foundation.

The beneficiaries of the foundation have the right to receive the property of the foundation (income from its activities) according to the procedure, terms and conditions determined by the founder. Further, they have the right to receive the property of the foundation, in case of its liquidation. The rights of the beneficiary of the personal foundation (including the inheritance foundation) cannot be subject of foreclosure on the obligations of such beneficiary.

To protect the rights of creditors, the new amendments establish that the founder of the personal foundation bears subsidiary liability for the obligations of the personal foundation, if its property is insufficient, and the personal foundation, excluding inheritance foundations, bears subsidiary liability with its property, for the obligations of the founder of the personal foundation for 3 years, following the date of its creation. In exceptional cases, this period may be extended up to 5 years.

The personal foundation is expected to be of interest to owners of Russian private capital, as an alternative to both foreign trusts/funds and a will. This will create new opportunities for lifetime property arrangement, estate planning and asset management.

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Note: Please be aware that all information provided in this letter was taken from open sources. Neither ALRUD Law Firm, nor the author of this letter bear any liability for consequences of any decisions made in reliance upon this information.