If you are looking for a solution to preserve your substantial assets over the long term, manage them effectively, and facilitate a tax-efficient generational transfer, a trust may be the right tool for you.
The asset management foundation was established as a well-regulated, secured institution to protect and grow assets exceeding 600 million forints indefinitely.
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The fundamentals of the fiduciary asset management system
Foreign nationals can also benefit from the advantages of Hungarian fiduciary asset management
Definition of a trust foundation
A trust foundation is a separate legal entity registered with a court that has the right to manage the assets transferred by the founders for the purpose specified in the articles of incorporation.
What is the difference between a traditional foundation and a trust foundation?
A trust foundation may be established not only for public interest purposes but also for economic purposes. Therefore, a trust foundation may engage in investment activities and use the income generated therefrom to provide benefits to its beneficiaries.
Establishment of a trust foundation
The founder transfers the assets to the foundation and applies for its registration; thereafter, neither the founder nor the beneficiary has any ownership rights over the assets until they are distributed. The assets may include real estate, personal property, securities, or corporate equity interests, which remain with the foundation and are protected against external claims.
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Participants, bodies, and documents of the asset management foundation
Articles of Incorporation
The articles of incorporation set forth the foundation’s purpose, the rules and conditions governing the management of its assets, and the provisions applicable to beneficiaries. A minimum asset value may be specified below which the assets may not fall; this may be the minimum capital required by law, i.e., 600 million forints. The articles of incorporation are submitted to the court, which registers the asset management foundation. In addition to the articles of incorporation, an investment policy must also be prepared.
Founder
The natural or legal person who establishes the foundation. This person provides the initial assets. Rights: appointing and removing the governing body; determining the foundation’s purpose and the method of asset management; amending the articles of incorporation.
Beneficiary
The articles of incorporation or the authorized body of the foundation shall designate those persons to whom financial benefits may be granted from the foundation’s assets in connection with the fulfillment of the foundation’s purpose. The founder and his or her family may also be beneficiaries.
Board of Trustees
The board of trustees is the executive body of a trust foundation. It is responsible for the foundation’s operations and the management of its assets. The board of trustees of a non-public interest asset management foundation may consist of as few as one person, who may serve as the founder, trustee, and beneficiary all in one. The founder may decide to delegate the exercise of the founder’s rights to the board of trustees. This ensures the continuity of the exercise of the founder’s rights in the event of the founder’s death or incapacity.
Asset Auditor
The asset supervisor oversees the activities of the board of trustees and ensures compliance with the foundation’s objectives. The asset supervisor may be an auditor, a lawyer, or another individual with no criminal record who holds a relevant higher education degree as specified in the articles of incorporation.
Supervisory Board
This is not mandatory for asset management foundations that do not serve the public interest.
Permanent auditor
However, it is mandatory to appoint a permanent auditor to audit the asset management foundation.
Tax benefits at a trust foundation
Do I have to pay gift tax?
A deed of disposition is not subject to gift tax and is exempt from gift tax. The exemption applies even if the foundation was registered in another EEA country, provided that it can demonstrate compliance with Hungarian legal requirements.
The distribution of assets must be treated as if the beneficiary had received them directly from the founder; in such cases, a transfer tax may be due.
Double Taxation Agreements and Trust Foundations
Asset management foundations are subject to favorable tax rules in Hungary as well: a low corporate tax rate, opportunities for corporate and personal income tax exemptions, and they also benefit from the favorable provisions of double taxation treaties.
A trust foundation can be an excellent vehicle for consolidating large
estates, ensuring professional management and integrity within a European,
onshore framework. However, due to high capital requirements and significant
operating costs, it is only worthwhile for truly substantial estates and
requires careful legal and family governance planning.
