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Legal alerts / 10.9.2018

On hereditary funds

Starting from 1 September 2018, a new form of legal entity has appeared in Russia – a unitary non-profit organization known as a Hereditary Fund (“HF”).

The proponents of this legal development suggest that a HF will allow a business to be kept under control during the 6-month period which is allocated for an heir to accept an inheritance. The HF will carry out activities inherent to managing the property received as an inheritance in the interests of the beneficiary / beneficiaries. Moreover, a HF can start to manage the business immediately after it is created (i.e. 3 working days after the death of the testator [1]). A HF can also independently replenish its assets with profit from its business activities.

It is important to note that the beneficiary of the HF does not become an heir. The heir is directly the HF itself.

The rights of the beneficiary of a HF are non-transferable rights and they cannot be inherited. The beneficiary is not liable for any obligation of the HF, and the fund is not liable for the obligations of the beneficiary.

The emergence of the HF caused an interesting development in the situation of the statutory share in an inheritance (in Russian, ‘обязательная доля в наследстве’). It should be remembered that underage children and disabled parents of the testator are persons who are entitled to the statutory share; specifically, regardless of the content of the testator’s will, such persons inherit 50% of the assets that they could have received further to an inheritance under the law.

An heir who has the right to a statutory share and at the same time is the beneficiary of a HF loses the right to the statutory share. However, if, within the period set for the acceptance of an inheritance, such an heir declares to a notary that he/she is waiving all the rights of the beneficiary, he/she will have the right to the statutory share [2].

The law does not establish any specific tax regulation of a HF, equating HFs to other non-profit organizations. Thus, this leaves the door open as to how the transfer of property rights from a HF to the beneficiary will be taxed.

A notarized will that provides for the incorporation of a HF should contain:

  1. the decision of the testator that a HF should be incorporated,
  2. the HF’s charter, and
  3. the conditions for managing the HF (the testator must appoint the HF’s council).

A “secret” will (which has not been reviewed by a notary), which provides for the incorporation of a HF, is void.

The decision to incorporate a HF may specify the period of time for a notary to issue to the HF a certificate of the right to inheritance (this period in any case cannot be more than 6 months).

 

[1] Clause 1 of article 123.20-1 of the Civil Code
[2] Clause 5 of article 1149 of the Civil Code

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