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Law on lifetime private foundations comes into force on 01.03.2022
DATE: September 1, 2021 | AUTHOR: AT
On 01.07.2021, the Russian Federation (“RF”) Civil Code was amended with new provisions concerning private foundations which can be set up during the founder’s lifetime (Private Foundations). Such Private Foundations can be established and registered from 01.03.2022, the effective date of the new provisions.
Private Foundation, like a social benefit foundation and hereditary foundation, is a non-profit organization without members (participants or shareholders).
Estate planning during lifetime. Unlike the hereditary foundation, a new vehicle, i.e. Private Foundation can be established during the lifetime of the settlor, who may pre-arrange the transfer and management of complex assets (company shares, accounts, real estate, loans). Private Foundation shall be established exclusively for the sole purpose of administering citizen’s assets and cannot pursue a socially useful objective. Private Foundation can only be established by one person for a fixed or indefinite term (there can be no replacement of the settlor).
Minimum contribution. The settlor is required to transfer to the private foundation assets with a minimum value equal to RUB 100 million (circa USD 1,4 million). The settlor forfeits the rights to the assets transferred to the private foundation, but the foundation shall be liable for the settlor`s personal debt/obligations during 3 years after its establishment; in extraordinary circumstances, the court may extend this period to 5 years.
During his/her lifetime, the settlor approves the statute that determines the structure and composition of the management bodies of the Private Foundation and has the right to amend the statute. After the settlor’s demise, the foundation’s statute can only be amended in certain cases by court.
Beneficiaries of the Foundation. Any person other than commercial entities can be named as beneficiaries of a Private Foundation. The relevant settlor may also be the beneficiary of the Private Foundation if the statute of the Private Foundation provides for it. The entitlements and rights of the beneficiary of the Private Foundation may not pass to other persons.
The Federal Law also clarifies several provisions on the hereditary foundation which are established in accordance with the individual’s will and shall be registered after the death of the settlor in order to manage the estate bequeathed to such foundation.
Formerly, the provisions of RF Civil Code made it possible to establish only hereditary foundations, which structures did not become popular due to the complicated process of establishment and the impossibility of exercising control over the foundation establishment after the settlor’s death.
Due to the introduction into Russian law of the new vehicle, i.e. Private Foundation which can be set up during the lifetime of its settlor, more interest can be expected in such structures that can become a Russian alternative to foreign trusts and foundations.
The legislator has yet to enact additional regulations on mechanics of registration of Private Foundations, as well as clarifying the tax obligations of private foundations, which have not been regulated yet.