Natalia Demina told Pravo.ru how a personal foundation – a Russian alternative to trusts – works

Natalia Demina, Partner, Head of Private Wealth Practice at Maxima Legal, reminded Pravo.ru that in April 2022, European Union Council Regulation No. 2022/576 prohibited the administration of trusts with Russian founders and beneficiaries, and from May the EU stopped registering them and providing management services, including acting as trustee.

However, almost immediately an alternative appeared in Russia – the personal foundation. This is a non-profit organisation which can be set up during one’s lifetime and through which beneficiaries can be appointed. According to Natalia Demina, the owners of the first wave of capital have long felt the need for such a mechanism: the time has come to think about the succession of their business, and there are no heirs ready to ‘pick up’ the business.

According to the expert, as a general rule, only one person can be the founder of a personal foundation, but spouses can also become founders if they transfer common property to the personal foundation. At the same time, Natalia warned that ‘first the couple must decide what property regime will apply between them. They can conclude a prenuptial agreement in the case of a decision to establish a foundation by only one of the spouses, but with the transfer of property in their common ownership. In this case, the replacement of the founder of the personal foundation is not allowed, and only assets requiring professional management should be contributed to the foundation, which can be combined with the classic practice: prenuptial agreement + complex wills’. 

The number of personal foundations is gradually increasing. There are now 37 registered personal foundations, 21 of which are registered in 2024. In Natalia Demina’s opinion, the main reason why business owners refuse from personal foundations is the lack of any established management practices: Russia does not yet have a professional community of foundation and trust managers, unlike foreign countries, where such culture and tools have been developed over decades, and responsibility is strictly regulated by trust regulations. In addition, as the expert noted, there is no information about any open inheritance case against the founders, so there is no practice of such a structure operating after the creator’s passing away. At the same time, another issue arises – compulsory heirs when creating a foundation. ‘To date, it is not clear how in practice will take into account the issues of the need to protect the interests of heirs claiming a compulsory share, if all the property of the testator is transferred to a personal fund,’ Natalia summarised.

To read the full article (in Russian), please, see Pravo.ru website >>>