Hungarian trust
Hungary, located in Central Europe, is immensely popular among international financial investors. The country’s favourable legal landscape and transparent regulatory framework have attracted the interest of many. A Hungarian trust offers a competitive solution for asset protection and inheritance planning, even for foreigners who do not hold a residence permit. Unlike some other jurisdictions, Hungary allows non-residents to set up and benefit from trust structures without immigration requirements, making it an attractive option for wealth management. In this article, we will explore what a Hungarian trust is, how it works, its benefits for foreigners, and how it can be used for asset protection and wealth management.
What is Hungarian trust management and what is its purpose?
Trust management originates from the Anglo-Saxon trust institution. It is important to note that there is no unified international (or European Union) definition of trust management, and there are various forms and variations of it. In international legal literature, these are collectively referred to as trusts, although in many cases, they are simply legal constructs that serve similar functions.
In the context of our article, Hungarian trust management is a contractual arrangement in which the original owner of the assets, known as the settlor, transfers full ownership or a portion of their assets to the trustee. This option is available not only to local citizens but also to foreigners, including those who do not have residency in the country.
The purpose of this transfer is for the trustee to:
- manage the assets,
- administer them,
- exercise ownership rights,
- preserve and increase their value,
- distribute them to a designated beneficiary or group of beneficiaries as specified by the settlor, and
- provide an enhanced level of privacy protection.
It is important to emphasize that through a trust management contract, ownership of the assets is transferred, similar to a sale or gift agreement. The key aspect is that the trustee becomes the full legal owner of the assets. However, a cautious settlor also has the option to designate themselves as the trustee or as one of the beneficiaries. In such a case, the trustee cannot be the sole beneficiary.
Hungary trust law: is trust management available to foreigners?
Yes, absolutely! In Hungary, trust management is regulated by the Law on Trust Management and Section 6:310 of the New Civil Code (Ptk.), which came into effect in 2014. According to the Hungarian trust law, foreigners, even those who do not have a residence permit, can participate in trust management in Hungary. In the next paragraph, we will briefly outline some of the most important benefits a trust in Hungary has to offer to international investors.
What benefits do trust funds in Hungary offer for foreign investors?
Hungary offers a secure and flexible trust system, making it an attractive destination for foreign investors. Trusts provide strong asset protection, tax advantages, and confidentiality, ensuring effective wealth management and estate planning. Let’s see the benefits trust funds in Hungary have to offer for international investors!
Easily available for any nationals
Hungary’s trust structure is accessible to both residents and non-residents, making it a compelling choice for global investors. There are no nationality restrictions for settlors, trustees, or beneficiaries, allowing foreign individuals and businesses to leverage the benefits of Hungarian trust law. While setting up a trust is straightforward, it requires professional legal assistance. Our experts, with decades of experience in wealth protection services and international tax consultancy, are here to help.
Versatility
A wide range of assets can be placed in a Hungarian trust, including:
- Real estate
- Movable assets (vehicles, art, collectibles)
- Securities (stocks, bonds, investment funds)
- Business shares
- Assets with monetary value (royalties, patents, copyrights)
- Intellectual property
- Claims (loans, receivables)
- Cryptocurrency
Asset protection
A Hungarian trust offers strong asset protection mechanisms. The trust assets are legally separate from the trustee’s personal assets, ensuring that they remain secure from creditors or potential legal claims against the trustee. This means that even in the event of bankruptcy, litigation, or inheritance disputes, the trust assets remain protected. Trusts in Hungary can be structured as revocable or irrevocable and may have discretionary elements, allowing for tailored asset management and distribution strategies.
Privacy
Unlike wills, which are often considered public documents in many legal systems, Hungarian trusts provide a higher level of confidentiality. The terms, conditions, and beneficiaries of the trust are not publicly disclosed, making them an excellent tool for those who wish to maintain financial privacy.
Easily manageable probate process
By transferring assets into a Hungarian trust, investors can bypass the often lengthy and complex probate process. This ensures that beneficiaries receive their designated assets without delays, reducing administrative burdens and potential legal complications.
Tax advantages
Hungarian trusts benefit from a corporate tax structure but enjoy specific exemptions under certain conditions. While trusts are subject to tax on worldwide income, they do not pay corporate tax if the settlor and beneficiaries are individuals and the trust assets primarily consist of financial instruments such as cash, shares, bonds, receivables, or cryptocurrency. Additionally, professional trust service providers must be licensed by the Hungarian Central Bank, ensuring regulatory oversight and security. With its comprehensive legal framework and investor-friendly policies, Hungary presents a compelling option for foreign investors looking to establish a secure and efficient trust structure.
Who are the key players in trust management?
Trust management involves three key players:
- Settlor (vagyonrendelő): The individual or entity that owns the assets and transfers them to the trustee.
- Trustee (vagyonkezelő): A natural or legal person responsible for managing the assets.
- Beneficiary (kedvezményezett): The person who benefits from the trust assets.
All three roles can be held by either individuals or legal entities. Multiple individuals can fulfill these roles, which is most common among settlors and beneficiaries. Although not mandatory, appointing a protector is common in international practice. The protector’s primary role is to oversee the trustee’s activities and report to the settlor and beneficiaries.
The settlor (vagyonrendelő)
A settlor can be an individual or a company, provided they have legal capacity and ownership of the assets to be transferred. The settlor has the most rights in the trust relationship because they transfer assets to the trustee without compensation. They can:
- Appoint the trustee
- Designate beneficiaries
- Remove the trustee
- Define the terms of asset management
- Set conditions for asset distribution
- Establish guidelines for the trustee’s management of the assets
The settlor can monitor the trustee’s activities at any time but cannot give direct orders, making it essential to set clear conditions and responsibilities in the trust agreement.
The trustee (vagyonkezelő)
Trust management can be commercial or non-commercial, with different regulatory requirements depending on the classification. The Hungarian Trust Law (Act XV of 2014) defines a commercial trustee as one managing at least two separate trusts. Trustees managing only one trust are considered non-commercial (occasional) trustees. If a business entity serves as a non-commercial trustee, its executives, owners, their relatives, and affiliated companies cannot engage in trust management.
Occasional, non-commercial trustees (eseti bizalmi vagyonkezelő)
For non-commercial trust management, the agreement must be documented in a notarial deed or a private document countersigned by a lawyer or legal advisor. The trustee must have no criminal record, which must be verified during contract signing.
The trustee must report the trust agreement to the Hungarian National Bank (MNB) within 30 days, including details of the settlor, trustee, and beneficiaries. Any modifications affecting these individuals’ identities or personal data must also be reported within eight days. However, changes in asset composition or beneficiary distribution percentages do not require reporting.
Trustee foundations (vagyonkezelő alapítvány)
A trustee foundation can also serve as a trustee. These foundations operate under the 2019 Trustee Foundation Act (Vatv.), exempting them from some requirements of the general Trust Law. For example, they do not need to submit trust agreements to the MNB and can manage multiple trusts without meeting commercial trustee requirements.
However, to ensure oversight, trustee foundations must appoint an auditor and, if the founder transfers their rights to the board, an independent supervisory body must be established.
Notably, the Trustee Foundation Act differs from general Ptk. trust regulations. For example, while the Civil Code prohibits trustees from being sole beneficiaries, the Vatv. allows trustee foundations to be the exclusive beneficiaries of the assets they manage. Additionally, they can only operate trusts for the purposes outlined in their founding documents, solely benefiting their designated beneficiaries.
The beneficiary (kedvezményezett)
A trust beneficiary can be any individual or entity. The trust agreement does not need to specify beneficiaries by name; they can be defined by a general description instead.
FAQ
What are the elements of a Hungarian trust agreement?
The most important elements of a Hungarian trust agreement include:
- It must be documented in writing, either as a declaration or a contract.
- The trustee cannot be the sole beneficiary (but can be a beneficiary up to 99%).
- The maximum duration of a trust agreement is 50 years.
- Neither the settlor nor the beneficiary can give instructions to the trustee; the trustee must act strictly according to the contract’s terms.
- The managed assets must be recorded separately from the trustee’s personal assets.
A trust agreement requires the same basic information as any other contract, including:
- The settlor’s and trustee’s
- Name / Company name
- Address / Registered office
- ID number / Identification number
- Tax number
However, the content of the contract is even more important, including:
- The identity of the trustee and beneficiaries
- The subject matter of the agreement
- The framework (conditions for asset management)
- Payment deadlines and schedules
- The trustee’s fee (which may be deducted from the managed assets or waived by mutual agreement)
- The beneficiary is not a party to the agreement and plays only a passive role. Their consent or even awareness of the contract is not required for it to be valid.
How can I set up a trust in Hungary?
To establish a trust in Hungary, you need professional legal assistance. Our experts, with decades of experience in wealth protection, are ready to help you get started.
Is a trust fund in Hungary available for foreign investors?
Yes, trust funds in Hungary are available to all nationals, including foreign investors.
Does Hungarian inheritance law apply to trusts?
Hungarian inheritance law can be overridden by a trust fund. A trust agreement allows for more efficient estate planning compared to a will and can even restructure legal inheritance rules. While strict rules apply to disinheriting someone through a will, a trust agreement gives the settlor full freedom to determine the beneficiaries and their shares.
Crystal Worldwide Group: professional legal assistance to set up a trust fund in Hungary
Crystal Worldwide Group is an international law firm that specializes in residency by investment, tax planning, and wealth protection. During our more than thirty years in operation, we have managed to earn the respect and trust of our clients by offering professionally sound and lawful immigration solutions, tax savings, and wealth protection, together with fast and timely services provided at the highest level of discretion.