Hungarian Trust

Summary of main comparative benefits

A Hungarian Trust, whether revocable or irrevocable, offers full and unchallengeable legal protection for the trust fund against the future or subsequent claims of spouses, creditors, heirs etc. of the settlor and the beneficiaries. This legal structure comes with a number of tax benefits thanks to the beneficial corporate and personal tax environment of Hungary. The assets contributed to a HU-Trust no longer form part of the settlor’s property and thus may no longer provide base for wealth, gift or estate taxes in some jurisdictions. Discrete ownership is achievable, since the settlor and beneficiary of a HU-Trust appear only in the trustee’s register and remain therefore sealed from the general public. A HU-Trust also provides almost the same degree of flexibility and reliability that you are used to in your favourite common law trust jurisdictions (e.g. Jersey, BVI etc.). The electronic registration procedures offer quick establishment of any trust or corporate structure.​

The Hungarian Trust

The Hungarian trust regime was introduced to Hungarian law by the new Civil Code in 2014 as fiduciary asset management (in Hungarian: ‘bizalmi vagyonkezelés’, the “trust” or the “Hungarian Trust”), materialising in a contractual relationship between the settlor (in Hungarian: ‘vagyonrendelő’) and the fiduciary asset manager (in Hungarian: ‘vagyonkezelő’). For ease of reference, we use the English equivalent of the Hungarian terms; since the Hungarian trust operates similar to the Anglo-Saxon trusts with only a few distinguishing characteristics. The Hungarian Trust qualifies as ‘trust’ under Article 2 of the 1985 Hague Convention on Trusts; however, Hungary has not signed the convention itself.

In a fiduciary asset management contract or other instrument (the “trust instrument”) the settlor settles and transfers assets to the fiduciary asset manager (the “trustee”), to be owned and managed for the benefit of one or several beneficiaries (in Hungarian: ‘kedvezményezett’). A Hungarian Trust can be established either inter vivos (between living persons) or as a testamentary trust (by means of a last will) and last usually for a long period of time (often for decades), but not more than 50 years.

The Trust Fund

The trustee, appointed in a trust instrument, acquires full and undivided legal title (i.e. ownership in civil law terms) to the trust assets, which become a separated and autonomous unit within the trustee’s assets (the “trust fund”, in Hungarian “kezelt vagyon”). A Hungarian trust is not a separate legal entity; however, the trust fund is protected from the trustee’s personal creditors and from the creditors of other trusts managed by the same trustee, and vice versa: the trustee’s own property is sealed off from the creditors of the trust fund. Likewise, the trust fund is protected by law against the creditors of the settlor and the beneficiary.

The trust fund is a tax entity, whose tax obligations are satisfied by the trustee. A Trust Fund is subject to corporate tax and local business tax. (Please see our “Why Hungary?” section for details on the tax regime.) Distribution of yields from the Trust Fund is taxed as dividends at natural persons, while the distribution of the initial capital is taxed as a gift from the settlor to the beneficiary. (Gifts to a spouse or a direct line relative (parents, grandparents and offsprings) is taxed at 0% rate.)

The Trustee

Under the Hungarian trust regime, any person. whether natural or legal, may serve as trustee; provided, however, that serving as trustee on more than one trust is considered a business-like conduct and hence it is subject to licence issued by the Hungarian National Bank, as oversight body.  The trustee is to hold legal title to the assets forming the trust fund, provide for the accounting of the trust and distribute the yields and the trust assets among the beneficiaries. Trustees do not necessarily engage actively in the management of the businesses and other operating assets held in the trust fund. The trustee must act solely in the interest of the beneficiaries, which limits the trustee’s power to act as owner of the assets forming the trust fund. Should the trustee breach this obligation it becomes liable for breach of contract towards the settlor and/or the beneficiary.

Beneficiaries

Any person may be designated beneficiary of a Hungarian trust in the trust instrument or by the trustee from a class of eligible persons (such as members of a family, employees of a business, etc.) if the trust instrument provides so. Both the settlor and the trustee may be appointed beneficiary; however, the trustee may not be the sole beneficiary. The beneficiary may claim distribution from the trust fund, provided that all relevant conditions of distribution set out in the trust instrument are fulfilled.

Letter of Wishes / Protectors

The trustee’s power may be limited by the written directions of the settler, often called ‘Letter of Wishes’, which is a unilateral statement from the settlor, addressed to the trustee, as amended from time to time, which gives directions for the trustee what to do with, or what to avoid when dealing with the trust assets. In addition, the trust instrument may require the trustee to obtain an approval from the protector before concluding a transaction concerning the trust fund. The protector is usually an independent person whose main task is to supervise the trustee’s activities. The settlor appoints the protector and determines its supervisory rights. The protector’s appointment usually survives the death or dissolution of the settlor.