On June 9, the State Duma will consider in the third, final reading a bill on the creation of personal funds for the management of property and business. According to the co-author of the bill, Chairman of the State Duma Committee on State Construction and Legislation Pavel Krasheninnikov, the amendments to the Civil Code complete the comprehensive improvement of the norms of inheritance law, which began in 2001. He spoke about the most important changes affecting the interests of many citizens in an interview with Rossiyskaya Gazeta.
Pavel Vladimirovich, at first glance, the new law is a toy for wealthy businessmen who used to compete with yachts, and now will measure their funds. This is true?
Pavel Krasheninnikov: This is not true. Personal funds are an effective property management institution. Their creation contributes to the stability of civil society, the preservation of jobs, the payment of taxes, since business is not left without management. There is such a term “lying inheritance” – when, before the expiration of 6 months for the inheritance, the property seems to be “nobody’s”, the business can be plundered, “sawed”, etc. We offer an opportunity to make sure that the work to which a person has devoted part of his life will not be left without “supervision” even for a short period in the event of death.
More recently, new types of death orders have come into practice – joint wills of spouses and inheritance contracts. Have they taken root, or are people still wary of innovations?
Pavel Krasheninnikov: These amendments to the Civil Code of the Russian Federation entered into force on June 1, 2019. Not much time has passed, but the results show that there is interest in new forms for us. According to statistics, as of March 2021, citizens issued 1865 joint wills of spouses and 90 inheritance contracts.
But most importantly, these legal instruments reduce the likelihood of conflicts among potential heirs. For example, in a joint will, spouses can dispose of both the jointly acquired property and the individual property of each of them.
In the presence of such a will, it is not necessary to first divide the joint property, and then decide on the issue of inheritance and heirs. You can specify in advance to whom, what property and in what sequence is transferred if one of the spouses has died or if both have passed away at the same time. This is especially important for families where there are children from different marriages, or when spouses want to simplify the procedure for accepting an inheritance for their heirs.
As for the inheritance contract, a person can conclude it with any person, even with legal entities. In it, you can specify the conditions for the inheritors of the property – for example, to support a relative or to finance a project. At the same time, a person remains the owner until the end of his days and can dispose of his property.
Around the same time, the creation of inheritance funds was legalized. How do they differ from the funds proposed in the new bill?
Pavel Krasheninnikov: The amendments on the creation of inheritance funds entered into force on September 1, 2018. We are talking about the so-called posthumous inheritance fund, which is created by a notary after the death of the founder, who expressed such a will in the will.
The notary is obliged to send an application for registration of the inheritance fund no later than 3 working days from the date of the opening of the inheritance case, which will ensure the preservation of the testator’s business and its functioning without interruptions in time.
The fund is managed by a trustee in accordance with the will of the founder. The most famous example of a hereditary fund abroad is the Alfred Nobel Foundation, from which the famous Nobel Prizes are paid. In the spring of this year, 109 wills were drawn up in Russia, providing for the creation of an inheritance fund.
Summing up the changes in the norms of inheritance law from 2001 to the present, we can say that now the participation of the state as an heir is minimized. After 8 queues of heirs, various options for orders in case of death, the state can get something only if there are not even distant relatives and the person did not make any testamentary orders during his lifetime.
You said that the new Personal Funds Bill is the completion of the succession law reforms. What is its essence?
Pavel Krasheninnikov: The bill makes it possible to create a legal entity during its lifetime that will manage property, assets, regulate its business, and with the departure of the founder from life, the personal fund will continue to work in accordance with the goals of its creation.
In other words, can a businessman shift all the worries to the created fund and observe from the outside, devoting himself, say, to his family or other activity?
Pavel Krasheninnikov: The advantage of personal funds is that the founder can himself control the process of creating a fund and debug its work, minimizing possible risks – in a word, see how the fund will solve the tasks for which it was created.
A clarification needs to be made here. There are foundations established by citizens or legal entities that pursue charitable, cultural, educational or other social, socially useful purposes. These funds are called “public benefit funds” in the draft law.
Thus, the bill separates personal and socially useful funds in domestic legislation. They will exist as various organizational and legal forms of non-profit unitary organizations. This is also an important aspect of the document.
“Personal fund” is the official name of a fund created by the founder during his lifetime and continuing its activities after his death?
Pavel Krasheninnikov: Yes. The Civil Code introduces the concept of “personal fund”, due to which in the Russian jurisdiction there is the right of citizens to create such funds for the management of property during their lifetime – so to speak, “lifetime” funds. Such a fund can be established both indefinitely and for a certain period. And the property transferred by the founder to the personal fund upon creation will belong to the latter by right of ownership. Moreover, the cost of such property must be at least 100 million rubles.
The ability to establish “lifetime” personal funds will increase the attractiveness of the Russian jurisdiction for external investors.
Let’s just say, not every rich man can handle it. Why is the bar so high?
Pavel Krasheninnikov: On the one hand, the very form of organizing property management implies considerable costs for maintaining a legal entity, and on the other hand, the goals for which it is planned to create personal funds presuppose the presence of expensive property. I will add that this rule on the value of property does not apply to inheritance (“posthumous”) funds.
Who and how will have to manage the personal fund according to the new law?
Pavel Krasheninnikov: All decisions related to the management of the personal fund are made by the founder. He approves and, if necessary, changes the charter of the fund, the conditions for managing the fund and other internal documents. The founder can also, at his own discretion, determine the structure and personal composition of the bodies of the foundation.
It is important to note that after the death of the founder, the statutory documents approved by him, as a general rule, cannot be changed.
In addition, the bill prohibits the replacement of the founder of a personal fund.
As a rule, the funds of many partners are invested in large companies. When creating a personal fund, would other lenders have concerns?
Pavel Krasheninnikov: Since an individual establishing a personal fund transfers part of his property to him, the draft law contains a number of measures that protect the founder’s creditors and prevent unfair withdrawal of assets from foreclosure. In particular, subsidiary liability of a personal fund for the obligations of its founder is provided for within 3 years from the date of creation of the fund. And in exceptional cases, when creditors, for valid reasons, were not able to apply with claims to the personal fund, by a court decision, this period can be extended to 5 years from the date of the creation of the personal fund. Taking into account the openness of the Unified State Register of Legal Entities, from which one can obtain information about the state registration of a personal fund at any time, this will protect the interests of the founder’s creditors.
I will add that this rule does not apply to inheritance funds created after the death of the founder on the basis of a will. Since such a “posthumous” foundation is an heir and as an heir it is responsible for the obligations of the deceased within the limits of the inherited property transferred to him.
When will the new regulations come into effect?
Pavel Krasheninnikov: The changes are proposed to come into effect from March 1, 2022. Citizens will have a new form of realization of the right of inheritance guaranteed by the Constitution. At the same time, the bill is inherently a powerful anti-offshore measure. The opportunity to establish “lifetime” personal funds in Russia will increase the attractiveness of the Russian jurisdiction for domestic and foreign investors, since an effective asset management tool is proposed.
Interested citizens will be able, without turning to other jurisdictions, to preserve and increase what they have, financially provide specific people, support any projects and organizations, while maintaining jobs, paying taxes and ensuring the stability of civil turnover.
Legacy in turn
Inheritance laws have been an essential part of civil law since the days of Rome and Ancient Rus, right up to the Soviet period. What has been improved in them today?
Krasheninnikov: Let me remind you of the stages of modernization of domestic inheritance law.
Since the times of the USSR, according to the Civil Code of the RSFSR in 1964, we had two lines of heirs, and if the deceased had no relatives and he did not leave a will, then his property passed to the state.
On May 17, 2001, amendments entered into force, which provided for four stages: the first stage – children, spouse and parents of the deceased, as well as the child of the deceased who was born after his death; the second stage – the brothers and sisters of the deceased, his grandfather and grandmother, both from the father’s side and from the mother’s side; the third stage – the testator’s uncles and aunts; the fourth stage – the great-grandfathers and great-grandmothers of the deceased, both from the side of the grandfather and from the side of the grandmother.
On March 1, 2002, point amendments were made to the Civil Code of the Russian Federation, taking into account the law enforcement practice. The changes have already provided for eight lines of heirs, depending on the degree of kinship. In this case, the heirs of the eighth stage are disabled dependents.
In 2013, the rules on the inheritance of escheat property were clarified, in 2016 the circle of heirs in favor of whom the inheritance can be renounced was expanded, the amount of funds issued from the inherited mass for funerals was increased to 100 thousand rubles. The rules on comments have also been clarified, which make it possible to fairly determine the circle of heirs of citizens who died on the same day; later, the possibilities of disposing of citizens with their property in case of death were expanded.