How Does an Inheritance Trust Work?

Bullet points:

• Trust (a foreign inheritance trust) is a private legal structure used mainly in common law countries, allowing assets to be transferred to a trustee who manages them for designated beneficiaries according to the rules established by the settlor..
• Polish civil law does not provide for the institution of a trust, which means that a foreign trust (how does an inheritance trust work) does not always provide full protection for real estate located in Poland against the application of local inheritance laws.
• Claims for a reserved share (legitimate portion) constitute a significant limitation on succession planning in Poland – in certain situations, the value of assets transferred to foreign structures may be relevant when determining the amount of the reserved share due.
• A Polish family foundation is one of the institutions that allows succession planning objectives to be achieved, protects accumulated assets, and ensures business continuity under Polish law.

Planning the transfer of wealth to future generations requires seeking solutions that ensure continuity and protection of accumulated assets. In common law countries, a trust is a widely used succession planning tool that allows assets to be managed outside the direct estate and enables the precise definition of the conditions for their distribution. Individuals who own real estate, shares in companies, or capital in Poland consider how a foreign trust (how does an inheritance trust work) interacts with the Polish legal system and which local mechanisms can achieve a similar outcome.

What exactly is a trust and how can it protect assets?

A trust is a legal structure originating mainly from common law systems, in which the settlor transfers specific assets to a trustee who manages them for the benefit of designated beneficiaries. The trustee has specific powers to administer the assets but is required to act in accordance with the rules established by the settlor and in the interests of the beneficiaries.

In Poland, a trust does not operate as an independent institution of civil law, which means that the effectiveness of foreign trust structures in relation to assets located in Poland requires individual legal analysis. In particular, inheritance regulations, reserved share claims, real estate laws, and creditor protection rules must be taken into account.

How does a trust differ from a traditional will?

The main difference concerns the point at which the arrangement takes effect and the way in which assets are managed. A will produces legal effects only after the testator’s death and determines the manner of inheritance in accordance with succession law. In Poland, the rights to an estate are established either through court proceedings or by means of a notarised inheritance certificate.

A trust (how does an inheritance trust work), on the other hand, may begin operating during the settlor’s lifetime and allows assets to continue being managed by a trustee after the settlor’s death. This structure may enable funds to be transferred to beneficiaries gradually, for example, after reaching a certain age or fulfilling specified conditions.

It should be noted, however, that a trust is not an institution of Polish law, and therefore its effectiveness in relation to assets located in Poland requires individual legal analysis.

The role of the trustee and beneficiary in asset management

The trustee appointed in the documents establishing the trust manages the entrusted assets in accordance with the rules set by the settlor and the obligations arising from the law applicable to the particular trust. Their responsibilities may include protecting the capital, managing investments, and making distributions to beneficiaries in accordance with the established conditions.

Beneficiaries do not have a direct right to manage all of the trust’s assets, but they may have rights to receive specific benefits and to seek enforcement of those rights from the trustee. This structure allows for organised management of family assets and reduces the risk of their uncontrolled distribution.

Does the institution of a trust exist in Polish law?

The Polish legal system does not provide a direct equivalent of a trust known from common law countries. Although certain fiduciary structures exist under Polish law, they do not provide the same mechanism as a classic trust.

Attempting to include Polish real estate or company shares in a foreign fiduciary structure requires detailed legal analysis, as Polish regulations require the owner to be clearly identified in the land and mortgage registers or relevant corporate registers.

Flow of assets and relationships within a fiduciary structure:

1. Settlor → transfer of assets → trustee 
2. Trustee → management and protection of capital → trust assets 
3. Trust assets → distribution of benefits according to established rules → beneficiary

How do Polish courts treat foreign trusts?

Polish courts analyse the effects of a foreign trust through the lens of private international law provisions and Polish regulations applicable to specific types of assets. Establishing a trust in a foreign jurisdiction may be legally valid; however, transactions involving assets located in Poland, particularly real estate, are subject to rules arising from Polish law.

The transfer of ownership of Polish real estate to a foreign trustee requires compliance with the Polish form of a notarial deed and fulfilment of the requirements related to real estate transactions in Poland.

Polish inheritance law and reserved share claims

One of the reasons for creating succession structures is the desire to preserve the integrity of assets and prevent their excessive fragmentation. However, it should be remembered that Polish law protects close family members through the institution of the reserved share. In certain situations, transferring assets to a foreign structure during the settlor’s lifetime may be analysed by Polish courts in terms of its financial effects, which may be similar to those of a gift. This may be relevant when determining the reserved share calculation base and the amount of claims available to entitled persons.

What is the Polish alternative to a solution such as an inheritance trust?

For individuals seeking a Polish succession planning tool, the legislator has introduced the family foundation, which allows some of the objectives achieved through foreign fiduciary structures to be pursued under Polish law.

Feature	Foreign trust structure	Family foundation
Legal System	Law of the jurisdiction in which the trust operates (often common law)	Polish Law
Legal personality	Depends on the specific jurisdiction; a classic trust is not a legal person	Has legal personality
Registration in Poland	No Polish trust register exists	Family Foundation Register
Asset management	A trustee manages assets according to the rules of the trust	The management board of the family foundation manages assets in accordance with the foundation’s articles
Reserved share (legitimate portion)	Effectiveness against Polish claims requires analysis of the specific circumstances	Subject to Polish regulations concerning reserved share claims

 

Family foundation as a Polish response to foreign structures

A Polish family foundation is a domestic succession planning tool that allows objectives similar to those achieved through foreign fiduciary structures to be pursued. It is an entity with legal personality to which the founder contributes specific assets. The family foundation manages these assets, increases their value, and distributes benefits to beneficiaries in accordance with the rules set out in its articles.

From a succession planning perspective, it is important that a family foundation allows the rules for managing assets and transferring them to future generations to be organised in a structured manner. However, it should be remembered that it does not automatically eliminate reserved share claims, and the consequences of establishing a family foundation require an individual analysis of the specific financial and family circumstances.

When is it worth considering a legacy by vindication or an agreement to waive the right to a reserved share?

In the case of less complex asset structures, traditional inheritance law tools may be sufficient..

•  Legacy by vindication – established in a notarised will, it allows a specific asset (e.g. real estate or shares) to be transferred to a designated person upon the opening of the estate, without the need to carry out a division of the estate in this respect.
• An agreement to waive the right to a reserved share – concluded during the testator’s lifetime in the form of a notarial deed with a person entitled to a reserved share, it helps reduce the risk of future financial claims.

How to safely plan the succession of assets located in Poland?

Planning the transfer of assets with a cross-border element requires a detailed analysis of the legal and tax regulations applicable to individual assets. Implementing foreign structures independently, without taking Polish regulations into account, may result in unintended tax consequences or limit the effectiveness of the planned succession under Polish law.

It is advisable to conduct an asset audit and take appropriate legal steps:

1. Asset inventory – accurately identifying which assets are located in Poland and which are held in foreign jurisdictions.
2. Jurisdictional analysis – assessing whether a foreign trust (how does an inheritance trust work) will produce the intended effects in relation to Polish real estate and company shares.
3. Selection of structure – deciding whether to use a Polish family foundation or appropriately prepare notarised wills while taking into account the applicable law provisions.
4. Tax considerations – determining the tax implications of benefits distributed to beneficiaries who are Polish tax residents.

FAQ – Frequently Asked Questions

Does a foreign trustprotect real estate in Poland against reserved share claims??

Not always. The effectiveness of a foreign trust in relation to real estate located in Poland requires an individual legal analysis, as property rights concerning Polish real estate are subject to Polish regulations. In certain situations, transferring assets to a foreign structure may be analysed in terms of effects similar to a gift, which may be relevant when determining the reserved share calculation base. However, the final assessment depends on the type of structure, the applicable law, and the circumstances of the specific case.

Can US or UK citizens include Polish assets in a foreign trust?

Establishing a foreign trust by a US or UK citizen may be possible under the law of the relevant jurisdiction. However, including assets located in Poland within such a trust, particularly real estate, may face significant limitations arising from Polish property law and land and mortgage register rules. Each such structure requires an individual legal analysis.

How are distributions from a foreign trust taxed in Poland?

Taxation of benefits received by Polish tax residents from foreign fiduciary structures requires an individual tax analysis. The way such distributions are classified depends, among other factors, on the legal nature of the trust, the type of benefit received, and the regulations applicable in the relevant jurisdiction.

In certain situations, such benefits may be subject to taxation in Poland according to the rules applicable to the specific type of income, taking into account regulations on the avoidance of double taxation.

Does a Polish family foundation work exactly the same way as an inheritance trust?

The mechanisms of operation of both structures are partly similar, as both a family foundation and a trust can be used for asset protection and succession planning. However, they differ in their legal structure. A Polish family foundation has legal personality, operates under Polish law and its own articles of association, and is entered into the family foundation register. In contrast, a classic trust operating in common law countries is based on a fiduciary relationship between the settlor, trustee, and beneficiaries and generally does not create a separate legal entity.

Who is liable for debts in the case of establishing a trust?

The mere transfer of assets to a foreign fiduciary structure during the settlor’s lifetime does not automatically eliminate liability for previous obligations. The consequences of such a transfer depend on the effectiveness of the asset transfer, the nature of the structure, and the circumstances of the specific case.

In certain situations, creditors may seek protection of their rights through court proceedings, including by means of a Paulian action, if the transfer of assets was carried out to the detriment of creditors

Can a revocable trust be revoked after it has been established?

The concept of a revocable trust functions in certain foreign legal systems, particularly in common law jurisdictions such as the United States and the United Kingdom. Under such a structure, the settlor may generally retain the ability to amend its terms, revoke the trust, or regain control over the transferred assets, in accordance with the law applicable to that jurisdiction.

However, it should be remembered that a trust is not an institution of Polish law and does not have a direct equivalent in the Polish civil law system. The effectiveness of a foreign trust in relation to assets located in Poland requires an individual analysis of regulations concerning, among other things, ownership, inheritance, and tax law.

What is the role of a Polish notary when transferring assets to a trust or family foundation?

A notary participates in transactions requiring a notarial deed, particularly those involving the transfer of ownership of real estate. The notary verifies the legality of the transaction, collects applicable fees and taxes, and submits applications to the land and mortgage registers where required by law. In the case of a foreign trust, an additional analysis of its effectiveness under Polish law is required.

Where should the process of planning cross-border succession begin?

The first step should be an analysis of the tax residence of the future testator and beneficiaries, as well as preparing a detailed inventory of assets, taking into account the country in which they are located. The next step is to consult an advisor specialising in international inheritance and tax law in order to select appropriate succession planning tools.