Russia Update: Law on lifetime private foundations comes into force on 01.03.2022

On 01.07.2021, the Civil Code was amended with provisions concerning private foundations that may be established during the founder’s lifetime (private foundations). Such private foundations may be established and registered from 01.03.2022, the effective date of the new provisions. A private foundation, like a social benefit foundation and an inheritance foundation, is a non-profit organisation without members (participants or shareholders).

Inheritance planning during lifetime. Unlike an inheritance foundation, a private foundation may be established during the lifetime of the settlor, who may prearrange the transfer and management of complex assets (companies, accounts, real estate, loans). A private foundation may be established for the sole purpose of administering citizen’s assets, and may not pursue a socially useful objective. A private foundation can only be established by one person for a fixed or indefinite term (there can be
no replacement of the settlor).
Minimum contribution. The settlor is obliged to transfer to the private foundation property worth at least 100 million rubles. The settlor forfeits the rights to the property transferred to the private foundation, but the foundation is liable for the settlor`s obligations for three years after its establishment; in extraordinary circumstances, the court may extend this period to five years. During his/her lifetime, the settlor approves the statutes that determine the structure and composition of the management bodies of the private foundation and has the right to amend its statutes. After the settlor’s demise, the foundation’s statutes may only be amended in certain cases by court.
Beneficiaries of the foundation. Аny persons other than entities may be the beneficiaries of a private foundation. The settlor of the private foundation may also be the beneficiary of the private foundation if the statutes of the foundation provide for it. The rights of the beneficiary of the private foundation may not pass to other persons. The Federal Law also clarifies a number of provisions on the inheritance foundation (established in accordance with a citizen's will to manage his or her property bequeathed to such a foundation).

Formerly, the provisions of the Civil Code made it possible to establish only inheritance foundations, which were not popular due to the complicated process of establishment and the impossibility of exercising control over the foundation establishment after the settlor’s death.

Due to the introduction into Russian law of the possibility to establish a private foundation during the lifetime of its settlor, more interest can be expected in such structures that can become a Russian alternative to foreign trusts and foundations.
The legislator has yet to enact additional bylaws allowing for the registration of private foundations, as well as clarifying the tax obligations of private foundations, which have not been regulated yet.

By Alimirzoev & Trofimov Law Firm, Russia, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact russia@transatlanticlaw.com

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