🇷🇺Personal and Hereditary Foundations: Russia's Answer to Trusts

Concept

The personal foundation is Russia's answer to Western trusts and private foundations. Since March 1, 2022, a founder may during their lifetime transfer property to a unitary non-profit organization they have created, which manages this capital according to approved articles of association and management terms in the interests of beneficiaries.

The hereditary foundation (Art. 123.20-8 of the Civil Code of the Russian Federation) is the posthumous variant of the same structure: it is created by a notary after the death of a citizen based on a will that contains a pre-recorded decision to establish the foundation, its articles of association, and management terms. The numbering moved with the August 2024 reform: former Articles 123.20-1 to 123.20-3 were repealed and the whole institution now sits in Articles 123.20-4 to 123.20-8, so older will templates citing Art. 123.20-1 are worth rechecking.

Both institutions solve the same problem—separating legal ownership of capital from beneficial enjoyment and establishing succession rules without fragmenting the business among heirs or leaving it in limbo for the six months of probate proceedings.

Russian civil law never adopted the Anglo-American trust, whose split between legal title and beneficial interest has no native category in a civil-law system. A resident who wanted that effect had to go offshore. The hereditary foundation, available from 2018, and the personal foundation, from 2022, close the gap from inside Russian law: a separate legal owner holds the capital for named beneficiaries under fixed rules, with no foreign element required.

Personal vs. Hereditary

A personal foundation is created during the founder's lifetime and at their will; the founder may themselves be one of the beneficiaries and see how the structure works during their lifetime. The law requires that the value of transferred property be at least 100 million rubles—this is an instrument for large capital.

A hereditary foundation is created only after death and only pursuant to a notarially certified will. There is no ₽100 million threshold for it, but it is no longer possible to revise its terms after the opening of succession: everything must be designed in advance.

Tax Regime

Foundation Profit Tax

A personal foundation pays profit tax at 15% instead of the standard corporate rate, a benefit written into Article 284.12 of the Tax Code. The rate is conditional: more than 90% of the foundation's relevant income for the reporting or tax period must be passive, meaning dividends, interest, proceeds from the sale of securities and real estate, and rent. The test is strict — active income reaching 10% is already enough to fail it. Fail it in a given period and the foundation pays the ordinary corporate rate, which rose to 25% in 2025, wiping out the advantage. Since 28 November 2025 a second limit applies: Article 284(1.18) does not apply at all to a foundation that held foreign-agent status on the reporting date, or in which such persons hold 10% or more in aggregate — regardless of whether the Article 284.12 test is met. That condition is what keeps a foundation a holding vehicle for income-producing assets rather than a vehicle for running a business.

Personal Income Tax for Beneficiaries

Under Article 217(18.2) of the Tax Code, distributions received from a personal foundation after the day of the founder's death are free of personal income tax, whatever the family relationship — the statute attaches no residency condition to them. For distributions received before the founder's death the exemption is narrower: it covers the founder and a defined circle of close relatives — spouse, children, parents, grandparents, grandchildren and full or half siblings — and only where they are Russian tax residents on the date of receipt. A lifetime distribution to anyone outside that circle, or to a non-resident, is taxable; for a non-resident at the general 30% rate under Article 224(3). Contributions into the foundation and distributions out of it both fall outside VAT.

Property Tax

There is a property relief as well: residential premises, garages and parking spaces held by the foundation are taxed at a rate no higher than 0.3% where their cadastral value does not exceed 300 million rubles; above that threshold the rate rises. The transfer of property into the foundation by the founder is itself untaxed — it counts as neither a disposal nor a gift.

Why Families Need This

The real value is succession without chaos. A business or family holding keeps running under professional management from day one, instead of being frozen for the six months it takes heirs to formalize their rights. The management terms fix in advance who receives what and on what conditions, which heads off both the break-up of a shareholding and the disputes that tend to follow an open inheritance. For an operating company that means continuity of control; for an investment portfolio, an orderly handover.

How Management Is Structured

The foundation has two constitutive documents. The articles of association set out the governing bodies — a sole or collegial executive body, a board of trustees and a supervisory board — and their powers as against third parties. The management terms, a closed document, cover the sensitive part: who the beneficiaries are, how they are appointed and in what order they receive income. A beneficiary may be any individual or non-profit organisation, but not a commercial company. Since the 2024 reform the articles are closed to outsiders as well, so the composition of the family and the split between them stay confidential.

The Personal Foundation and Creditors

Asset protection does not switch on at once. For the first three years from formation a personal foundation — a hereditary one excepted — answers with its own property for the founder's obligations; in exceptional cases a court extends that window, but no further than five years from formation (Art. 123.20-4(6) of the Civil Code). Once it expires, the founder's creditors can no longer reach the foundation's property. The liability running the other way carries no time limit: the founder bears subsidiary liability for the foundation's obligations where its own property falls short. That is why a foundation is set up early, in calm times: moving assets across once claims have been filed is too late.

Foundation or Foreign Trust

For a Russian resident, a personal foundation strips out much of the friction of an offshore structure. Russian banks and courts recognize it, and it raises no controlled foreign company or foreign-beneficial-ownership reporting, the very obligations that make a foreign trust costly to hold from Russia. The price is the youth of the institution: case law is thin, and the articles and management terms have to be drafted without the decades of precedent a Liechtenstein Stiftung or an established offshore trust can rely on. A foreign trust still wins on flexibility and track record; the personal foundation wins on being domestic and sitting outside the CFC perimeter.

Regulation and Outlook

The 15% rate and the beneficiary exemptions are set in the Tax Code rather than left to case-by-case administrative discretion, which gives founders a fairly stable basis to plan on. The 2025 increase in the standard corporate rate to 25% widened the spread a foundation captures, and that is part of why the regime now draws interest from holders of large dividend and rental income.

That same spread makes the rate a natural target. In December 2025 a group of State Duma deputies introduced a bill to raise the foundation rate from 15% to 25%. It did not become law: in the Tax Code as in force on 4 August 2026, including the amendments applying from 1 September 2026, Article 284(1.18) still sets 15%. Relying on that rate over a long horizon nonetheless warrants caution. In parallel, the Ministry of Finance has been closing gaps by letter: a November 2025 clarification, for example, dealt with VAT and personal income tax when a foundation returns to a founder-beneficiary the company shares it had been holding. Anyone drafting today should stress-test the structure against the 25% scenario, not only the 15% one.

Take-up has been cautious. In the first three years after the hereditary foundation entered the Civil Code, fewer than 800 Russians had used it, according to the Federal Notary Chamber, a reminder that the 100 million rouble entry point and the need for exact drafting keep this a tool for sizeable estates. Personal foundations, which are cheaper to set up while the founder is alive, have spread faster, but the court practice that would test more aggressive designs barely exists yet.