Conditions in the Will of an Entrepreneur

While the new Civil Code allows for conditional inheritance, the condition must be clear, feasible, lawful, and in accordance with good morals. A vague or vexatious condition will not be respected. There is a significant legal difference between conditions, instructions, and time clauses.

A condition relates to the creation of an inheritance right (you only inherit if you meet the condition), an instruction is an obligation after acquiring the inheritance (you must handle the property in a certain way), and a time clause is a time limitation. Each of these legal instruments has different legal consequences.

A business owner must protect both the company and the other heirs. If the entire inheritance is bequeathed to one heir on the condition that they take over the company, forced heirs (descendants) can still claim their compulsory share. Without a well-thought-out division, the business owner risks disputes.

Without professional interpretation, there is a high risk of invalidity. The most common mistakes are vague wording ("manage the company honestly"), a condition tied to marriage ("you will keep the company if you do not marry"), or impossible conditions. A court will not respect such clauses.

Ancillary Clauses in a Will: Why They Are Crucial for Business Owners

Before we delve into the details, we must understand what the new Civil Code (Act No. 89/2012 Coll., hereinafter "NCC") introduced as of 1 January 2014. The old 1964 code did not permit any conditions in a will at all. If you wrote in your will, "you will get the house, but only if you live in location X," such a condition was simply ignored, and the heir would acquire the house unconditionally.

This made sense from the perspective of legal simplicity, but in practice, it caused enormous difficulties for business owners and wealthy individuals. For business assets, it is therefore worthwhile to also address the subsequent setup of the ownership and management structure in the company, which is also related to corporate law, holdings, and structures. They could not say: "You inherit the company, but only if you keep it running and do not sell it within five years."

Everything changed on 1 January 2014. The new Civil Code introduced so-called ancillary clauses in a will. These are three basic legal instruments:

1. Conditions – the testator stipulates that the heir will only acquire the right to the property if a certain future event occurs, the occurrence of which is uncertain at the time the will is made. For example: "You will inherit the company when you reach the age of 30" or "The house is yours only if you graduate from university."

2. Time clauses – the testator stipulates that the heir acquires the property only after a certain period has elapsed, or holds it only for a certain period. Unlike a condition, this involves a period that is certain to occur. For example: "You will own the apartment for five years after my death, then it will pass to your brother."

3. Instructions – the testator imposes an obligation on the heir as to how they should handle the property or to perform certain acts. An instruction does not directly prevent the acquisition of the inheritance but imposes an obligation. For example: "Take care of the grave to keep it in good order" or "Manage the company so that it continues its current operations."

Why is this crucial for business owners? For a practical comparison of tools that can help protect family and business assets in addition to a will, the summary on the topic of trust fund or foundation fund? may also be useful. Because a company cannot be easily divided among multiple heirs in the same way as other property. If you have two sons and one is an entrepreneur and the other is an accountant, you do not want the accountant to have the same share and voting rights in the business.

You want the company to remain in the hands of a capable individual, possibly with the condition that the remaining heirs receive financial compensation. If a disagreement arises among the heirs regarding the management of the company or the settlement of compensation, it is often appropriate to handle the matter as commercial and court disputes. Ancillary clauses allow you to do this.

Types of Conditions in a Will: Suspensive and Resolutive

Let's now explain how conditions actually work in legal practice. The law distinguishes between two types of conditions, and their legal effects are fundamentally different.

Suspensive Conditions

A suspensive condition is one that defers (postpones in time) the acquisition of the inheritance right. The heir becomes an heir only when the condition is met. If the condition is not met, the heir gets nothing, and the property passes to a substitute heir or is distributed according to statutory succession.

Practical example: A father writes a will: "You will inherit the company when you reach the age of 35." His son is currently 22. The father dies. The son will become the heir to the company only when he turns 35. Until then, the company is managed by an administrator of the estate or someone else designated by the father in the will.

A suspensive condition has the characteristic that the heir does not acquire the inheritance at the moment of the testator's death, but later. This brings complications for company management, potential settlement with creditors, and potentially also for taxes.

A properly established suspensive condition should be formulated with absolute clarity to avoid any doubts during probate proceedings.

Resolutive Conditions

A resolutive condition is the opposite. The heir acquires the property immediately (as standard), but if a certain future event occurs, they lose the property. A resolutive condition, therefore, relates to the termination of the inheritance right.

Practical example: A father writes: "You will inherit the company, but if you sell it within five years, it will pass to your brother." The son becomes the heir at the moment of his father's death and assumes the rights immediately, but if he sells it before five years have passed, this inheritance right to the company is terminated, and the company reverts to his brother.

From a property management perspective, a resolutive condition is more practical because the heir acquires the rights immediately and can act. However, it must be very clearly defined, otherwise legal uncertainty will arise. Once a resolutive condition occurs, the matter is to be viewed as if the heir had never acquired the inheritance.

Here we see a decisive practical risk for business owners. If you write in your will: "You will get the company, but only if you manage it honestly," such a condition is too vague and can be interpreted in many different ways. What does "honestly" mean? As soon as something happens to the company – for example, it reports lower profits – can the other heir claim that the condition was not met and that they should take over the company? A dispute will immediately erupt within the family.

Instructions in a Will: Obligations of Heirs

Now let's look at the third pillar of ancillary clauses – instructions. An instruction differs fundamentally from a condition in that its fulfillment or non-fulfillment does not directly affect the acquisition of the inheritance, unless the testator has explicitly determined so.

The heir acquires the property normally but must then submit to a certain obligation. An instruction is an obligation that the testator imposes on an heir or legatee to handle the property in a certain way or to perform certain acts. The subject of an instruction can be practically anything that is legally permissible.

Examples of Instructions in Practice

Example 1: Instruction to care for property

"I instruct you to take care of the family home, keep it in good condition, and name your heir in your own will to continue managing it." Such an instruction makes sense when you want to ensure the property is not lost between generations.

Example 2: Instruction concerning a company

"I instruct you to participate in the management of the company I am leaving you. You must work in it for at least 20 hours a week for a period of ten years. If you neglect your duties, you will be fined CZK 50,000 for the benefit of the XYZ foundation."

Example 3: Instruction regarding care for a person/animal

"I instruct you to take care of my dog, Felix, and ensure he has a veterinary check-up every month. If you fail to do so, the portion of the legacy I am bequeathing to you will pass to an animal protection foundation." Here, the instruction also includes a sanction (partial legacy).

Example 4: Instruction concerning social responsibility

"I instruct you to donate 10 percent of the company's annual profit to public benefit purposes in the field of education. If you do not do this, the right to the company passes to your brother." This is an instruction combined with a resolutive condition.

Enforcement of Instructions and Sanctions

The law does not stipulate that non-fulfillment of an instruction automatically leads to the loss of the inheritance right, unless the testator has explicitly determined so. Instead of automatic loss of inheritance, the law prefers the enforcement of the instruction's fulfillment.

The fulfillment of an instruction can be enforced by the executor of the will (if appointed), an heir who would benefit from the instruction's fulfillment, or a person for whose benefit the instruction was made (e.g., a foundation in the case of a donation). A lawsuit can be filed in court to compel fulfillment of the instruction.

If the testator did not explicitly state that non-fulfillment of the instruction should be linked to the loss of the inheritance (i.e., as a resolutive condition), then the heir does not lose the inheritance but is obliged to fulfill the instruction.

However, if the testator linked such a sanction to the instruction (a so-called sanctioned instruction), then it is regarded as a resolutive condition, and the heir may lose the inheritance if they do not fulfill the instruction.

But be careful – the instruction must be very clear and specific. If you just write "manage the company well" or "take care of the property," it will be an instruction so vague that a court will be unable to enforce it. The lawyers at the Prague-based law firm ARROWS can help you formulate instructions so that they are completely understandable and enforceable.

Time Clauses in a Will: Time Limits for Inheritance

The third type of ancillary clause is the time clause. Unlike a condition, where it is uncertain whether a certain future event will occur, a time clause is tied to the passage of time, which is certain to happen.

A time clause allows the testator to stipulate that an heir will own certain property only for a specific period, or that the acquisition of the inheritance will occur only after a certain period has elapsed. Although this involves a period that can be relied upon, the legal regime is specific.

Examples of Time Clauses

Example 1: Suspensive time clause

"You will receive my company three years after my death." The heir will not be able to acquire the rights immediately, but only after three years have passed.

Example 2: Resolutive time clause

"The apartment will be yours for ten years after my death, after which it will pass to your daughter." You own the apartment for only ten years, then it becomes your daughter's property.

Example 3: Combined time clause

"From my death, you will enjoy the apartment for seven years without paying rent. After seven years, you must either buy it or move out, and the apartment will pass to a foundation." Here, a time clause is combined with an obligation.

In practice, a time clause is an interesting structure for cases where you want to:

• Gain time for the family situation to stabilize, to decide who will take over what.

• Protect a younger heir who is not yet mature enough to take on responsibility.

• Gradually pass the company down through generations.

• Ensure that property does not fall to one person but gradually passes through generations.

Important legal nuance: According to the Civil Code, an ancillary clause that specifies that legal effects will occur only after a period of time, or that they will last for a certain period, is given effects similar to a suspensive or resolutive clause.

The heir thus acquires the property, but their right is time-limited. Unless otherwise agreed, the rights and obligations from such a time limitation also pass to the heir's successors.

Practical Examples for Business Owners: Using Ancillary Clauses

Theoretical principles are important, but let's look at how this plays out in the real life of a business owner.

Situation 1: Dividing a company between a capable and an incapable descendant

You have an LLC with assets of CZK 50 million. You have two sons: George (35, works in the company, is capable) and Peter (28, is a musician, knows nothing about the company). Normal succession would mean they would divide the company in half.

This would lead to: George would have to explain business decisions to Peter, which Peter might not accept. The company would be unable to make quick decisions without approval from both. Creditors would lose confidence. The company would lose value.

Solution using ancillary clauses: You draw up a will with a condition. You bequeath the company (e.g., 100% business share) to George, with the condition that he must continue its current operations and show a positive economic result for at least five consecutive years.

You bequeath to Peter 50% of the company's value in money, but gradually (for example, CZK 2 million per year for 25 years), or he is left other property (a property of similar value) to satisfy his compulsory share. At the same time, George is given an instruction that he must present the accounts to Peter every year and inform him of the company's status.

In this way, you save the company and protect both sons – George gets the company he can develop, Peter gets financial compensation, and both are motivated to act reasonably.

Situation 2: Protecting a family business across generations

You own a construction company that you have built over 40 years. You want your children to take it over, but you want to make sure it is not sold to an external investor or at a low price. In this case, you can combine all three types of clauses:

• Time clause: You do not want the children to take over the company immediately after your death. You specify that they will take it over in two years, during which it will be managed by a professional administrator whom you appoint.

• Instruction: "You can only sell the company with your brother's consent, and only for a price that does not fall below 70% of its last determined value."

• Resolutive condition: "If you sell the company without your brother's consent, or sell it below the specified price, the company will pass to your brother, and you will only receive its market value in money."

This ensures that your company will not be destroyed and will not be sold just for some speculation.

Situation 3: Ensuring care for a widow

You draw up a will stating: "I instruct you to take care of my wife after my death. You will pay her CZK 50,000 each month from the company's profits. If you do not do this, part of the company will pass to a foundation for the support of seniors."

This way, you ensure that not only the heirs will take care of the widow, but that it will be legally enforceable and controllable.

What Cannot Be in Conditions and Instructions

The new Civil Code allows for ancillary clauses, but this is not absolute freedom. There are strict limits. Let's look at what kind of conditions courts will reject.

Conditions Contrary to Public Policy

The law clearly states that clauses that are obviously contrary to public policy or are incomprehensible are disregarded.

What does this mean in practice? For example:

• Free decision-making about marriage must not be restricted: "You will get the company, but only if you do not marry" or "The property is yours, but only if you get married within a year." The law explicitly prohibits this, as it interferes with personal freedom.

• It must not be contrary to the law: You cannot make an inheritance conditional on the heir breaking the law. For example: "You will get the company if you remain unemployed and receive state benefits." This goes against the public interest.

• It must not be contrary to good morals: A condition like "You will get the property if you stop associating with poor people" goes against good morals (and is also vague).

Vague and Ambiguous Conditions

If you write a condition that is vague or unclear, a court will be unable to enforce it. Examples:

• "Manage the property honestly" – What is "honestly"? To one person, it might seem like taking profits; to another, like cautious, risk-free management. A court will not be able to assess this objectively.

• "Be successful" – By what standards? A court cannot evaluate this.

• "Live in the house if you want to" – When and under what conditions? The wording is too open to different interpretations.

On the other hand, good formulations are:

• "Manage the property so that the annual return on profit is not less than 10% of the invested capital"

• "Live in the house and you may not rent it to third parties"

• "Work in the company for a minimum of 30 hours per week"

Vexatious and Harassing Conditions

The law stipulates that clauses that are clearly aimed only at harassing the heir out of the testator's obvious arbitrariness are disregarded.

Examples that a court would not respect:

• "You will get the house, but for five years you must invite all your relatives to a celebration there every year" – This is obvious arbitrariness.

• "You will get the company, but you must employ a homeless person whom I currently know" – This is harassing (and also likely discriminatory).

• "You will get the property, but you have an obligation to write me a letter every month, even though I am already dead" – This is nonsensical.

On the other hand, legitimate instructions are:

• "Take care of the dogs and cats I am leaving behind" – This is natural and stems from caring for living creatures.

• "Keep the grave in good order" – This is traditionally respected.

• "Do not leave the company without a serious reason for at least five years" – This makes economic sense.

Unrealistic and Impossible Conditions

If a condition is objectively impossible (or becomes impossible), a court will not respect it.

Examples:

• "You will get the company if you fly to the Moon" – In principle, this is theoretically possible, but for an individual, it is currently practically impossible. A court might consider this unrealistic.

• "You will get the house if you lift it to a height of 10 meters" – This is physically impossible and against the laws of nature.

• "You will get the property if you call me every day, even though no technology exists that could make this possible" – This is impossible in principle.

Here we see an important practical risk for business owners. If you write something in your will that becomes impossible over time (e.g., "You will get the company if you increase its revenue by 500% in the current market situation without any change in the economy"), the court will cancel the condition, and the inheritance will proceed without it.

The Most Common Problems with Conditions and Instructions

Protecting the Will: The Executor of the Will and the Administrator of the Estate

Once a business owner has drawn up a will with conditions and instructions, another question arises: Who will oversee their fulfillment? This is where the institutions of the executor of the will and the administrator of the estate come into play.

Executor of the Will

The executor of the will is a person whom the business owner appoints in the will and whose task is to ensure that the last will is actually carried out.

The executor has the right to:

• Check whether heirs and legatees are actually complying with the conditions and instructions.

• Enforce the fulfillment of instructions through the courts, if necessary.

• Be present during the division of the property and check its correctness.

• Refuse to release property if a resolutive condition has not been met.

The executor is usually chosen from among close persons (spouse, adult descendant, trusted friend) or professionals (lawyer, notary, accountant). For a business owner, it is advisable to choose a person who:

• Understands the field of business (if it concerns a company).

• Is independent and has no personal interest in whether the condition is fulfilled or not.

• Has authority in the family and the respect of others.

• Has the time and willingness to devote to the matter.

The executor is a legally significant person – they are positioned as a mediator between the deceased and the heirs and as a guardian of the testator's will. Without an executor, conditions and instructions are often forgotten, or their fulfillment becomes difficult to enforce.

In inheritance matters, the legal advice of a lawyer and the activities of a notary often complement each other, so we recommend involving a notary in the solution where appropriate. ARROWS cooperates, for example, with notary Mgr. Silvie Dohnalová, with Mgr. Tomáš Ostrožlík, and with several other notaries. We can thus offer clients a choice of cooperating notary offices according to the region in which they operate or where they need a specific notarial act to be secured. At the same time, we can help with the continuity of individual legal and notarial steps. For important client cases, it is possible to arrange a joint meeting with a notary directly at the ARROWS premises by prior agreement.

Administrator of the Estate

The administrator of the estate is a different person from the executor, although both are important. The administrator is in charge of managing the property during the probate proceedings until it is divided among the heirs.

The administrator:

• Inventories the property.

• Collects income (e.g., profits from the company).

• Pays the testator's debts.

• If necessary, operates the company to prevent it from being damaged by time and inactivity.

For a business owner, it is critical that while waiting for the probate proceedings (which can take months or years), their company can be managed by someone who understands it. Otherwise, its value may decline.

Increasing Disputes and Prevention: Why Precise Wording is Key

In recent years, lawyers at the Prague-based law firm ARROWS have been handling an increasing number of family disputes precisely over conditions and instructions in wills. Why?

One reason is that the new Civil Code (in effect since 2014) was revolutionary – it suddenly became possible to write conditions in a will. The older generation of business owners has not yet adopted this, and their wills are vague. The second reason is that companies with conditions are more complex, and disputes more often arise around them when the family wants to divide the property.

Typical disputes look like this:

Dispute 1: Fulfillment of conditions

A father writes: "You will get the company if you manage it honestly and the profit is not less than CZK 5 million per year." The son owns the company for three years, but after the coronavirus crisis, the profit drops to CZK 3 million. The daughter demands that the company be returned to her or sold and the proceeds divided. A long court battle ensues over what constitutes a "decrease in profit" and whether it is the son's fault or due to external circumstances.

Dispute 2: Imperfect fulfillment of instructions

A mother writes: "You will get the house if you take care of its maintenance." The daughter owns the house but neglects its maintenance. The brother (who would have inherited the house as a substitute heir if it were a sanctioned instruction) claims that the instruction was not fulfilled. A long dispute over what constitutes "proper maintenance."

Dispute 3: Interpretation of vague clauses

A business owner writes: "You will get the company on the condition that you keep it." The son decides to sell the company (which was legitimate if it was a matter of free disposal). The daughter claims this is a breach of the condition because "to keep it" means to own it forever. The court then has to decide what the business owner meant.

All these disputes would be unnecessary if the condition had been clearly written from the beginning, legally precise, and understood by everyone in the same way.

Final Summary

Conditions in a business owner's will are not a simple matter, but they are necessary if you want your property, especially your company, to be passed on to the next generation as you envision. The new Civil Code makes this possible – but only if you know how to do it correctly.

Key takeaways:

• Ancillary clauses (conditions, instructions, time clauses) are legal and enforceable under the new law – unlike the old law, where they were ignored. This is an opportunity that you must, however, take with consideration.

• A condition must be clear, measurable, and legal – vague or vexatious conditions will be canceled as if they were not in the will. This will not benefit you, because then the inheritance will be handled according to the law, which is often not what you want.

• Without an executor of the will, conditions and instructions are often not fulfilled – so appoint a person who will have the authority and duty to oversee fulfillment.

• Disputes over vague conditions are very long and costly – which is precisely why it is better to take the matter seriously now and invest in proper wording.

• Forced heirs (your descendants) will have rights regardless of what you write in the will – you must account for this and provide for them fairly, otherwise they will claim their compulsory share.

If you want your last will to be truly fulfilled and to avoid disputes and the blockage of your company, the safest option is to have your will drawn up and verified by a notary.

The lawyers at the Prague-based law firm ARROWS can provide legal advice, preparation and revision of a will, drafting of expert legal opinions, and also representation in any disputes. Contact us at consultation@arws.cz – we will be happy to help you.