Foundation as an alternative to inheritance
Foundations are becoming an increasingly popular instrument for estate planning. The most common motives for setting up a foundation are to provide long-term security for family members and to ensure the long-term preservation of family assets or the family business. Many testators primarily pursue charitable purposes with their foundations.
What is a foundation?
A foundation is an organisation that uses the deceased's assets to pursue a purpose defined by the deceased. The foundation invests the transferred assets securely and profitably. The income generated is used for the purpose specified by the founder.
When does a foundation make sense in terms of succession planning?
Whether it makes sense for a testator to set up a foundation always depends on the individual case. However, such a foundation can be considered in the following starting points in particular:
1. pursuit of charitable goals
In principle, the establishment of a foundation is particularly suitable if you wish to pursue a charitable purpose with your assets. The purpose of the foundation must always be defined when it is set up. This can serve the realisation of scientific, religious or charitable motives.
2. missing heirs
If there are no or only distant relatives, a foundation can also be a suitable instrument for utilising the estate assets for a purpose that the testator considers useful. As a rule, the establishment of a charitable foundation is considered in such cases.
3. wasteful and problematic heirs
Establishing a foundation may also be an option if there are still heirs who should actually benefit from the assets. In such a case, the family foundation can be an instrument for permanently securing the family assets and preventing them from being used up by wasteful heirs. Establishing a foundation can also protect against inheritance disputes.
4. special features of the estate assets
Even if there are special assets in the estate, such as a family business, a foundation can ensure that the family's special assets are preserved.
How can the foundation be an alternative to inheritance?
After the death of the testator, the assets transferred to the foundation are not included in the assets to be bequeathed and remain in the foundation. These assets do not belong to anyone, but to themselves, so to speak.
How the foundation's assets or the income generated are distributed to heirs depends on the type of foundation established. How the foundation's assets are handled is set out in the foundation charter. The corresponding specifications are implemented by the foundation's board of directors.
1. family foundation
A family foundation is a foundation whose income is generally intended to benefit the founder's family. The beneficiaries receive regular payments from the foundation's income. In addition, they may also receive remuneration from activities on behalf of the foundation.
2. charitable foundation
If a charitable foundation has been established, the corresponding amounts will be used for the specified purpose.
When can I set up a foundation?
If the foundation is to serve as an instrument for organising the estate, it can be established during the founder's lifetime or as a foundation upon death, which only triggers the establishment of the foundation once the testator has died.
1. foundation during the lifetime of the testator
Firstly, the testator has the option of setting up a foundation during his or her lifetime. This has the advantage that the testator can accompany the foundation process and monitor developments.
2. foundation by reason of death
In addition to setting up a foundation during the testator's lifetime, it is also possible for the foundation to be established after the testator's death if the founder so wishes. The corresponding wish to establish a foundation is written down in a will or an inheritance contract.
What is necessary here, however, is that a Execution of wills is ordered. The executor takes care of the establishment of the foundation in accordance with the testator's wishes.
What effects does the foundation have on claims to compulsory portions and supplementary compulsory portions?
If the testator transfers their assets to a foundation, the estate assets to be bequeathed are reduced. This means that the compulsory portion claims only relate to the assets not transferred to the foundation.
However, it should be noted here that the transfer of assets to a foundation may well have an impact on Claims to a supplementary compulsory portion has an effect.
In legal terms, the assets contributed constitute a gift within the meaning of Section 2325 (1) BGB. However, the compulsory portion claims diminish by 10 % each year, which means that the gift can no longer be taken into account if it was made more than ten years before the death of the testator.
It is therefore advisable to transfer assets to the foundation at an early stage in order to avoid claims to a supplementary compulsory portion. However, the early, The successful establishment of a foundation or the transfer of assets to an existing foundation is a suitable method of reducing compulsory portion claims.