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, in particular, to provide long-term security for family members and to ensure the long-term preservation of family assets or the family business. Primarily, many testators pursue charitable purposes with their foundations.
What is a foundation?
A foundation is an institution that uses the decedent's assets to pursue a purpose determined by the decedent. The foundation invests the contributed assets securely and profitably. The income thus generated is used for the purpose determined by the founder.
When does a foundation make sense with regard to the regulation of succession?
Whether the establishment of a foundation makes sense for a testator always depends on the individual case. However, such a foundation can be considered in particular in the following starting points:
1. Pursuit of charitable goals
In principle, the establishment of a foundation is particularly suitable if one wishes to pursue a charitable purpose with one's assets. The purpose of this foundation must always be determined when it is established. This can serve scientific, religious or charitable motives.
2. lack of heirs
If there are no heirs or only distant relatives, a foundation can also be a suitable instrument for using one's estate assets for a purpose that is useful from the decedent's point of view. As a rule, the establishment of a charitable foundation is considered in such cases.
3. wasteful and problematic heirs
The establishment of a foundation may also be considered if there are heirs after all who should actually benefit from the assets. In such a case, the family foundation can be an instrument for permanently safeguarding the family assets and avoiding consumption by wasteful heirs. The establishment of a foundation can also protect against inheritance disputes.
4. Special features in the estate assets
Even if there are special assets in the estate, such as a family business, a foundation can be used to ensure that the family's special assets are preserved.
How can the foundation be an alternative to the inheritance?
After the death of the testator, the assets transferred to the foundation do not fall under the assets to be inherited and remain in the foundation. These assets do not belong to anyone, but to a certain extent to themselves.
How the foundation's assets or the income generated are possibly distributed to heirs depends on the form in which the foundation was established. How the foundation's assets are handled is manifested in the foundation's articles of association. 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 for their work on behalf of the foundation.
2. charitable foundation
If a charitable foundation has been established, the corresponding amounts benefit the defined purpose.
When can I establish a foundation?
If the foundation is to serve as an instrument for the organization of the estate, one option is to establish it during the founder's lifetime or to establish it upon death, which triggers the establishment of the foundation only after the decedent has died.
1. foundation during the testator's lifetime
First of all, 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 upon death
In addition to the foundation during the testator's lifetime, it is also possible, at the founder's request, for the foundation to be established only upon his or her death. The corresponding wish to establish a foundation is written down in a will or an inheritance contract.
However, it is necessary here that an execution of the will is also arranged. The executor takes care of the establishment of the foundation in the corresponding sense of the testator.
What effects does the foundation have on claims to compulsory portions and compulsory portion supplements?
If the testator transfers his assets to a foundation, the estate assets to be inherited are reduced. This results in the fact that the compulsory portion claims only relate to the assets not transferred to the foundation.
It should be noted, however, that the contribution of assets to a foundation does have an effect on claims to the compulsory portion.
In legal terms, the assets contributed constitute a gift within the meaning of section 2325(1) of the Civil Code. However, the claims to the compulsory portion are reduced by 10% per year, which means that the gift can no longer be offset if it was made more than ten years before the testator's death.
It is therefore advisable to contribute assets to the foundation at an early stage in order to avoid claims to a supplementary compulsory portion. However, the early, successful establishment of a foundation or the contribution of assets to an already existing foundation is a suitable method of reducing compulsory portion claims.