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August 09, 2021 /
Foundations are becoming increasingly popular and important in succession planning. This article explains why this is the case and what needs to be considered before setting up a foundation – particularly with regard to the estate .
The idea of setting up a foundation combined with the idea of doing something good with your estate is widespread.
A decision should be made during your lifetime as to what should happen to your assets after your death. Without a will drawn up beforehand, an inheritance follows the statutory succession.
Anyone who wants to keep their assets in the family but wants to influence how they are used can also set up a so-called family foundation.
Anyone who wishes to leave their assets for specific charitable purposes can also specify this during their lifetime. Private individuals or organizations can set up a foundation. Such a foundation is usually set up in perpetuity, as foundations can only be dissolved in certain exceptional cases.
There are different types of foundation. The following table explains two types of foundation:
| Legitimate foundation | Trust foundations Foundation |
| – Permanent asset commitment – For a specific purpose | – Permanent asset commitment – For a specific purpose |
| Foundation: a legal entity Creation: Written declaration (e.g. in the will) Recognition by the foundation authority | Foundation: The founder (settlor) transfers the foundation capital to a trustee. The trustee must use this in accordance with the provisions of the articles of association. |
| Subject to state supervision Recognition authority | Not subject to state recognition or state supervision |
Private foundations:
Anyone who sets up a foundation during their lifetime can appoint it as their heir.
Furthermore, a foundation can also be established upon death. In both cases, there is no gift or inheritance tax, provided that the principles of charitable status are met. The same applies to endowments.
However, a private-benefit foundation (e.g. family foundation) is excluded from this tax exemption.
In a charitable foundation, the assets are managed and used in accordance with the founder’s instructions. These are largely tax-exempt.
The prerequisite for appointing a charitable organization as an heir is its capacity to inherit in accordance with § 1923 BGB.
Non-charitable foundations serve the common good, whereas charitable foundations provide help for the physically, mentally or emotionally needy.
Private foundations, on the other hand, do not serve the common good, but a specific group of people for a defined purpose. Private foundations are also based on the German Civil Code.
Inheritance and estate are often used as synonyms, but this is not entirely correct. The term “estate” refers to the total assets of the deceased, as well as all contracts with third parties, debts, real estate, documents, art and private property.
The inheritance is the portion that an individual heir receives. The inheritance is therefore part of the estate.
The estate, or a portion of the estate, can also be donated to a charitable organization.
A transfer of assets in the form of a foundation by the testator has a number of advantages, but should be well planned.
Upon the death of the testator, the inheritance is transferred to the foundation as heir.
If the testator’s descendants, parents or spouse are excluded from the succession, they can demand a so-called compulsory portion.
The beneficiary of the compulsory portion is entitled to half of the statutory inheritance share.
This must also be taken into account!
If a foundation was established during the deceased’s lifetime, the descendant excluded from the inheritance is entitled to a supplementary compulsory portion if the transfer of assets to the foundation took place no more than 10 years prior to the inheritance.