Foundation Establishment

Promoting Public Welfare or Preserving Wealth

Germany is known as the land of benefactors, with Hamburg being its “foundation capital.” The number of foundations in the country has been steadily increasing for years, surpassing the 22,000 mark for the first time in 2018. According to the Federal Association of German Foundations, an average of 10 foundations are established each week.

Foundations are one of the oldest instruments of civic engagement. Historically and in contemporary times, foundations are primarily tools for sustainable public welfare engagement. Many benefactors seek ways to make a lasting impact. Importantly, citizens can become benefactors through the establishment of community foundations or endowments, even with modest means.

Establishment of a Foundation

Establishing a foundation reflects the diverse ideas and wishes of the benefactor regarding the use of their assets or parts of their assets “forever,” especially beyond their death, and the permanent stipulations they want to set. Additionally, a charitable foundation promotes public welfare.

Legal Reforms

In recent years, legislators have acknowledged the continuous trend of foundation establishment. Reforms, such as those aimed at strengthening volunteer work, provide smaller foundations that cannot diversify their capital as widely with new, more flexible ways to form reserves. This allows for more flexible management of their capital investments. Additionally, foundations that fully deplete their assets within ten years (consumption foundations) are now permissible.

Protecting Wealth from Inheritance Variabilities

Foundations are also an effective way to protect significant wealth for private purposes from the uncertainties of inheritance and tax authorities’ reach.

The most notable form is the family foundation, often considered the prototype of private-benefit foundations. However, neither the private-benefit foundation in general nor the family foundation specifically is a distinct legal form but rather an application form. The family foundation’s distinguishing characteristic is its familial connection.

Family Foundation

In certain scenarios, a family foundation can be a valuable tool for wealth succession. Unlike a family corporation, family members cannot dissolve the foundation, transfer shares to third parties, or exercise voting, control, or even informational rights under corporate law. Moreover, the foundation offers absolute protection against the fragmentation of wealth, such as through inheritance. Since there is no inheritance event for the foundation’s assets during generational transitions, inheritance claims are nullified. Specifically, there are no claims that could lead to the liquidation and fragmentation of wealth. Any compulsory portion claims are based on the decedent’s estate outside the foundation, possibly including assets transferred to the foundation within ten years before death.

RUGE FEHSENFELD has been assisting various foundations for decades, aiding in their establishment and working closely with experts in asset management.