Family foundation in Germany – Today I would like to introduce you to a topic that could be of particular interest to wealthy families and property owners: the family foundation. You may have heard the term before, but not know exactly what it means and what advantages a family foundation can offer. There are 24,000 of them in Germany, around 30% of which pursue entrepreneurial goals. Today, this new interview on foundations appeared in FIV Magazine, reason enough to write another little post to show you what a family foundation is, what advantages it has, who sets one up and how you can set one up yourself – long sentence, let’s go!
A family foundation is a special form of foundation that primarily serves the purpose of preserving and increasing a family’s assets in the long term. In contrast to charitable foundations, which are geared towards the common good, the family foundation is primarily concerned with private interests, namely the protection of family assets and the provision for family members.
Important features of a family foundation:
Asset protection: the assets are transferred to the foundation and legally belong to the foundation, no longer to the founder or the heirs
Long-term nature: A foundation is generally set up for an indefinite period and remains in existence for several generations
Tax optimization: clever structuring can reduce gift and inheritance taxes as well as income taxes
Why set up a family foundation?
A family foundation offers numerous advantages, especially for wealthy families, entrepreneurs and property owners who want to protect and optimize their assets in the long term. Of course, real estate can be transferred to foundations. Here are the main reasons why you should consider a family foundation.
Protection from inheritance disputes: Since the assets belong to the foundation and are not inherited directly, inheritance disputes can be avoided
Tax advantages: Income generated within the foundation is usually subject to a lower tax burden. Inheritance and gift taxes can be saved
Control over the assets: The founder can specify in the articles of association how the assets are managed and who benefits from them
Avoidance of asset fragmentation: assets remain bundled and are not divided up by sale, inheritance or private disposal
Who establishes a family foundation?
For those who want to save taxes! Only 15% on rentals, protection against access and many other benefits, especially for your loved ones.
Now you could say, 15% on rent and protection against access, a GmbH holding company can do that too, right! But – and we’ll come to this in a moment in the functions – the transfer of assets in particular is one of the tools that families choose for foundations.
Typical founders of a family foundation are
Entrepreneurial families: It is particularly common for entrepreneurial families to want to keep their company in the family for the long term
Property owners: Families with large real estate assets who want to secure their property and optimize it for tax purposes
Wealthy private individuals: Anyone who has considerable capital and wants to protect it from external risks (such as divorce or creditor access)
As a rule, it is worth setting up a family foundation with assets of at least 1 million euros. Above this threshold, the advantages associated with a foundation begin to outweigh the establishment costs and administrative expenses.
How does a family foundation work?
The process of setting up and managing a family foundation can be complex, so it is important to plan the steps carefully:
Advice and planning: You should first seek advice from experts – lawyers, tax advisors and foundation experts – to understand the legal and tax framework
Creation of a foundation charter: This charter is the “basic law” of the foundation. It defines the purpose, who is a beneficiary and how the assets are managed
Contribution of assets: The founder contributes his assets to the foundation. From this moment on, the assets legally belong to the foundation and no longer to the founder
Recognition by the foundation authorities: The foundation must be recognized by the responsible foundation authority and the tax office
Administration and ongoing support: The foundation’s Board of Directors manages the assets and ensures that the foundation’s purpose is fulfilled
Advantages of the family foundation at a glance
Asset protection: No access by third parties (e.g. in the event of divorce or insolvency)
Long-term wealth planning: protection and management of assets over generations
Avoidance of inheritance disputes: Clear regulations through the foundation statutes
Flexibility and control: The founder can customize the articles of association and thus retain control
How do you set up a family foundation?
If you are considering setting up a family foundation yourself, here is a brief overview of the necessary steps. A little tip, I have explained the whole thing in more detail here in Establishing a family foundation and here in Family foundation costs:
Advice from experts: get professional help from lawyers, tax advisors and foundation experts
Define the foundation’s purpose: What should the foundation achieve? Who should be the beneficiaries?
Create legal documents: The foundation statutes and other founding documents must be drawn up
Contribute foundation assets: Transfer real estate, capital or other assets to the foundation
Registration and recognition: The foundation must be recognized by the competent authorities
Managing a foundation: Regular review and adaptation to legal and tax changes
Conclusion: Is a family foundation right for you?
A family foundation can be a powerful tool to protect assets, plan for the long term and save taxes. However, it is not suitable for everyone and requires careful planning and advice. If you think a family foundation may be right for you or your family, get expert advice and make sure all aspects are well thought through.
You can now find out more about this on Steuern Sparen One – my experts for setting up foundations and tax optimization.
