Establishing a foundation requires careful planning and strategic decisions to ensure long-term funding, asset protection and succession planning. Costs must be considered when transferring real estate and assets to a foundation, including invested assets, administrative costs and consulting services. It is critical to engage experienced advisors who have expertise in areas such as tax optimization, asset protection and succession planning. In this regard, a family foundation offers an effective solution to safeguard assets for future generations while providing clear structures for succession planning. Through careful planning and collaboration with experts, establishing a foundation will help achieve long-term financial goals and protect family assets.
When a foundation is established, the founder transfers assets to the foundation. The assets can be invested in the form of cash, real estate, businesses, stocks, and time deposits to meet the foundation’s long-term funding needs. In the case of a family foundation, the purpose is to transfer the assets to future generations, to protect assets from being accessed and to save taxes.
3 good reasons for establishing a family foundation.
Transfer assets to the next generation
Protect assets from access (prenuptial agreement, children, company insolvency, etc.)
Save tax, pay only 15% tax
The costs of establishing a foundation consist largely of the invested assets. These costs also cover the administration costs. To ensure that the amount available for the foundation’s purpose remains as high as possible, it is advisable to keep administrative costs as low as possible. Additional costs arise from consulting services, for example from lawyers.
The most important facts about the foundation: Overview
Here’s what we discuss in this guide.
FACT
STATEMENT
Costs
When establishing a foundation, the founder transfers assets to cover long-term financing needs. Costs include invested assets, administrative costs and consulting services.
Consultant yes or no?
Experienced advisors are important for complex aspects such as tax optimization, asset protection and succession planning.
Minimum capital of a family foundation
The BGB does not specify a minimum capital requirement, but authorities have their own minimums (25,000-100,000 euros).
Tax disadvantages as a cost factor
Founder aims for tax optimization, costs for consulting services are low in comparison.
Family Foundation
Family foundation serves to secure assets for future generations, succession arrangements and protection of family assets.
Save taxes
Establishing a foundation enables potential tax advantages through asset transfer and optimization.
Succession planning
Family foundation enables orderly succession arrangements and the continuation of companies or assets.
Protect assets
Foundation provides protection of assets from third-party access and enables long-term asset protection and management.
Consultant yes or no?
Expert advice is important in this context, especially on tax aspects and transfers, as the establishment of a foundation is a complex and unique process that involves planning asset succession, optimizing tax implications and considering legal aspects in order to achieve long-term financial benefits and minimize potential risks.
More about that in a moment.
First of all, let’s talk about the minimum capital.
Minimum capital of a family foundation
The German Civil Code (BGB) does not specify a specific minimum capital requirement for the establishment of a foundation. However, the capital must be sufficient to ensure “the permanent and sustainable fulfillment of the foundation’s purpose” (§80 BGB).
The competent authorities that check the recognition of the foundation’s formation usually set their own minimum amounts. These are usually at least 25,000 euros. However, many authorities only recognize foundations with assets of at least 50,000 euros. It is assumed that long-term fulfillment of the foundation’s purpose is not possible with an amount less than 50,000 euros less administrative costs.
Some authorities even require minimum assets of 100,000 euros. This often depends on the purpose that the foundation is to pursue.
The assets invested in the foundation may not be reduced in order to ensure that the foundation’s work is continuously financed and that the income can be used to fulfill the foundation’s purpose. Another advantage of foundations when we talk about annual allowances to beneficiaries.
Important: These regulations do not apply to the special form of dependent family foundations. These so-called trust foundations are not legally independent foundations, but rather a contract between a founder and a trustee. The assets are transferred as special assets to the trustee, who has the task of realizing the foundation’s purpose with the income.
In summary:
BGB: No minimum capital requirement, but sufficient capital needed for long-term foundation purpose
Authorities: At least 25,000-50,000 euros required for foundation recognition, sometimes 100,000 euros.
Assets: May not be reduced to ensure continued funding and fulfillment of purpose
Tax disadvantages as a cost factor
The same applies to the founder of a family foundation. In most cases, the founder’s priority will be to optimize the tax implications of the foundation. In other words, for the founder it is much more important to transfer his assets worth millions to the foundation as tax-efficiently as possible or even tax-free than to worry about the formation costs of around 20,000 euros for consulting services.
If someone is unsure about setting up a foundation, they can seek advice from an expert, for example. Foundation law is not uniformly regulated throughout Germany, so the help of a specialist can be useful.
Depending on the foundation’s assets, tax advice may also be beneficial. Although this initially incurs costs, good tax advantages may ultimately result.
The minimum amount of assets required, administrative costs, tax consultancy fees and legal fees vary depending on the individual case. Charitable foundations that are endowed with a sum of money are generally “less expensive.” Foundations that own real estate assets, on the other hand, are more expensive. This is due, among other things, to the fact that dealing with authorities is easier in the case of monetary assets.
In some cases, a simple start-up can be covered with as little as 15,000 euros. For more complicated situations, such as the transfer of a company, there is no upper cost limit.
Not all consultants are the same
Last but not least, not every consultant is the same. Establishing a foundation is usually a one-time and non-reversible process. For example, if you want to sell your car to a private buyer, you can certainly use a template for the contract – the risk is limited. However, if a founder’s succession planning concerns providing for his three children and spouse, ensuring that his 300-employee business can continue, avoiding inheritance disputes over compulsory share rights within the family, and saving a seven-figure amount in taxes, this is not something that can be done with the click of a mouse.
No consultant with only theoretical knowledge of foundations is suitable for such a project. A reputable consultant without the relevant experience would never accept such a mandate for liability reasons. In such cases, advice from genuine experts with many years of experience in theory and practice is required. As a rule, a founder is also well advised to call on the expertise of a team of specialists (foundation law, tax law, corporate law, inheritance law, etc.).
Foundation formation requires sound and experienced consulting experts.
Experience in foundation law, tax law, corporate law, inheritance law is important.
Serious consultant with practical knowledge and many years of experience required.
Establish a family foundation in Germany
A family foundation offers an excellent opportunity to secure assets for future generations, optimize taxes and make orderly succession arrangements. However, establishing a foundation requires comprehensive planning and strategic decisions. Cost factors such as the invested assets and administrative costs play a role.
In case of doubt, professional advice from experts with experience in the areas of foundation law, tax law and asset planning is of great importance. By setting up a family foundation, it is not only possible to take advantage of tax benefits, but also to create clear structures for succession planning. This makes it possible to protect and preserve family assets in the long term.
