What does a foundation cost
Checklist for establishing a foundation
Establishing a foundation takes time - and it has to be very well prepared mentally and formally. The following checklist can provide an initial orientation. Every potential donor should first answer questions 1 to 8 for himself before tackling steps 9 to 14 with professional help with the answers in his luggage.
1. What is the value of the assets that are to be brought into the foundation? Is the annual income sufficient to cover the administrative costs and also to make payments to the beneficiaries?
Although there are no statutory minimum limits for setting up a foundation, experts assume that an independent foundation can only be operated in a commercially sensible manner with foundation assets of 50,000 to 100,000 euros. If the available assets are lower, the establishment of a legally dependent foundation should be considered, which is managed - possibly in trust - by an existing organization.
2. Should the foundation assets be invested or should they be used up?
A foundation must be created for a certain period of time, but not for eternity.
3. Should the foundation only come into being when you die or during your lifetime?
If the founder still has enough assets after "giving up" the foundation capital to adequately support him and his relatives, a foundation can be considered during his lifetime. The same applies if the income from the foundation's assets, up to a third of which may be distributed to the founder and his relatives in the case of charitable foundations, are high enough for adequate provision. The tax consequences of both forms of establishing a foundation should be calculated and taken into account when making a decision.
In the case of a foundation during its lifetime, the founder can also actively help shape it in its initial phase.
A foundation due to death is usually chosen if the founder does not want to give up control of the assets during his lifetime for economic or emotional reasons. Of course, an “To” foundation during one's lifetime and a “To” foundation after death are also conceivable.
4. What should the foundation be called?
In principle, the founder is free to choose the name of the foundation. A family foundation will usually contain the family name of the founder or beneficiary. Even in the case of a foundation whose income goes to the public, the founder will be tempted to immortalize his name in the name of the foundation. However, if the foundation is to achieve a certain level of awareness and, in particular, endowments and donations are to be acquired, an artificial name combined with a description of the foundation's activities is preferable (e.g. Tabaluga Children's Foundation).
5. Where should the foundation be established?
The seat of the foundation's administration determines which state foundation law is to be observed and which authority is responsible for recognition and supervision. If a foundation wants to operate nationwide, it usually has the choice between several foundation supervisors who can assess the statutes and foundation purposes very differently.
6. Who should the beneficiaries (beneficiaries) be?
In the case of a family foundation, it must be precisely defined which - including future - family members should be beneficiaries.
In the case of a public foundation (as opposed to a family foundation), the beneficiaries are institutions and / or persons of the public.
In the case of a tax-privileged foundation as a sub-category of the public foundation, the income (apart from the above-mentioned donations to the founder and his relatives) must accrue to charitable, charitable or church purposes, which are defined in the tax code (from § 51).
The tax consequences for donors, foundations and beneficiaries when setting up and operating the various types of foundation differ considerably.
7. How many bodies should the foundation have? How many people should belong to these bodies? How should these people be identified? How should the succession in the committees take place?
Only one body is required by law, namely the board of directors. In practice, however, it is customary to provide an operational body and a control body, and possibly also an advisory board. If the foundation's main asset is a company, it can also make sense to provide separate committees for corporate management on the one hand and the implementation of the foundation's purpose on the other. The size of the committees should be in balance with the size of the foundation's assets. Competence, reputation and - in the case of the family foundation - family membership are possible selection criteria.
8. Who should the foundation assets go to when the foundation is terminated?
If the purpose of the foundation is no longer feasible, the foundation will be dissolved. Unless otherwise regulated in the statutes, when the foundation expires, the assets fall to the federal state in which the foundation is based or to another beneficiary as stipulated by the respective state foundation law. If the beneficiaries of the current foundation income are e.g. students from University X, the beneficiary could be University X when the foundation expires.
9. Deed of foundation
The foundation business must contain the declaration of the founder to dedicate an asset to the fulfillment of a purpose specified by him, combined with the statutes (see below). The foundation business must be in writing. If a property is to be brought in, a notarial form is required. Foundations due to death require a testamentary disposition (will, inheritance contract). As a rule, it makes sense to appoint an executor.
10. Foundation statutes
The decisions of the aforementioned points 1 to 8 are reflected in the deed of foundation and in the statutes.
11. Coordination of the foundation documents with the responsible foundation supervisory authority in the run-up to recognition
Foundations no longer have to be approved, only recognized. In order to make the process run smoothly, it is advisable to coordinate the wording of the foundation business and the articles of association beforehand.
12. Coordination of the establishment of the foundation with the financial administration
This is particularly important for tax-privileged foundations, where the founder and his relatives are to receive payments, but also to confirm the tax-privileged purpose.
13. Company restructuring
If a company is to be brought into a foundation, it may have to be converted into a corporation beforehand, the shares of which are brought in.
Even if a foundation is set up during his lifetime, the founder should also make comprehensive provisions for his death in a will or inheritance contract. For example, the contribution of assets to a foundation is considered a gift. In the event of the death of the founder, those entitled to a compulsory portion can assert claims to supplement the compulsory portion against the foundation. This should be prevented by concluding an inheritance contract.
About the author:
Annette Kespohl is a lawyer and partner of the law firm WEITNAUER Rechtsanwälte / Wirtschaftsprüfer / Steuerberater with offices in Munich, Berlin and Heidelberg. Her main areas of activity are company acquisitions and company succession, including the establishment of foundations.
You can find more articles on the topic on our topic page"Establishing a foundation".
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