What are the advantages of a family foundation?
The key advantage is structural in nature: the foundation has neither shareholders nor heirs. Assets transferred to it can no longer be bequeathed, sold, pledged or distributed as part of a matrimonial property settlement. They are shielded from the life risks faced by individual family members. Divorces, insolvencies or business failures affecting individual beneficiaries do not affect the foundation’s assets, as beneficiaries are only entitled to the benefits set out in the articles of association, not to the assets themselves. For entrepreneurial families, there is the added protection against fragmentation: Instead of a growing number of shareholders with diverging interests, a single legal entity permanently holds the shares together – under a governance structure determined by the founder themselves. The business-related variations on this concept are discussed in our article on corporate foundations.
Protection against the founder’s creditors is also a reality, though there is no immediate protection: transfers to the foundation remain vulnerable within the time limits set out in the Act on the Voidability of Transfers – up to four years for transfers made without consideration and up to ten years in cases of deliberate prejudice to creditors. Asset protection through a foundation is therefore only possible as a long-term precaution using unencumbered assets, not as a reaction to an already foreseeable crisis. The same applies to claims to a compulsory share: donations to the foundation are subject to the compulsory share supplement, which is phased out over a period of ten years, meaning that, here too, an early start is decisive for the measure’s effectiveness.
