Foundation upon Death

Foundation upon Death

A foundation upon death is a special form of asset succession. In their will, the testator stipulates that part or all of their assets are to be dedicated to a foundation. This foundation only becomes effective after the death of the founder. This is usually a private foundation within the meaning of the Private Foundations Act (PSG).

The establishment takes place through a testamentary foundation declaration, which must be drawn up in the form of a notarial deed. In contrast to a foundation established during one’s lifetime, the testamentary declaration does not create a preliminary foundation. Rather, the establishment is subject to a condition precedent upon the death of the founder.

A foundation upon death means that the testator dedicates assets in their will to a foundation that is only established after their death.

Establishment of a Foundation upon Death

• Effectiveness: The foundation only becomes legally capable through the corresponding official or judicial act (approval or entry in the commercial register).
• By will: The testator appoints the foundation as heir or legatee.
• Formal requirements: In the case of a private foundation, a notarial deed is mandatory, and the minimum content of a foundation deed must also be observed.
• Special feature: No preliminary foundation, but a condition precedent due to death.

Sebastian Riedlmair
Harlander & Partner Attorneys „Eine Stiftung von Todes wegen eröffnet große Gestaltungsmöglichkeiten, erfordert jedoch eine präzise rechtliche und steuerliche Ausarbeitung, um den letzten Willen tatsächlich durchzusetzen.“

Minimum Content of the Foundation Deed

The testamentary disposition must contain the following points in particular:

1. Dedication of assets
2. Purpose of the foundation
3. Beneficiaries: either specific persons or a body that determines them; does not apply if the general public is the beneficiary
4. Name and registered office of the private foundation
5. Details of the founder: Name, address, date of birth
6. Determination of the duration: Establishment for a definite or indefinite period

Tax Aspects

When transferring assets to a private foundation, various tax consequences must be considered. In principle, every gratuitous transfer is subject to a foundation entry tax of 2.5%. If real estate is contributed, a real estate transfer tax of 3.5% and a land registry fee of 1.1% are also incurred. Under certain conditions, however, the burden can be significantly higher: If there is no foundation comparable to the Private Foundations Act or if special exceptions apply, the tax is 25%.

An important exception exists for capital assets with final taxation that are dedicated to the private foundation upon death. These are exempt from the foundation entry tax. However, shares in corporations are not exempt insofar as the special tax rate of 27.5% applies to the income associated with them.

For founders, this means that both the type and composition of the dedicated assets are decisive for the tax burden. Careful legal and tax planning is therefore essential in order to achieve the desired purpose of the foundation in the best possible way.

Effects for Beneficiaries and Heirs

• No double crediting: It is not taken into account twice whether assets are dedicated to the foundation or a beneficiary status has been granted at the same time. Only the assets actually dedicated are decisive.
• Distributions: All distributions that the beneficiary has received up to the death of the testator and will continue to receive after death must be added.
• Uncertainty regarding future distributions: Beneficiaries entitled to a compulsory portion must also have estimated future distributions credited to them, even if these are not legally enforceable.

Sebastian Riedlmair
Harlander & Partner Attorneys „Gerade bei der Einbindung von Pflichtteilsberechtigten ist anwaltliche Begleitung unverzichtbar, da andernfalls das Risiko von Streitigkeiten und erheblichen Steuerbelastungen besteht.“

Economic Perspective

In addition to the classic donations to a private foundation, economic shifts in assets can also play a role in the calculation of the compulsory portion. These include, in particular, succession regulations in articles of association that favor certain persons, as well as donations to foreign foundations. Comparable arrangements in which there is an economic unilateral preference are also covered by case law. The economic perspective is always decisive: What is decisive is not only the formal structure of the asset transfer, but its actual effect on the position of those entitled to a compulsory portion.

Your Benefits with Legal Assistance

The establishment of a foundation upon death is complex and associated with numerous legal and tax pitfalls. Even small formal errors can lead to the nullity of the testamentary disposition. Likewise, tax disadvantages can threaten if the establishment or purpose is not precisely structured.

A specialized law firm like ours supports you in

• undertaking the legally secure establishment of the foundation,
• optimizing the tax burden,
• ensuring the desired earmarking of the assets, and
• registering the foundation in all necessary registers.

This gives you the certainty that your last will will be implemented in the best possible way from a legal and economic perspective.

Frequently Asked Questions – FAQ