Anyone who builds or inherits a business wants to ensure that it will continue to exist after their death. If there are no suitable successors available, or if the business owner fears disputes among the heirs, establishing a foundation is a viable alternative. Well-known German foundations established by entrepreneurs include the Alfried Krupp von Bohlen und Halbach Foundation, the Robert Bosch Foundation, and the Dietmar Hopp Foundation. Each of these foundations has assets totaling several billion euros.
The Public Good as the Foundation’s Purpose
Even for entrepreneurs who do not have a fortune in the billions, a foundation can be an ideal tool for managing their estate. Those who feel committed to the public good will generally establish a charitable foundation. Its income is used to support the purposes specified in the foundation’s bylaws. For example, the bylaws of the Carl Zeiss Foundation stipulate that the proceeds from the two foundation-owned companies, Carl Zeiss and Schott Glas, are to be used to promote “general, economic, scientific, and charitable interests and institutions.” Another option is the family foundation, a legal entity particularly well-suited for succession planning in family businesses. The most important
common feature of both types is that, unlike, for example, a GmbH or an AG, a foundation is not a conglomerate of various corporate shares but a unified, indivisible legal entity. It belongs to no one—but, so to speak, to itself. This also applies to the family foundation.
“It is an ideal way to ensure the long-term continuity of a business, prevent its sale, and at the same time provide for family members,” says Hans Christian Blum, a partner at the law firm CMS Hasche Sigle who specializes in advising on wealth and business succession.
New Variant: Consumption Trust
“The consumptive trust, which is growing in popularity, also opens up interesting structuring options,” adds Blum’s colleague Dirk Schauer, whose doctoral dissertation focused on trust law.
“A consumption trust is permitted to use not only the income from the trust’s assets but also the principal itself to achieve its purposes,” says Schauer. “This structure is still relatively unknown in this country, but inquiries from our clients show that there is interest in the consumable foundation,” says Schauer. “Entrepreneurs often contribute their entire business and assets to a foundation,” explains succession expert Blum.
However, it is also possible to contribute only a portion or to opt for a two-tiered foundation structure; this consists of a portion that serves charitable purposes and a portion that benefits the family. The Robert Bosch Foundation is a prominent example of this.
Claims Are Not Enforceable
Another characteristic of a foundation, according to the two experts, is that family members become so-called beneficiaries; they receive distributions from the foundation but have no enforceable claim to them. However, if the foundation was established within a period of ten years prior to the founder’s death, the heirs may invoke a claim for a supplement to their statutory share. Thus, foundation law cannot completely override inheritance law.
“A foundation should be integrated into the overall estate planning,” advises Blum. “The founder and the family should definitely seek comprehensive advice and specify in the foundation’s articles of incorporation exactly how much money will be paid out to family members and whether they may be entitled to a minimum allowance under certain circumstances.”
