Foundations offer a modern way to use private wealth to drive social change. For the founder, the particular appeal lies in shaping an organization according to their own vision and values in order to support a cause that is important to them. The reasons for establishing a foundation are diverse. Often it is the desire to make a positive difference, to give something back to society, or to take action based on personal experiences with illness or social challenges.
Why establish a foundation?
What motivates people to establish a foundation? Often, they feel a responsibility towards society and want to give something back. Many also have the desire to initiate change. Personal interests usually take a back seat. ” The choice of a foundation structure often falls on a foundation because it ensures that assets are preserved for charitable purposes in the long term. Many want to create a lasting legacy with their foundation that extends beyond their own lifetime, ” explains lawyer István Cocron.
In Germany, the number of foundations has increased significantly in recent years. What experiences do people have after establishing their foundation? What form does their commitment take today? And what are their plans for the future of their foundation? Around 700 founders provided information on these questions in a representative survey conducted by the Federal Association of German Foundations as part of the study “Founders in Germany”.
Who are the donors?
Ninety percent of foundation founders establish their foundations during their lifetime. Most of them are over 45 years old, generally well-educated, wealthy, and often male.
What types of foundations are there?
Once the decision has been made to contribute private assets to a foundation, German civil law offers various structuring options. The term “foundation” encompasses different legal forms and models. Among the most common are the legally constituted foundation under civil law and the trust foundation. Other forms include the foundation limited liability company (GmbH) or a foundation association.
Legally constituted foundation under civil law
The legally constituted foundation under civil law is recognized by the foundation supervisory authority, for which purpose the founder draws up a foundation deed and foundation statutes. In the foundation deed, the founder declares their intention to contribute assets, while the statutes define the foundation’s purpose and structure (e.g., number of governing bodies).
Minimum assets of the foundation
After submission to the supervisory authority, it is examined whether the foundation can exist in the long term. The amount of capital contributed is particularly important in this assessment. Although there is no legally mandated minimum amount, assets of €100,000 are generally considered sufficient.
Recognition of non-profit status
After approval by the supervisory authority, the founder receives a foundation certificate. For tax benefits, the foundation must also be recognized as a non-profit organization by the tax office, which applies to approximately 95% of foundations in Germany. However, this does not apply to private foundations such as family foundations, which financially support relatives and therefore cannot receive non-profit status.
To obtain non-profit status, the foundation’s charter, bylaws, and deed of foundation must be submitted to the tax office for review. To avoid later problems, it is advisable to use the model bylaws provided by the tax authorities and to coordinate the bylaws early on.
Donation receipt
Once the tax office has confirmed the foundation’s non-profit status, it is exempt from corporation tax and can issue donation receipts. Only then should the founder contribute the assets as foundation capital in order to deduct the amount for tax purposes.
Trust foundation
A trust foundation (also called a dependent or fiduciary foundation) is established through a contract with a trustee or by will. The founder transfers the foundation’s assets to the trustee, who manages them separately from their own assets in accordance with the foundation’s objectives.
Advantages of a trust foundation
Unlike a legally constituted foundation, a trust foundation has no separate legal personality and can be established with less than €50,000. ” This form is ideal if the foundation’s assets are to benefit a purpose in the long term without the need for an extensive administrative structure, ” says lawyer Cocron.
Who can be a trustee?
A trustee can be any natural or legal person. The trust is usually established through a deed of gift, which obligates the trustee to manage the transferred assets in accordance with the trust’s objectives. Normally, the deed requires notarization; however, it becomes effective even without notarization as soon as the assets have been transferred.
Involvement of the foundation supervisory authority is not necessary. For the trust foundation to receive tax benefits and be authorized to issue donation receipts, it must have its charitable status recognized by the tax office. After the transfer of assets and confirmation by the tax office, the donor can deduct their contributions from their taxes.
