Those who protect themselves with the help of foundations can save money. Trust foundations or foundations with legal capacity come into question.
It is not only for very wealthy business people that setting up a foundation can be worthwhile. It is also possible for owners of medium-sized companies to work for their own charitable trust foundation as permanent employees from a certain point in time in order to actively fulfil the foundation’s purpose at home and abroad. Unemployed periods in one’s own company can thus be cleverly bridged. This option is also interesting for people who, at a certain point in time, are no longer able to carry out physical activities, for example in the trades, for health reasons. Legally regulated maintenance payments for the founder or his dependents, laid down in the foundation statutes, are an alternative to the employment model shown in the non-profit sector. Trust foundation or foundation with legal capacity The foundation with legal capacity is an independent bearer of rights and obligations. Two processes are necessary to establish the foundation as a legal entity: the foundation transaction and the state approval. With the approval of the competent supervisory authority of the respective federal state, the foundation acquires legal capacity. Thereafter, the foundation with legal capacity is supervised by this authority. In contrast to the foundation with legal capacity, the trust foundation does not need its own organisation. Fiduciary management is carried out by a legal entity, which normally represents it externally on the basis of a concluded trust agreement and the articles of association. In contrast to a foundation with legal capacity, a charitable trust foundation only requires an examination of its charitable status by the responsible tax office. In Germany, for example, foundations with legal capacity are supervised by two authorities at once: the tax office and the foundation supervisory authority. The fiduciary foundation, also called a dependent foundation, is the more flexible foundation, especially for medium-sized companies. Trust foundations have a history in Germany spanning more than a thousand years. Trust foundations can be set up fairly quickly. The incorporation can take place within one month, in exceptional cases within a few days. The associated granting of provisional non-profit status depends on the workload of the relevant tax office. If one draws a comparison between a foundation with legal capacity and a fiduciary foundation, the fiduciary foundation is preferred in most cases due to the following advantages: There are no lengthy official approval procedures and no state supervision of the ongoing foundation activities. For this purpose, there are control mechanisms by the financial authority and by foundation committees, which the founder can determine himself. The inflow and outflow of capital can be regulated more flexibly by the founder and is based on his income. There are cost advantages both in the establishment and in the ongoing operation of the foundation. The statutes of a fiduciary foundation, in contrast to a foundation with legal capacity, can be adapted to current circumstances without difficulty. The founder can transfer the entire administration of the foundation to the foundation executor and concentrate on the fulfilment of the foundation’s purpose. Despite the numerous advantages that the trust foundation has over the foundation with legal capacity, there are few advisors in this field who accompany the regular establishment of trust foundations at home and abroad. Cross-border foundation constructions can only be realised with teams of experts who also have experience in practical implementation. Only those who have actively dealt with both legal forms can judge in which cases the trust foundation appears to be advantageous for the founder.
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(PBSreport July 2007, 32)
Courtesy ofwww.uzv.de.
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Dr. Johannes FialaPhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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