Trust foundation as a progressive and flexible solution for dentists

Doubling of tax benefits for married couples
by RA Dr. Johannes Fiala* and Frank M. Strobelt**
MUNICH/BERLIN – Medium-sized entrepreneurs, including many physicians, dentists and pharmacists, are currently facing a multitude of problems for which efficient solutions are urgently needed. According to calculations by the Institute for Research on Small and Medium-Sized Businesses, more than 300,000 family businesses are facing a change of ownership in the next few years. It is estimated that in about 40% of all cases there is no suitable successor from the family circle or no descendants. Furthermore, due to the stricter banking regulations (Basel II) and the associated restrictions on the granting of loans, the liquidity situation of medium-sized companies is extremely tight. In addition, owners of medical practices and pharmacies are struggling with a loss of income, or they are thinking of giving up their practice early due to health reasons. For many, the topic of “foundation” was taboo until a few years ago and was associated with the commitment of large companies such as the Otto Bayer Foundation (Bayer AG!!!!), the Schering Foundation, the Robert Koch Foundation, the Albert Schweizer Foundation or the Geschwister Boehringer Ingelheim Foundation for the Humanities. However, this has changed since the reform of foundations in the year 2000, the “Law on the Further Tax Promotion of Foundations”. Further positive impulses for the foundation system can be seen in the recently adopted 10-point programme of the Federal Government. With the 400 million euro funding package, Federal Finance Minister Peer Steinbrück also wants to support charitable foundations. Increasing the liquidity of medium-sized companies via charitable trust foundations The deductibility of donations to charitable foundations from taxable income is now even more attractive, especially for medium-sized companies: On the basis of a ruling by the Federal Fiscal Court in August 2005 and the decree issued by the Bavarian State Tax Office last year, which is valid throughout Germany, spouses who are assessed jointly can claim double the amount for donations to the asset pool of a charitable foundation for tax purposes. The maximum foundation amount for married persons thus increases from € 307,000 to € 614,000. The maximum foundation amount can be deducted from tax as a special expense once in 10 years if such a foundation is endowed with corresponding assets within 12 months. Furthermore, the maximum foundation amount, which may increase from € 20,450 to € 40,900 on the basis of the decree (see calculation), can be claimed. Assets such as real estate, securities, works of art or cash can be donated to the charitable trust. Solving succession problems via a double foundation The double foundation, which is one of the company-affiliated foundations, is to be seen as a modern, intelligent building block for solving the problem of succession and old-age provision. For example, even a dentist can transfer a large portion of privately owned real estate, securities, artwork, or cash into a charitable trust in a tax-neutral manner. The family foundation regulates the provision for the family members and determines the fate of the company even after the death of the founder through the shareholders’ meeting. The management of the company will be transferred to qualified external managers from a certain point in time. According to Andreas M. Bosl, owner of Mittelstands-Beratungs-Dienst (MBD) in Pöcking, the charitable trust foundation is an ideal field of activity in a person’s retirement phase. This can be dedicated to charitable activities such as the promotion of sports, education, culture worldwide. The publicity measures often associated with this additionally strengthen the reputation and core business of their own company. Charitable trust foundation as a new employer and pension instrument For owners of medium-sized companies, it is possible, independently of the double foundation described, to work for their own charitable trust foundation in a permanent employment relationship 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 be cleverly bridged in this way, explains foundation expert Andreas M. Bosl from MBD. This variant is also of interest to groups of people who, from a certain point in time, are no longer able to carry out physical activities, for example as a dentist, 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 in the non-profit sector described above. Trust foundation or foundation with legal capacity? The foundation with legal capacity is an independent bearer of rights and obligations. To establish the foundation as a legal entity, 2 processes are necessary: 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 the company 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. The legally capable foundation is supervised in Germany by 2 authorities at once: the tax office and the foundation supervisory authority. The fiduciary, also called dependent foundation, is the more flexible and at the same time the older basic form of 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 is no need for lengthy official approval procedures – there is no state supervision of the ongoing foundation activities; instead, there are control mechanisms by the financial authorities and by foundation committees which the founder can determine himself – the inflow and outflow of capital can be regulated more flexibly by the founder, depending on the income situation of the founder – there are cost advantages both in the establishment and in the ongoing operation of the foundation – the articles of association 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 sponsor and concentrate on fulfilling the purpose of the foundation. Despite the numerous advantages that the trust foundation has over the foundation with legal capacity, there are few advisors in this field who can competently present the advantages of this legal form to founders and 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. Qualified advice on trust foundations includes interdisciplinary thinking, since tax law in particular must be taken into account in addition to civil law. 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.
(Dental Tribune 5/2007, 10)

Our office in Munich

You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.

About the author

Dr. Johannes Fiala Dr. Johannes Fiala

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.
»More about Dr. Johannes Fiala

On these pages, Dr. Fiala provides information on current legal and economic topics as well as on current political changes that are of social and/or corporate relevance.

Arrange your personal appointment with us.

Make an appointment / call back service

You are already receiving legal advice and would like a second opinion? In this case please contact Dr. Fiala directly via the following link.

Obtain a second legal opinion

(The first phone call is a free get-to-know-you conversation; without consulting. You will learn what we can do for you & what we need from you in terms of information, documents for a qualified consultation.)