The Foundation & Trust as a Tool for Estate Planning
Anyone who has built up substantial wealth in Austria will sooner or later face the question: How should this wealth be passed on to the next generation—in an orderly, secure manner and without disputes? Traditional inheritance law offers tried-and-true but limited tools. A foundation & trust offers an alternative approach: structured, flexible, and spanning generations. This article explains when and why it is the superior tool for estate planning.
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Foundations & Trusts: What Are They All About?
The founders of a foundation & trust may be one or more natural persons or legal entities; however, a foundation & trust established upon death may have only one founder. Upon its establishment, the founder transfers assets to a separate legal entity—the foundation & trust belongs to no one, neither the founder nor the beneficiaries.
In any case, the foundation declaration must include: the dedication of the assets, the purpose of the foundation, the designation of the beneficiary or the identification of an entity responsible for determining the beneficiary, as well as the name and registered office of the foundation & trust. In addition, the law allows for considerable flexibility in structuring the foundation: The declaration of establishment may specify additional beneficiaries, set a minimum asset threshold that may not be reduced by distributions to beneficiaries, and designate a final beneficiary.
Why a foundation & trust is a compelling choice for estate planning
1. Asset Protection: Assets owned by the foundation are protected
When assets are transferred to a foundation & trust, they are removed from the founder’s personal assets. Specifically, this means that the foundation’s assets are generally not liable for the personal debts of the founder or the beneficiaries. Creditors—including those of family members who are entrepreneurs—generally cannot access the foundation’s assets. This provides long-term security, especially for entrepreneurial families.
2. Tailored Beneficiary Provisions
After a foundation & trust has been established, the founder may amend the foundation charter only if he or she has reserved the right to do so. Anyone who includes this provision in the foundation deed retains the ability, during their lifetime, to respond to changes in family circumstances—such as divorces, disputes, or new descendants—and to adjust the beneficiary provisions accordingly.
When designating beneficiaries and reserving the right to amend the terms (as is generally the case when establishing a foundation & trust), one must always keep the right to a compulsory share in mind!
3. Long-term wealth preservation across generations
A private foundation that is not a nonprofit organization, whose primary purpose is to provide for natural persons, may exist for up to 100 years; all final beneficiaries may unanimously decide to continue the foundation & trust for additional periods of up to 100 years each.
This makes possible what traditional inheritance law cannot: assets remain intact—across generations—without having to be redistributed, appraised, and potentially fragmented with each death.
4. Avoiding Inheritance Disputes
Disputes over inheritance are among the most common causes of conflict within families. A foundation & trust provides clarity: the founder’s wishes are set forth in a binding manner in the foundation’s charter. There is no room for negotiation among heirs, no disputed questions of interpretation, and no unresolved valuation issues regarding business shares or real estate (though here, too, the right to a compulsory share must be observed). By establishing a foundation & trust in a timely manner, you clearly arrange for the transfer of your assets—and thereby eliminate the basis for future disputes before they arise.
Typical Use Cases
Foundations & trusts as an estate planning tool prove particularly effective in the following situations:
- Business Succession: An asset contribution involves transferring shares in a GmbH or AG to the foundation—the business remains intact, and profits are distributed to the family in a controlled manner. In addition, there are specific tax advantages associated with holding these shares, which can be structured as part of an individual consultation.
- Real Estate Assets: Properties are not divided; rental income is distributed to the beneficiaries through the foundation.
- Blended Families: Clear, pre-established care arrangements help prevent conflicts between children from different relationships.
- Protection Against Business Liability Risks: The foundation’s assets are generally protected from the personal creditors of family members.
Long-term care: Family members in need of care or minor children can be covered on a permanent basis, regardless of whether other family members give their consent.
Conclusion: Plan early, ensure long-term sustainability
As an estate planning tool, a foundation & trust offers protection, flexibility, and—in conjunction with tax advice—significant tax planning opportunities that a will alone cannot provide. The key lies in the careful drafting of the foundation charter: Once the foundation & trust has been established, the founder may amend the foundation declaration only if he or she has reserved the right to do so. Errors made during the establishment process are difficult to correct; a well-thought-out foundation declaration, on the other hand, is a lasting guarantee that the founder’s wishes will be carried out.
We would be happy to assist you with the legal structuring of your estate planning—from the initial concept to the establishment of a foundation & trust.
Frequently Asked Questions (FAQ)
What is a foundation & trust as an estate planning tool?
A foundation & trust is a separate legal entity to which the founder transfers assets. It manages these assets in accordance with the provisions of the foundation charter and distributes income or principal to the beneficiaries designated by the founder—even across multiple generations.
When is a foundation & trust a better option than traditional inheritance?
Whenever assets need to be held together in a structured manner, secured across multiple generations, and distributed according to individual terms—and whenever inheritance disputes need to be prevented.
How long can a foundation & trust exist?
A foundation & trust that is not a nonprofit organization, whose primary purpose is to provide for natural persons, may exist for up to 100 years, and all final beneficiaries may unanimously decide to extend its existence for additional periods of 100 years at a time.
