FOUNDATIONS AND
ASSET PROTECTION

A family foundation should be set up in good times. It is legally problematic and in some cases punishable to transfer private assets to a foundation shortly before a divorce or bankruptcy. In order to ensure effective asset protection, the establishment and transfer of assets to the foundation should take place in good times so that the assets are safe from creditor access. It is important to be aware of the respective contestation periods, which vary from country to country.

There are over 30 jurisdictions in which a family foundation can be tax advantageous from a German perspective. Among the most interesting are Liechtenstein, Malta and Luxembourg. Liechtenstein offers particularly advantageous conditions thanks to its membership in the European Economic Area and the administrative assistance agreement with Germany. Malta and Luxembourg also offer attractive arrangements for founders from the DACH region. However, it is important to consult local experts and check the exact legal regulations of each country.

The primary purpose of the family foundation is the orderly transfer of assets to heirs. However, it is not just about tax optimization or exemption from inheritance tax, but rather about guaranteeing the founder's will beyond his death. He can thus ensure that his assets are allocated to specific purposes and persons, even if he is no longer capable of acting due to death or illness. In addition, a family foundation can be used to circumvent mandatory share laws for heirs in some countries and to make access to the assets subject to certain conditions.

Offshore foundations can provide a high degree of anonymity. Since the foundation acts as a separate legal entity, it can act as a shareholder of other companies or legal entities, thus disguising the true owner of the assets. This is particularly useful for properties such as real estate or yachts. However, there are limits due to stronger bank compliance in the 21st century.

A correctly established family foundation belongs to itself. Therefore, in the event of a transfer of residence abroad, it can help to avoid the departure taxation applicable in countries such as Germany or Austria. The emigrant then does not own any direct company shares, and the jurisdiction of the foundation does not automatically change as a result of the departure. However, the founder should not retain too much control over the foundation in order to benefit from tax advantages.

A family foundation belongs to itself and has no shareholders. There are therefore no shareholders who provide capital and in return have a claim on the foundation's assets. Control over a family foundation is exercised by a foundation board, which differs in responsibility and liability from managing directors of a company. In addition, the founder's will can remain in a foundation beyond his or her death, whereas in a company, heirs can dispose of a shareholder's shares after his or her death.

The main difference lies in the legal personality. While family foundations have their own legal personality, a trust does not. In a trust, the beneficiary basically has a full claim to its assets. Trusts are recognized mainly in common law states and are administered by a trustee who treats the assets separately from his or her own assets. In family trusts, on the other hand, the trustee is beholden to the trust and not directly to the beneficiaries. This tends to make trusts more beneficiary-friendly, while family foundations place more emphasis on the will of the founder.

Art investments, especially in combination with bonded warehouses, offer several advantages. First, they grant anonymity and discretion, which is an advantage at a time of growing transparency requirements and data protection concerns. Second, they offer tax advantages, as artworks are considered cultural property in many countries and are therefore exempt from inheritance tax. In addition, artworks can be stored in stable jurisdictions, which provides additional security. Bonded warehouses are also internationally recognized facilities that provide legal custody of assets, including works of art.

In Nevis, the requirements for suing such structures are very high. Plaintiffs must post substantial collateral before they can file their lawsuit. In addition, the burden of proof is set very high, requiring plaintiffs to provide strong evidence to support their claim. All of this serves to deter unfounded and opportunistic lawsuits.

Yes, it is possible to combine both variants. For example, one could lease a partnership LLC to a corporation LLC. Both can own real estate and take advantage of the burden equalization bonus. For extensive real estate portfolios, it might make sense to consider both LLC forms.