The foundation: an asset without an owner?
A charitable foundation is a legal construct that holds an asset and uses it only for certain purposes defined in advance. Once the foundation has been set up, its founder can no longer freely dispose of the assets paid into it. And dissolving a foundation isn’t easy. Neither the founder nor the administrator can do it. But a judge can dissolve a foundation if its purpose is illegal or immoral. Besides illegality, another reason for dissolution is the unattainability of the foundation’s purpose. If this is the case, the supervisory authority can order that a foundation be dissolved.
Setting up a foundation
To set up a foundation in accordance with the Swiss Civil Code, three items are required: the “Dedication of an asset for a certain purpose”. These characteristics must be set out in the necessary foundation deed. In addition, a set of rules similar to the statutes in company law is often created. But this is not required by law. The founder may establish the purpose freely as long as it falls within the statutory limits and does not offend public morals.
Foundations can even be set up after a person’s lifetime. It is often the last will of a deceased person that a foundation be established with their estate.
What should a foundation’s founder be aware of?
- Irrevocability: As mentioned above, foundations in Switzerland are irrevocable. Therefore, a founder should carefully consider whether they really want to establish a foundation. This especially applies if a large volume of assets will be paid into a foundation.
- Costs: Setting up a foundation will incur numerous costs. For example, the invoice for fees, attorney’s fees etc. can quickly add up to several thousand francs.
- Third-party interests: if a founder considers paying a large portion of their assets into a foundation, the interests of third parties might be restricted. For example: foundations set up on the basis of a will might infringe on the compulsory portion of heirs. In such cases, the establishment of the foundation can be contested.
- Save taxes: If a founder pays money or other valuables into a foundation, their personal assets will be reduced. This will exempt them from paying wealth tax on the portion paid into the foundation. And that will reduce their tax burden. But it must be pointed out again that taking the step to establish a foundation must be well thought out. The tax benefits might not be enough to offset some of the disadvantages.