Engaging with the Family: A Guide for Family Foundations

Families and foundations share a long-term perspective. In this blog article, we explain what a family foundation is, how to combine a family's interests with its assets, and how to make donating a shared family experience - in order to connect the most important people with the topics we care about.

📚 Table of Contents

1. What is meant by a family foundation?

2. Why should you set up a charitable foundation with your family?

3. Why a family foundation? Advantages compared to direct donations

4. Achieving visible engagement with a family foundation

5. Succession: Can you gift a family foundation?

6. Also of interest: How can family offices use a foundation?

What is meant by a family foundation?

The term "family foundation" can be confusing. In legal transactions, it usually refers to a foundation used by an owner family for asset succession, for example, to hold shares in a company in one hand over the long term. These foundations are generally not charitable and are taxed normally.

In more complex cases, a non-charitable and a charitable foundation are combined, with the control rights held in one and the shares in the other. Whether such a structure also has a philanthropic motive and how it is taxed overall depends on the design and the distributions made by the company to the charitable foundation. It should be noted that such structures are both permanently fixed and entail significant advisory and annual administrative costs.

💡 Let's remember: The assets of a foundation therefore no longer belong to a private individual, but to themselves, so to speak, and the acting persons of the foundation are monitored both by the state foundation authority and the tax office. You can find more general information on setting up a foundation here: How to successfully set up your own foundation.

Why should you set up a charitable foundation with your family?

However, the most common motive for setting up a foundation is to dedicate financial assets to a good cause, i.e., to engage in philanthropy.

A charitable family foundation established for this purpose is a foundation like any other. In fact, legally, it does not have to be an independent foundation under civil law. Other legal forms can also carry the word "foundation" in their name, such as a foundation-GmbH or foundation-associations. Indeed, the vast majority of foundations are not legally independent, but rather trust foundations set up by contract with a trustee.

The simplest way to become philanthropically active with a family is to set up such a trust foundation. However, this still requires a contract, articles of association, and an annual tax return.

Those who wish to reduce this effort even further can consider the new option of a digital foundation (at bcause). Here, the umbrella foundation has already been set up by bcause, so all the administrative work is already done. And this umbrella foundation, the trust foundation bcause ONE (managed by bcause Treuhand GmbH), has drafted its articles of association as broadly as possible to cover all charitable purposes within the German tax code.

Why a family foundation? Advantages compared to direct donations

A charitable family foundation gives the engagement a firmer framework and more flexibility in financial structuring. A framework is optionally created by linking to one or more purposes, and more is possible in terms of financial structuring than a simple donation to an organization. For instance, contributions to a foundation can be claimed for tax purposes in the year they flow into the foundation, and the decision on how the funds are to be used can be made later. Learn more about it here: Donor Advised Funds.

The structure of the foundation also makes it possible to invest the donated funds with the option of reclaiming them. In this way, the donation can "multiply" until you are sure which organizations you want to support with it. In the case of impact investing, you even achieve both: a financial return and a positive social impact.

Achieving visible engagement with a family foundation

Another added value, particularly of a digital foundation, can be controlling the visibility of the engagement. In individual cases, it may make sense not to want to appear publicly (Donating anonymously - how it works), but for the supported organizations, it is often more effective if the commitment is visible. This allows other interested parties to guide themselves by the commitment. With a digital foundation, it is possible to manage visibility at any time and even invite external donors to the foundation without having to issue donation receipts yourself. The additionally donated funds can then be managed in your own foundation just like self-contributed donations and allocated, i.e. assigned to the desired recipient organizations, by the foundation owners.

If you only want to mobilize individual people directly to donate to your own foundation, you can pass on the IBAN of the trust foundation with the correct purpose of use. A donation receipt will then be sent to the address also specified in the payment details.

More convenient for the donors (especially when dealing with a larger or open group, such as during a family celebration) is the option to choose a publicly visible foundation that allows donations via PayPal on its own web address. Here too, donation receipts are sent out without any effort required from the owner of the foundation.

Succession: Can you gift a family foundation?

A legally capable foundation no longer belongs to the founder, but to itself. Therefore, it cannot be inherited or gifted after establishment. At most, it is possible to fill positions on boards with family members.

However, it is possible to set up a digital foundation with a donated amount and gift someone the digital access to it. This allows that person to manage the foundation's funds independently. Such a digital foundation can be a special gift, for instance for children, to introduce them to philanthropic engagement.

We would be happy to support you in this with a free initial consultation.

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Alternatively, you can set up a digital foundation for a special family event and, for example, let the participants of a celebration contribute to it. Many wealthy individuals think about inheritance tax early on. With a foundation, you can use parts of your wealth long beforehand in a tax-advantaged way to do something for the causes that are close to your heart.

Also of interest: How can family offices use a foundation?

For individuals with complex or large assets, family offices often take over management. Here, there are both single family offices, which work for only one family, and multi-family offices, which play this role for several clients. The lines between this and wealth management at banks are fluid.

Family offices also frequently assist beyond narrow property investment when implementing the social commitment of family members. For family offices, it can be very useful to get professional support regarding philanthropy, because issues surrounding impact, foundation law, and charity law do not usually belong to their core competencies. A digital foundation even makes it possible to set up a dedicated vehicle for multiple family members cost-effectively and flexibly.

About the Author: Felix is CEO at bcause and writes about how people are engaging financially in stronger and better ways today. The board spokesperson of gut.org previously helped shape the foundation landscape significantly as Secretary General of the Association of German Foundations and the social entrepreneurship movement as European Director of Ashoka.