A foundation is used to make assets legally independent from the founder by transferring them to a legal entity, i.e. the foundation. Unlike a corporation, a foundation has no members but does have beneficiaries who are entitled to enjoy the foundation assets and/or income according to the will of the founder.
In international legal literature, the new foundation law has rightly been described as systematically and substantively first-rate, indeed as pioneering. A foundation is an excellent tool for estate planning and asset protection.
Some of its advantages are:
Flexible System of Beneficial Interests: The founder has complete freedom regarding whom he wants to appoint as the beneficiary of the foundation. He also has an entirely free choice regarding how to shape the respective beneficial interests. Thus, it is possible, inter alia, to determine the amount and timing of each and all distributions and to set terms and conditions.
Estate Planning for Many Generations to Come: In testamentary dispositions, it is usually impossible to make arrangements lasting several generations. Furthermore, the monitoring of testamentary stipulations can only be carried out with great difficulty, especially if the heirs live in different countries. In addition, provided they are unanimous, in most cases the heirs can deviate from instructions contained in the will. With a foundation, however, the founder can exactly specify the beneficiaries across many generations.
Preservation of Family Assets: By transferring his assets to a foundation, the founder can ensure that family assets are kept together across generations. The same applies, for instance, if he transfers shares of his closely held company to a foundation. Under common law, a foundation can hold a company’s shares in accordance with the founder’s wishes for decades. The flexibility necessary for any conceivable economic activity can be achieved by way of an appropriate design of the foundation documents. If no foundation is set up, the assets of the deceased including the shares in his family business are, in most cases, divided up between his heirs. If the heirs die, then their own heirs come into play and so forth. It will therefore not be possible to preserve the family assets or the family business under the same management for a long time.