In today's post from the Compliance series, we continue our discussion of family foundations. In the previous post, we introduced you to the essence of a family foundation, the procedure for establishing one, and the governing bodies of such an entity. For those of you who haven't had the opportunity to read that post, we've included the link below:
Family Foundation | Graś and Partners
Today we would like to discuss one of the most important aspects related to a family foundation, namely the concept of a beneficiary, including presenting their rights and obligations, as well as explaining changes in inheritance law regarding compulsory share.
Who can become a beneficiary?
The beneficiary of a foundation, meaning the person who will receive specific benefits in accordance with the founder's will, can be an individual, a non-governmental organization conducting public benefit activities, or even the founder himself. There are no contraindications to the founder contributing assets to a family foundation also receiving benefits from it. This is a typical arrangement for foreign family foundations, which are private foundations. Establishing this type of entity most often results from the founder retiring from full professional activity while simultaneously securing financial resources for ongoing support. Importantly, there is no requirement for a blood relationship or marriage between the founder and the beneficiary.
Beneficiary data
In addition to the general designation of the foundation's beneficiaries in the foundation's statute, detailed information regarding the beneficiary and their entitlements will be included in the beneficiary list. To ensure privacy and confidentiality, the founder will be able to stipulate the extent to which the beneficiary list is confidential, for example, to other beneficiaries. The right not to disclose the beneficiary list does not apply to maintaining the confidentiality of beneficiaries' identities, for example, from tax authorities .
The list will contain the data necessary for the foundation to provide services to the beneficiary and to fulfill its public law obligations. The management board will be responsible for creating and updating the list of beneficiaries based on the information contained in the statute, as well as for providing services based on it. The list of beneficiaries should be created, maintained, and updated in accordance with the regulations and the statute of the family foundation.
To fully implement the founder's will and protect the interests of beneficiaries to the greatest extent possible, it is necessary to maintain an open catalog of data that will be included in the list of beneficiaries. The required scope of this data will be determined based on the method of providing benefits as specified by the founder in the statute. If the founder wishes the provision of benefits to be contingent upon the fulfillment of a specific condition or subject to a deadline, such as obtaining education, entering into marriage, or reaching a certain age, the family foundation will be entitled to request documentation of this condition to the extent necessary to confirm it.
What benefits are beneficiaries entitled to and by whom are they determined?
The definition of the benefits to which a beneficiary is entitled rests solely and freely with the founder. Generally, these benefits will be monetary or non-monetary, particularly those covering the costs of living, education, treatment, or care (in the case of individuals), or supporting statutory public benefit activities (in the case of non-governmental organizations). The founder may make changes to the beneficiaries and the benefits they are entitled to.
If a family foundation is established by more than one founder, the statute may contain rules for the exercise of their rights and obligations. However, if this is not specified in the statute, they should exercise their rights and obligations jointly, and the above-mentioned change of beneficiary or their rights can only be made with the consent of the remaining founders.
Furthermore, the founder will also be able to stipulate that assets received by a minor beneficiary as benefits from a family foundation will not be managed by their parents. In such a case, the founder should appoint a trustee, and if they fail to do so, the guardianship court will appoint a curator to manage the assets.
It's worth noting that the transfer of benefits and benefits to beneficiaries of a family foundation should not jeopardize the family foundation's solvency towards its creditors who are not beneficiaries of the family foundation and should always be contingent on the family foundation's current financial situation. As a rule, benefits transferred should come from the foundation's profits. If it is impossible to satisfy beneficiaries in full, the family foundation's board will be able to moderate the payments so as not to disadvantage any beneficiary. The beneficiary's claim for the remaining amount will, of course, not expire, but will be suspended until the family foundation's financial situation improves.
Will the beneficiary be able to waive his or her rights?
The beneficiary will be able to waive benefits or renounce beneficiary rights. However, the waiver must be in writing with a notarized signature. Pursuant to Article 73 § 2 of the Civil Code, failure to comply with this form will result in the invalidity of the act. Importantly, the waiver of all rights by the beneficiary is equivalent to a renunciation of beneficiary status.
Changes in inheritance law – compulsory portion
The Family Foundation Act will introduce changes to the provisions on compulsory portions. It should be noted that assets contributed to a family foundation will only be included in the estate for 10 years from the date of the contribution. Heirs who submit their claims after 10 years will not be able to benefit from the institution of compulsory portions.
Important information for beneficiaries, who are the key topic of this article, is that payments intended for the beneficiary who would also be entitled to the compulsory share will be counted towards it.
The above information has presented the essence of the foundation beneficiary and introduced you to the issue of compulsory portions, as relevant from the beneficiary's perspective. In our next and final post on this topic, we will discuss the tax issues related to establishing and managing a family foundation.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of January 4, 2022
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