Original language of the article: GermanInterview with Sibylle Brodkorb, Head of Inheritance Consultancy in the Zurich region and Kaspar Zoelly, tax expert, both at Credit Suisse, on the topic of foundations in estate planning and associated tax law aspects.
Sibylle Brodkorb has worked at Credit Suisse since 2016 and has been involved in estate planning for over 20 years. Since 2018, she has headed the inheritance advisory team in the Zurich region, which, in addition to providing inheritance advice, also carries out will executions, i.e. estate settlements, among other things. Kaspar Zoelly has worked in wealth planning at Credit Suisse for 24 years, initially in inheritance and later in tax advisory. From 2004 to 2020, he led the tax advisory team in the Zurich region and, following a successfully implemented internal team succession, has been working as a senior tax expert since last year.
Who should consider foundations as an estate planning instrument?
Sibylle Brodkorb (SB): In our consulting practice, it often happens that our clients deal with the topic of "foundations" in the context of estate planning. A foundation is particularly suitable for childless individuals and for those who are emotionally attached to a charitable idea. Any rights to a compulsory portion must always be taken into account. Those who wish to support a charitable purpose can dedicate all or part of their assets to a foundation by bequest. The advantage of a solution under inheritance law lies in particular in the fact that the assets are available to the testator without restriction until his or her death. An adjustment, for example in the event of changing life circumstances, is therefore still possible. Alternatively, you can set up your own foundation with part of your assets during your lifetime and accompany it, for example by having a say in the board of trustees on how the foundation's funds are used.
At what point does it make sense to have your own foundation?
SB: According to the practice of the Swiss Federal Supervisory Authority for Foundations, an initial capital of at least CHF 50,000 is considered sufficient. However, I would like to make a big But add. The foundation's capital should be high enough to enable the foundation's purpose to be promoted in an appropriate manner. If it is also taken into account that many foundations (may) only realize the foundation's purpose through the income from the foundation's assets and that the administrative costs still have to be paid from the income, the foundation's assets should, in our opinion, be considerably higher. If projects or programs are to be supported, professional project management is required for their selection and monitoring. In many foundations, this cannot be ensured at all or only inadequately due to a lack of expertise or excessively high costs.
In terms of cost efficiency, it therefore often makes sense to consider a dependent subfoundation within an umbrella foundation as an alternative. In this case, the foundation capital provided by the founder to the umbrella foundation is used for the desired purpose. Here, too, the founder has the opportunity to participate in decision-making on the allocation of funds in an appropriate committee and additionally benefits from the professional organization of the parent foundation.
Under the umbrella of the three charitable foundations it has set up, Credit Suisse offers its clients Accentus, Empiris and Symphasis the opportunity to realize their own foundation wishes with a foundation.
What is important to consider when setting up a foundation?
SB: Regardless of whether as a legally independent foundation or as a subfoundation of an umbrella foundation: The formulation of the foundation's purpose should be given special care. Since the foundation's purpose is to be promoted over a long period of time, it should not be defined too narrowly so that it can continue to be realized even in the event of (unforeseeable) changes. I would like to give a concrete example: If a client wants to support orphans, the purpose should better include support for disadvantaged children and their relatives than support for orphanages. Whereas full orphans were generally placed in institutions in the past, the focus today is more on foster families. Once the foundation has been established, the purpose of the foundation can only be changed in exceptional cases.
I also recommend that the entire decision-making process within the foundation be carefully formulated: How should the foundation board be composed, who decides on new appointment(s), which majorities are necessary for which decisions, how is the allocation of funds determined? By recording the answers to these questions, later problems within the foundation can be avoided.
What are the current tax challenges in the foundation sector?
Kaspar Zoelly (KZ): I would like to say at the outset that foundations have also become increasingly important in recent years in the context of corporate succession. In addition to arranging succession in the interests of their family, successful entrepreneurs also wanted to act in the interests of the general public and set an appropriate example.
The challenges: There are two aspects to consider, the first of which is likely to be of a temporary nature. As of January 1, 2016, the obligation to register in the commercial register was introduced for family foundations. Foundations established before that date had to have registered in the commercial register by December 31, 2020 at the latest, otherwise they could lose their legal personality sooner or later. In addition, the defaulting foundation board must expect a fine after missing the deadline and thus exposes itself to liability risks.
In turn, registration in the commercial register requires articles of association that comply with current foundation law and are drafted in such a way that the foundation fulfills the legal requirements. A subsequent adjustment of statutes that do not comply with the law may lead to a partial liquidation, which may have tax consequences for the beneficiaries. Swiss civil law provides for family foundations that benefits may be paid exclusively for the upbringing, endowment and support of family members and similar purposes.
The second aspect is the obtaining of tax exemption within the framework of the establishment of a charitable foundation according to Art. 80 ff ZGB. Our ambition here is to offer our clients, who approach us with an idea for a foundation, a solution that optimally implements the founder's ideas and allows the tax office to assure the tax exemption.
What is the specific procedure for obtaining tax exemption?
KZ: Foundations that have not yet been established are granted the option of obtaining a preliminary ruling (assurance) from the relevant tax office regarding the granting of tax exemption as part of a preliminary audit. This minimizes the workload and consulting costs. We support our clients in obtaining this preliminary ruling so that the founder of the foundation can implement the project in a tax-optimized manner.
In order for us to receive such a preliminary ruling, a corresponding written application must be submitted to the relevant tax office. For targeted advice, it is important that we learn from the founder of the foundation exactly what the foundation ultimately wants to achieve. Central to tax exemption are on the one hand the element of "altruism" and on the other hand the absolutely mandatory "open circle of beneficiaries". Once the initial situation and expectations are clearly defined, we submit the application (tax ruling) to the relevant tax office as part of the above-mentioned preliminary examination. The tax office's confirmation of tax exemption allows the parties to establish the foundation. We then request the formal tax exemption ruling for the established foundation.
How do donations affect tax returns?
KZ: The tax authorities want to create incentives for institutions that are committed to the general public in addition to the state to receive their funds. If an individual liable to tax in Switzerland donates a sum of money to a foundation that is exempt from tax under Swiss law, he or she can deduct this amount from net income in his or her tax return. In most cantons, this tax saving is limited to 20 percent of the net income.