First, an important reminder. A family foundation is a legal entity whose purpose is to manage wealth effectively and ensure its succession without the risk of dispersing assets accumulated over generations. Therefore, a key issue related to the activities of such an organisation is the contribution of this wealth to the foundation in the form of various types of assets that will work for the beneficiaries. Let’s take a look at what this process involves in practice.
The process of transferring assets to a family foundation
The founder must contribute to the founding capital, providing a minimum of PLN 100,000. In practice, this capital is paid in cash.
It is worth remembering that a family foundation cannot return to the founder any of the assets contributed to the founding capital, either in whole or in part. Exceptions include situations where the founder is also a beneficiary, or when the foundation is liquidated, which, however, entails income tax obligations.
Therefore, contributing assets to a foundation requires careful consideration and attention to several factors.
How to make a contribution to a foundation
Various types of assets can be transferred to a family foundation. These are most often cash, movable property, real estate, shares in companies and securities.
Depending on the type of asset, additional requirements may apply. For example, a notarial deed may be required for the transfer of a title to real estate, or a document with a notarised signature for the transfer of shares in a company.
A common way to contribute to a foundation is through a donation agreement, which generally needs to be in the form of a notarial deed. However, an unnotarised donation agreement becomes valid if the promised benefit has been provided. If the donation is from matrimonial property, the consent of the spouse is also required.
Method of representation in family foundations
When transferring assets to a foundation and concluding an agreement, proper representation must also be ensured.
In accordance with the law, the family foundation is represented by the founder from the time the declaration of the foundation’s establishment is made until the foundation has been entered in the register. After entry in the register, however, it is represented by the executive committee in accordance with the rules laid down in the articles of association.
You can find out more about the articles of association of family foundations here.
Special rules of representation apply when assets are contributed to the foundation by a member of the executive committee. In such cases, the family foundation is represented by the supervisory board, and if no supervisory board has been established, by a representative elected by the beneficiaries’ meeting.
Inheritance law and family foundation assets
It is also worth bearing in mind that contributing assets to a family foundation could have implications for subsequent inheritance. Specifically, the law stipulates that, in certain situations, the assets of the foundation may be included when calculating the forced share.
Taxes in family foundations
Finally, it is worth considering tax issues.
While making a donation is tax-neutral, this decision may not always be economically justified.
This may be particularly relevant for assets that are subject to high tax costs, where disposal outside the family foundation could be more advantageous from a fiscal point of view.
It is therefore always important to consider the founder’s plans and intentions regarding the contributed funds, potential revenue, future investment plans and the timeframe for disposing of the contributed property.
An in-kind contribution to a foundation may also affect the so-called property share, which is important for tax purposes relating to beneficiaries receiving benefits or in the event of the foundation’s liquidation. The contribution of assets may alter the established share for beneficiaries and result in the taxation of future benefit payments as personal income.
Furthermore, in some cases, the transfer of assets may have VAT implications, which should also be examined and assessed in terms of the economic rationale of the entire transaction. Following such an analysis, it may be found that selling the asset in question is more advantageous than contributing it to the foundation.
Contributing assets to a family foundation: a summary
Contributing assets to a family foundation requires a carefully developed strategy and thorough assessment of important factors, both at the stage of its establishment and during its ongoing operation.
To effectively avoid ‘tax traps’ and the risk of making the wrong decisions, it is worth consulting experts who can answer your questions and support you in planning and executing the transaction.
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