A will takes effect just once, at the moment of death. After that, it is up to the heirs to decide whether the business is sold, whether the property remains in the family, and who ends up in dispute with whom. Whatever a child inherits may be lost again in the event of their divorce or bankruptcy.
Anyone wishing to keep their assets intact beyond that point will eventually turn to a family trust. The principle behind it is unusual. It removes the assets from the scope of inheritance law. Once assets are held by the trust, they no longer belong to any individual and can therefore neither be inherited, divided nor seized. Instead, the family is provided for from the income generated by the assets, in accordance with rules laid down by the founder themselves.
In return, he relinquishes control of his estate for good, and the rules he sets out may still apply even when no one who knew him is left alive. Whether this trade-off is worthwhile depends on what the estate consists of and the family’s circumstances.
Key points at a glance
- A family foundation is a legal entity without members (Section 80(1) of the German Civil Code (BGB)), with no owners and no shares. Its assets therefore do not form part of any estate.
- Beneficiaries, referred to as ‘destinatäre’ in foundation law, have an enforceable claim only if the articles of association expressly grant them one.
- Income retained is subject to tax at a rate of around 15.8 per cent, whilst distributed income is subject to a further 26.4 per cent tax at the recipient’s end.
- Every 30 years, inheritance tax is payable on the foundation’s total assets, subject to an allowance of 800,000 euros (Section 1(1)(4) of the Inheritance Tax Act).
- The cost of setting up the trust depends on who the articles of association name as potential beneficiaries. Depending on whether the wording is well-drafted or poorly drafted, there could be a tax difference of over 500,000 euros on a sum of five million euros.
- A foundation offers only limited protection against claims to a compulsory share, and only if it is established during the settlor’s lifetime. A foundation established by will has no effect on the compulsory share.
- There is no statutory minimum asset requirement. In practice, foundations are recognised if they have assets of between around 50,000 and 100,000 euros; however, they are usually only economically viable once their assets reach the millions.
- Anything that is not included in the articles of association at the time of incorporation can hardly be amended at a later date (Section 85 of the German Civil Code (BGB)).
Assets without an owner
Under Section 80(1) of the German Civil Code (BGB), a foundation is a legal entity without members, endowed with assets for the permanent fulfilment of a purpose specified by the founder. ‘Without members’ means that there is no one to whom it belongs. A limited liability company (GmbH) has shareholders, an association has members, and an estate has heirs. A foundation has none of these.
As there are no shares in the foundation, no stake in it can be sold, pledged or bequeathed. No one can demand that it be wound up in order to receive a payout, and a family member’s creditors cannot access the foundation’s assets because they do not belong to that family member.
The family can only access the assets through the role of the beneficiaries, that is, those designated as such in the articles of association. Their position is weaker than most people expect. According to case law, beneficiaries generally have no membership rights and no entitlement to benefits, but merely a prospect of receiving them. An enforceable claim only arises if the articles of association grant it. There are two sides to this. An enforceable claim provides the family with security, but at the same time makes the payment subject to attachment and, in the event of insolvency, liable to be realised. Many articles of association therefore provide for discretionary payments rather than fixed entitlements.
The foundation is managed by the Executive Board, the only body required by law (Section 84 of the German Civil Code (BGB)). In addition, the articles of association may provide for further bodies, such as a foundation council, an advisory board or a family committee. The Executive Board manages the assets for the purpose of the foundation, not for its own benefit. In doing so, it is bound by the founder’s wishes, as expressed at the time of the foundation’s establishment (Section 83(2) of the German Civil Code (BGB)). This time-bound nature is often overlooked. What is decisive is the intention at the time, not that of today, and this remains unchanged even if the founder is still alive and would now take a different view.
Charitable foundations and family foundations are often mentioned in the same breath, but they have nothing to do with one another from a tax perspective. A charitable foundation serves the public good, is exempt from corporation tax, its endowment remains exempt from inheritance tax, and the founder may claim the endowment as a tax-deductible donation. In return, it may use no more than one third of its income to provide for the founder and their next of kin in an appropriate manner (Section 58(6) of the German Fiscal Code (AO)). The family never has access to the principal of the trust. With a family trust, the situation is the reverse. The family can dispose of the assets, but there are no tax benefits for doing so.
The Inheritance Tax Guidelines set out the conditions under which a foundation is regarded as a family foundation for tax purposes. This is always the case where the founder, relatives and their descendants are entitled to more than half of the foundation’s assets, and where they are entitled to more than a quarter if other characteristics demonstrate a substantial family interest (R E 1.2 ErbStR). This classification determines eligibility for the tax class privilege upon the foundation’s establishment and the inheritance substitute tax every 30 years.
The estate bypasses the foundation
What this means in practice only becomes clear after the founder’s death, and it is a structural issue, not merely a tax one. Assets belonging to the foundation do not form part of the estate. There is no community of heirs that might dispute the sale of a business; there is no partition sale, no compensation payments to relatives who do not work for the business, and no shares that are distributed among a dozen people in the generation after next, who would then have to reach an agreement. As no one holds shares, the generational handover does not trigger inheritance tax either; however, the legislator has provided for a compensatory measure in this regard.
For family businesses, this pooling of assets is often the decisive factor in setting up a foundation. The family business can remain a shareholder, whilst day-to-day management is entrusted to individuals who are suited to the role, regardless of whether they are family members. This allows ownership and management to be permanently separated – something which, without a foundation, can only be achieved through complicated testamentary arrangements that are prone to failure over time.
How a family trust is set up and how much it costs
There are two steps involved in the formation of a foundation. Firstly, the deed of foundation, in which the founder declares their intention to establish a foundation and to transfer specific assets to it, and in which they set out the articles of association. The purpose, name, registered office and the composition of the board of directors must be specified (Section 81(1) of the German Civil Code (BGB)). This is followed by recognition by the foundation authority of the federal state in which the foundation is to have its registered office. It is only upon such recognition that the foundation becomes a legal entity (Section 80(2) of the German Civil Code (BGB)). Until then, the founder may revoke the deed of foundation; thereafter, they may no longer do so, and they are obliged to transfer the promised assets (Sections 81a and 82a of the German Civil Code (BGB)).
The act of establishing a foundation itself need only be in writing (Section 81(3) of the German Civil Code (BGB)); foundation law therefore does not require the involvement of a notary. In practice, however, a notary is almost always involved, as the transfer of land or shares in a limited liability company (GmbH) to the foundation is itself subject to notarisation. It is also possible to establish a foundation by reason of death; in such cases, the provision is set out in a will or inheritance contract. Under inheritance law, however, this option has significant disadvantages, as the statutory share then effectively reduces the foundation’s assets.
The authority must recognise the foundation if the statutory requirements are met and the continued and sustainable fulfilment of the foundation’s purpose appears to be assured, provided that the foundation does not jeopardise the public good (Section 82 of the German Civil Code (BGB)). The question of the minimum assets depends on this assessment. There is no statutory amount; instead, the relationship between income and the purpose is assessed. The current income must permanently cover the purpose and the administrative costs, as the endowment capital itself must generally be preserved (Section 83c of the German Civil Code (BGB)). Rough guidelines, varying by federal state, range from 50,000 to 100,000 euros; however, this merely describes the formal threshold for recognition. Someone who contributes 100,000 euros might generate 2,000 to 3,000 euros a year from it, and after accounting and tax returns, nothing remains. Specialist law firms often set the economically viable threshold at around one million euros, whilst other voices from the consultancy sector put it at five to ten million. There are no reliable studies on this; all these figures are estimates, but they consistently show that a family trust is the wrong instrument for medium-sized estates.
Consultancy represents the largest cost component. The costs of setting up a foundation are reported to be in the low to mid five-figure range, depending on the complexity of the asset structure and the care taken in drafting the articles of association. Ongoing costs include bookkeeping, annual accounts, tax returns and, where applicable, remuneration for board members. Added to this is the state foundation supervisory authority, which monitors the legality of the foundation’s management and to which accounts must be rendered in accordance with state law. However, several federal states have significantly scaled back this supervision for family foundations, in some cases reducing it to a mere check on compliance with the public interest. Realistically, it takes several months from the initial consultation to recognition – often between half a year and a full year. The authorities themselves recommend early consultation with the foundation supervisory body, as this avoids the need for repeated revisions.
How much the foundation costs in tax
The pitfall in the articles of association
The transfer of assets to a foundation is taxable in the same way as a gift (Section 7(1)(8) of the Inheritance Tax Act). As the foundation is not related to anyone, tax class III would normally apply, with an allowance of 20,000 euros and rates starting at 30 per cent. However, a special provision applies to domestic family foundations. The decisive factor is the degree of kinship between the beneficiary furthest removed from the founder, as specified in the foundation deed, and the founder (Section 15(2), first sentence, of the Inheritance Tax Act).
In 2024, the Federal Fiscal Court ruled that the most distant beneficiary is defined as any person who, under the articles of association, is potentially entitled to receive benefits, regardless of whether that person has already been born or will ever receive anything (judgement of 28 February 2024, II R 25/21). If, therefore, the articles of association refer generally to the founder’s descendants, the potential great-grandchildren’s generation is included. Whilst the tax bracket remains I, the tax-free allowance falls from 400,000 euros to 100,000 euros. If a person outside tax class I is included among the beneficiaries, taxation is determined by their relationship to the founder. In the case of a son- or daughter-in-law, this would be tax class II; for a partner, tax class III. For assets with a tax value of five million euros, the calculation would then look as follows.
| Group of beneficiaries as set out in the Articles of Association | Tax-free allowance | Sentence | Tax |
|---|---|---|---|
| Children | 400.000 € | 19 % | 874.000 € |
| Children and grandchildren | 200.000 € | 19 % | 912.000 € |
| Descendants in general | 100.000 € | 19 % | 931.000 € |
| Children and a partner | 20.000 € | 30 % | 1.494.000 € |
Restricting the provision to children saves around 57,000 euros compared with the open-ended wording, but means that grandchildren are excluded from the benefit. By contrast, moving to tax bracket III because of a single person costs more than half a million. Which version is appropriate is therefore a matter of balancing tax implications against the intended planning objective, rather than a purely mathematical exercise.
Anyone who contributes further assets after the endowment has been established loses this privilege entirely. Such additional endowments fall under tax class III with an allowance of 20,000 euros, as confirmed by the Federal Fiscal Court (judgement of 9 December 2009, II R 22/08). In practice, therefore, the initial endowment is pledged in full at the time the foundation is established.
Which assets are passed on to the beneficiaries?
For business assets, the standard exemption rules set out in Sections 13a and 13b of the Inheritance Tax Act (ErbStG) also apply in the event of a transfer to a foundation, with reductions of 85 or 100 per cent and the familiar retention and wage bill periods. In the case of residential property let out, Section 13d of the Inheritance Tax Act reduces the assessed value by ten per cent. Pure capital assets do not qualify for this relief.
Where a business or a share in a partnership is transferred, the foundation carries forward the book values (Section 6(3) of the Income Tax Act), meaning that no hidden reserves are realised. The situation is different for individual assets forming part of business assets. As a general rule, no land transfer tax is payable on the contribution of land, as this constitutes a gift within the meaning of inheritance tax law (Section 3(2) of the Land Transfer Tax Act (GrEStG)). Where shares in companies owning land are contributed, the conditions of Section 1(3) of the Land Acquisition Tax Act (GrEStG) are met from 90 per cent onwards; the exemption still applies in such cases, provided the shares are transferred free of charge (Federal Fiscal Court [BFH], judgement of 23 May 2012, II R 21/10). Tax is only payable where consideration has been agreed.
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What the foundation pays on an ongoing basis
The family foundation currently pays corporation tax at a rate of 15 per cent plus the solidarity surcharge, totalling 15.8 per cent (15.825 per cent to be precise), and is entitled to an allowance of 5,000 euros (Sections 23 and 24 of the Corporation Tax Act (KStG)). Trade tax is only payable if the foundation carries on a commercial business (Section 2(3) of the Trade Tax Act (GewStG)). A foundation engaged solely in asset management is therefore not, as a rule, liable for trade tax. The situation is different if it holds a stake in a commercial partnership, if a business split takes place, or if property is traded to an extent that constitutes commercial property trading.
In the case of shareholdings and property, corporation tax works in the foundation’s favour. 95 per cent of profits from the sale of shares in limited companies remain tax-free, regardless of the size of the holding (Section 8b(2) of the Corporation Tax Act). Dividends are also tax-privileged, provided the holding amounts to at least ten per cent. Furthermore, the ten-year period applicable to private disposals applies to the foundation, meaning that property held in its private assets can be sold tax-free after ten years. In the case of a transfer free of charge, the foundation continues the period already running for the founder.
If income is distributed, a second tier applies. Payments to beneficiaries constitute investment income and are subject to a flat-rate withholding tax of 25 per cent plus the solidarity surcharge, totalling 26.4 per cent (exactly 26.375 per cent, Section 20(1)(9) of the Income Tax Act (EStG)). The foundation withholds this tax and pays it to the tax authorities. It cannot deduct the distributions as business expenses (Section 10(1) of the Corporation Tax Act (KStG)), so the double taxation is not alleviated.
Anyone who leaves 100 euros in interest income within the foundation pays around 15.80 euros in tax on it. Anyone who distributes the entire amount pays a total of around 38 euros; if held as private assets, the tax would have been 26.38 euros. The picture is different for rental income, as direct investment is taxed at a top rate of up to 47.5 per cent. From a tax perspective, therefore, a family trust is particularly worthwhile when income is to remain within the trust’s assets and continue to generate returns.
Withholding tax every thirty years
As the assets held by the foundation are not subject to inheritance tax, the law taxes them at fixed intervals as if they were bequeathed once every 30 years (Section 1(1)(4) of the Inheritance Tax Act). The calculation begins from the date of the first transfer of assets to the foundation. The total assets are assessed after deduction of liabilities; tax class I applies, along with an allowance of 800,000 euros – that is, double the child allowance. The tax rate is determined on the basis of half the taxable assets and then applied to the full amount (Section 15(2), third sentence, of the Inheritance Tax Act). This halving mitigates the jump to higher tax brackets and only has a noticeable effect in the case of larger estates.
If the foundation’s assets amount to five million euros on the reference date, 4.2 million euros remain subject to tax after deduction of the tax-free allowance. Half of this falls within the tax bracket up to six million euros, so the rate is 19 per cent and the tax due is 798,000 euros. This corresponds to just under 16 per cent of the assets, payable in a single lump sum and without a single cent having been received.
The foundation may require the tax to be paid in 30 equal annual instalments, with interest at 5.5 per cent (Section 24 of the Inheritance Tax Act). An amount of 798,000 euros would then amount to around 54,900 euros per year, totalling just over 1.6 million euros over the term. This instalment plan is only worthwhile if the foundation generates a return of more than 5.5 per cent after tax, or if an immediate payment would jeopardise its assets. If the assets consist of tax-privileged business assets, the exemption rules under Sections 13a and 13b of the Inheritance Tax Act (ErbStG) also apply here (Section 13a(11) ErbStG), which can significantly reduce the tax burden.
Anyone who endows a foundation with illiquid assets and fails to build up reserves for thirty years will, on the cut-off date, be faced with a claim that can only be met by selling the assets.
Why the compulsory share remains in force despite the establishment of a trust
A trust does not eliminate the statutory share. It merely changes the persons to whom it applies and the difficulty of enforcing it. The statutory share is payable to children, spouses and registered civil partners; it is payable to parents only if no descendant is entitled to claim it. It is a claim to a sum of money amounting to half of the statutory share of the estate and is directed against the heirs (Section 2303 of the German Civil Code (BGB)). In the context of a foundation, a distinction must be made between two scenarios.
If the foundation is established in a will, the statutory share remains unaffected. It is then deemed to have been established prior to the founder’s death with regard to the founder’s donations (Section 80(2), second sentence, of the German Civil Code (BGB)) and becomes an heir or legatee. As an heir, it is itself liable for the compulsory share in full from the entire estate. If it is merely a legatee, the heirs remain liable, but may then reduce the legacy proportionately (Section 2318(1) of the German Civil Code (BGB)). In economic terms, the liability in both cases falls on the assets intended for the foundation, and because payment is to be made in cash, it may be necessary to realise precisely those assets that were intended to be tied up.
If the foundation is endowed during the donor’s lifetime, the claim for a supplementary compulsory share applies. Anyone who makes a gift reduces the value of their estate, and Section 2325 of the German Civil Code (BGB) provides protection against this by adding the value of the gift back to the estate for calculation purposes. The Federal Court of Justice has expressly ruled that a donation to a foundation constitutes a gift subject to the right to a supplementary share in the case of endowments and donations (judgement of 10 December 2003, IV ZR 249/02). In practice, the endowment of assets upon the foundation’s establishment is treated in the same way, albeit on different legal grounds.
It therefore depends on the ten-year period. A gift made in the year immediately preceding death counts in full; for each subsequent year prior to death, the value is reduced by one-tenth; after ten years, it is disregarded (Section 2325(3) of the German Civil Code (BGB)). However, according to established case law, this period only begins when the testator actually relinquishes economic control of the asset. Anyone who gifts a plot of land subject to a right of usufruct over the entire property has not relinquished ownership, and the period does not normally commence (Federal Court of Justice, judgment of 27 April 1994, IV ZR 132/93). If, on the other hand, the testator reserves only a part of the rights of use – for example, a right of residence in a single flat – the limitation period may well commence (Federal Court of Justice, judgment of 29 June 2016, IV ZR 474/15). The decisive factor is an overall assessment.
The Federal Court of Justice has not yet ruled on how this standard is to be applied to foundations. It is generally assumed that the founder’s mere role on the board is not problematic, as he is managing third-party assets for a third-party purpose. It is a matter of debate what applies if the founder is himself one of the beneficiaries, reserves rights of use for himself, or continues to exercise control via supervisory bodies. The closer his position is, in economic terms, to that of a usufructuary, the greater the risk that the time limit will not even begin to run.
When it comes to valuation, however, a rule applies in favour of the foundation. The lower of two values is taken: namely, the value at the time of the gift, adjusted for changes in purchasing power to reflect the date of death, or the value at the date of death (Section 2325(2), second sentence, of the German Civil Code (BGB)). Any increase in value that a business or a property undergoes whilst under the foundation’s management is therefore not available to the beneficiary of the compulsory share.
If the estate is insufficient to cover the shortfall – which is usually the case with a well-endowed foundation – the beneficiary may make a claim directly against the foundation (Section 2329 of the German Civil Code (BGB)). The foundation must allow the claim to be made and may avert this by paying the shortfall. Unlike the compulsory share claim against the heirs, this claim becomes time-barred exactly three years after the opening of the succession, regardless of whether the beneficiary was even aware of the foundation’s existence (Sections 195, 2332 of the German Civil Code (BGB)).
For those entitled to a compulsory share, the difficulty begins with simply finding out about the trust in the first place. The heirs are obliged to provide information (Section 2314 of the German Civil Code (BGB)), including details of gifts, which include the endowment of the trust. A notarial inventory of the estate, in which the notary must determine the assets themselves, may be requested from the outset and not only once the private inventory has proved unsatisfactory (Section 2314(1), third sentence, of the German Civil Code (BGB)). The costs are borne by the estate. There is no public register from which a foundation’s endowment can be ascertained. Although family foundations are listed in the Transparency Register along with their beneficial owners – that is, the founder, the board of directors and the beneficiaries – access to this register is granted only to those who can demonstrate a legitimate interest within the meaning of anti-money laundering legislation (Section 23 of the Money Laundering Act (GwG)). This is generally insufficient for the enforcement of claims under inheritance law, and the register does not list assets in any case.
In practice, therefore, the statutory share can only be waived by the beneficiaries themselves. A notarised waiver of the statutory share, usually in return for a settlement payment, takes effect immediately and is not subject to any time limit (Sections 2346 and 2348 of the German Civil Code (BGB)). It may also be limited in scope to specific assets, such as the business contributed to the foundation. The testator must personally conclude the agreement (§ 2347(1) BGB). Often, the waiver is linked to the waiving party being secured as a beneficiary. In this context, it is essential that the articles of association grant them a genuinely enforceable claim; otherwise, they would be exchanging a secure monetary claim for a mere expectation.
If you are yourself entitled to a compulsory share and come across a trust
Normally, the statutory share is claimed from and paid out to the heirs in the usual way. Things become complicated if a significant portion of the estate has previously been transferred to a trust. This then involves obtaining information going back several years, valuing company shareholdings or property as at two specific dates, and often a protracted legal process. In such cases, Erbfinanz bears the cost risk of enforcement, so that you do not have to pay for solicitors, expert reports and court costs up front. Legal representation is always provided by a specialist solicitor. The fee is agreed in advance and is payable only if the case is successful.
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What donors regularly underestimate
The founder loses all control over their assets permanently. Whilst they are still alive, they can largely retain influence through the board of directors or a supervisory body, but this is no longer the case thereafter. However, the foundation is designed to last for generations, and the founder will not be around for the greater part of that time.
Anything omitted from the founding articles of association is permanently omitted. Amendments to the articles of association are subject to a tiered system of rules (Section 85 of the German Civil Code (BGB)). The purpose may only be amended if it can no longer be fulfilled on a permanent basis or if it jeopardises the public good. Fundamental provisions such as the name, registered office and the manner in which the purpose is fulfilled require a substantial change in circumstances. The founder may facilitate amendments, but only within the deed of foundation itself and only if he or she defines the content and scope of the authorisation with sufficient precision. Blanket clauses granting the board of trustees a free hand are invalid.
Anyone who overlooks this crucial decision at the time of incorporation will not be able to rectify it later. And even if the articles of association allow for some flexibility, any amendment will also require the approval of the foundation authority.
Family disputes do not disappear; they are put on hold. The best-known case is that of Aldi Nord, where the assets were divided amongst three family foundations, whose boards were required to take major decisions unanimously. When the family factions fell out, the structure was paralysed for years; the dispute ended up in public court, and it was only resolved in 2023 through a restructuring into a joint holding company.
It is also impossible to wind up the foundation. A family foundation cannot be dissolved by a family decision. The board of directors is required to wind it up if its purpose can no longer be fulfilled on a permanent basis; however, an amendment to the articles of association takes precedence, and even then, the approval of the relevant authority is required (Section 87 of the German Civil Code (BGB)). The articles of association must specify to whom the assets are to be transferred. In the absence of such a provision, they revert to the tax authorities of the country in which the foundation is based (Section 87c of the German Civil Code (BGB)).
The alternatives and what they offer
The family company, often referred to as a ‘family pool’, is the most common alternative. The assets are transferred into a company, usually a GmbH & Co. KG, and the shares are gradually gifted to the next generation. Gift tax allowances can be utilised anew every ten years; voting and profit-sharing rights can be structured independently of the shareholding percentage; and the structure can be adapted if circumstances change. The fundamental difference from a foundation is that the shares remain part of the shareholders’ assets. They are once again relevant to the statutory share of the estate in the event of the shareholders’ subsequent deaths and are vulnerable to seizure in the event of insolvency.
The family pool also offers only limited protection under the law on compulsory shares. In November 2025, the Munich Higher Regional Court ruled that the ten-year period does not commence if, although company shares are transferred, the transferor reserves a usufruct over 95 per cent of the distributable profits and the right to vote on day-to-day matters (Judgment of 10 November 2025, 33 U 1573/24 e). Anyone who retains the income therefore faces the same conflict of interest as with a foundation.
The dual foundation combines a charitable foundation, which holds the shares with substantial capital but few voting rights, with a family foundation, which retains control via the voting rights. As the transfer to the charitable foundation is exempt from inheritance tax and its share is not included in the basis of assessment for inheritance substitute tax, the tax burden is significantly reduced. The structure is complex and only proves cost-effective for companies with substantial assets.
The trust foundation is the opposite of this. It does not require official recognition and can be set up within weeks, but it does not have legal personality. The assets belong to a sponsor, who manages them in accordance with the agreed rules. It is therefore of limited suitability for the long-term commitment of corporate assets, and its tax treatment remains partly unclear.
Foreign family foundations in Liechtenstein or Austria have become less attractive as a result of two developments. In November 2025, the European Court of Justice ruled that, whilst restricting the tax class privilege to domestic foundations does restrict the free movement of capital, it may be justified by the inheritance substitute tax, which applies only to domestic foundations (judgement of 13 November 2025, C-142/24). The Cologne Finance Court is now examining whether the provision is proportionate. For the time being, foreign foundations will therefore be placed in tax class III upon being endowed. In addition, there is the imputed taxation under section 15 of the Foreign Tax Act (AStG), which attributes assets and income to the founder or the beneficiaries unless proof of exemption can be provided.
A traditional gift subject to a right of usufruct remains the simplest and cheapest option. Tax allowances can be utilised every ten years, and the donor’s provision is secured through the usufruct. The cost is known. The assets become further fragmented in the next generation, and are once again vulnerable to challenge in the hands of the recipient.
Register, Karlsruhe, tax rate
The nationwide register of foundations is being launched later than planned. It was originally due to be launched by the Federal Office of Justice on 1 January 2026, but a law passed in December 2025 postponed the launch to 1 January 2028 because the technology was not ready in time. Existing foundations must register by the end of 2028. For family foundations, the transition is not merely a formality, as the register is open to public inspection and the submitted articles of association are, in principle, also available for inspection, unless a legitimate interest in restricting access is demonstrated.
In October 2026, the Federal Constitutional Court will hear two cases relating to inheritance tax: on 12 October, a review of the Bavarian State Government’s regulations concerning tax-free allowances, tax rates and the valuation of real estate; and on 13 October, a case concerning the exemption of business assets. Decisions are not expected until 2027 at the earliest. As the exemption rules also apply to substitute inheritance tax, the outcome will have a direct impact on family foundations holding business assets.
Corporation tax will be reduced gradually from 2028, from 15 per cent to 14 per cent in 2028, and then by a further one percentage point each year until it reaches 10 per cent from 2032 (Section 23 of the Corporation Tax Act). For a foundation that accumulates income rather than distributing it, this will significantly improve its financial position.
Frequently Asked Questions
As a founder, can I be one of the beneficiaries myself?
Yes, this is permissible and common practice. From a tax perspective, it does not alter the tax liability associated with the foundation’s establishment, as the foundation remains a separate legal entity even if the founder is the sole beneficiary. In terms of the right to a compulsory share, this is the most sensitive aspect of the entire arrangement, as it is disputed whether the ten-year period even begins to run whilst the founder continues to have an economic interest in the assets.
Does the trust protect my assets from creditors?
As a general rule, yes, vis-à-vis the family members’ creditors. However, the transfer remains vulnerable to challenge by the settlor’s own creditors. Gifts made without consideration are contestable for a period of four years (section 134 of the Insolvency Code (InsO), section 4 of the Act on the Contestability of Transfers (AnfG)); in cases of deliberate prejudice to creditors, this period is extended considerably. A foundation is therefore not a suitable response to a crisis that is already foreseeable.
What happens if the family wants to leave at a later date?
If the dissolution is successful under the strict conditions set out in Section 87 of the German Civil Code (BGB), the transfer of assets to the beneficiaries is once again subject to tax (Section 7(1)(9) of the Inheritance Tax Act (ErbStG)). In any case, the settlor is regarded as the donor in this context, so that the tax bracket is determined by the relationship to him. If inheritance substitute tax was paid shortly beforehand, it is credited on a pro rata basis: 50 per cent within two years and 25 per cent within four years (Section 26 of the ErbStG).
When is a family trust worthwhile?
A family trust is not a tax-saving scheme. It is a tool designed for a specific purpose: to keep assets together in the long term and to remove them from the scope of inheritance law. Where this purpose applies – for example, in the case of a family business without a suitable successor, or where assets are to be prevented from being fragmented across several generations – there is hardly anything else of equal value. Where it does not apply, the costs remain a major factor; and as regards the statutory share, the foundation only helps if it is set up during the founder’s lifetime and the founder is truly willing to let go.
Whether a family trust works is decided at the time of its establishment, not later. The group of beneficiaries must be appropriate from both a tax and a family perspective; the articles of association need to allow scope for changes, and they must include a provision for the event that the family falls out. Anyone who clarifies these issues in advance with a specialist solicitor and tax adviser will know exactly what they are getting into. Anyone who leaves them unresolved is passing them on to a generation that will no longer be able to ask the founder.
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Note on the content of this guide
The articles in this guide are intended to provide general information on inheritance law matters. They do not constitute legal advice and are no substitute for advice in individual cases. Whether a claim exists, and if so, to what extent, always depends on the circumstances of the specific case. Only a solicitor can provide a definitive assessment; in matters of inheritance law, this is usually a specialist solicitor in inheritance law.
All content is carefully researched and regularly reviewed. However, legislation and case law are subject to change. We are therefore unable to guarantee that the content is accurate, complete or up to date.
Note on the use of artificial intelligence
The articles in this guide are produced with the help of artificial intelligence and are editorially reviewed and approved.