In the article “The private foundation: an interesting planning technique (for you as well)?“, Lien Verhasselt gave an overview of the main characteristics of the private foundation under Belgian law and pointed out the – still important – differences between the Belgian and the Dutch foundation. In this article, we will take a closer look at the private foundation and its value in wealth planning.
An important hurdle to take when choosing a foundation in the context of wealth planning is undoubtedly the disinterested purpose. The assets contributed to the foundation must be used for a disinterested purpose. The foundation may not provide direct or indirect financial benefits to the founder(s), the administrator(s) or any other person. The question can therefore be asked as to how the foundation can be of interest in the context of wealth planning. To answer this question, we will take a closer look at the concept of a ‘disinterested purpose’.
The disinterested purpose is to not be confused with conducting economic activities and making profit. The foundation may develop unlimited economic activities and these activities do not need to be subordinated to another activity, as long as the foundation conduct these activities as a way to achieve its disinterested purpose and without a profit-sharing goal.
What can this disinterested purpose entail?
A foundation can be used to house goods. This means that the goods disappear from the assets of the founder/contributor and the foundation becomes the new owner. From then on the foundation decides how these goods will be used to pursue the disinterested goal. A foundation can also be used as a control vehicle by means of the technique of certification (administratiekantoor or STAK). By this technique the economic ownership and authority over the goods is separated. The authority ends up with the foundation, the economic ownership with the certificate holders. The economic ownership thus remains with the founder/contributor (or other beneficiary) and does not disappear from his or her assets.
“In a Belgian foundation, only shares can be certified which separates the voting rights from the economic rights. In a Dutch foudation most types of assets can be certified.”
When assets are placed in a foundation without certification or when certification is not possible, such as an art collection, a wine collection, a car collection, a share portfolio, a castle, real estate, currency, etc., the question of which purposes can be considered disinterested is the most pressing. The concept should be interpreted broadly. The preserving of the collection, the preserving of the assets, the maintenance of the castle, the maintenance of family members, the education of family members, the education of minor or adult children, the promotion of the name and reputation of the family, the promotion of intellectual works, the promotion of cultural activities, … can all qualify as a disinterested purpose.
Administratiekantoor or STAK
If the foundation is used as a trust office, the disinterested purpose is more obvious. In such case, the foundation is used as a control vehicle for a company in order to maintain its family character (or other disinterested purpose such as grouping certain (minority) shareholders). The voting rights attached to these shares are then exercised by one or more directors. In this way, authority over the company is assigned to those who are most competent or those who represent a family branch. These directors can be family members or professional directors. The (other) shareholders own the economic rights attached to the shares as holders of the certificates. In the event of any distribution of equity (profit, capital, liquidation) this will accrue to the holders of the certificates.
“This control technique anchors a (shareholding of a) company in the family or in a particular group and ensures coordinated management and policy across generations while the economic rights accrue to the shareholders.”
Management, governance and strategy can thus be concentrated in a core of people with the most know-how or who best represent the family or group interests and this independently of an expanding shareholder group in the event of succession between generations or otherwise.
Tax treatment of the foundation
To answer the question why it can be interesting to use a foundation for the purpose of wealth planning or pursuing one of the above goals, we must also look at the tax treatment of the foundation. We will return to this subject in another article.
Are you interested in the foundation or in other techniques as part of your wealth planning? Please feel free to contact Jan Baptist Cooreman.