It is a misconception to assume that foundations are established primarily for tax reasons. Rather, the founder’s concern that the cohesion of the family fortune could be jeopardised by the statutory succession law often plays a major role. The primary concern here is the fear that the assets will be fragmented (due to inheritance law). This can affect cash assets, but more often company participations, i.e. shares.
After the death of the founder, it may happen that the legal heirs do not agree with the establishment of the foundation and want to challenge the establishment of the foundation or the dedication of assets to it. In this context, there are essentially two reasons for such a challenge. While challenges based on error or other defects of consent are generally futile, the challenge of the dedication of assets to the foundation could also be challenged in the same way as a gift. However, there is a decisive time limit here: any (gratuitous) disposition made by the testator more than two years before his death is incontestable. This means that the disposition of assets to a Liechtenstein foundation is generally incontestable after two years.
This stability also applies to cross-border inheritance cases because the Liechtenstein international private law refers to the deadlines applicable under Liechtenstein law. Thus, the following also applies in international inheritance cases: two years after the endowment of assets to the foundation, it is generally incontestable.
Thanks to the clear Liechtenstein legal situation, founders can ensure that the assets they have generated will not be fragmented by way of succession.
In summary, the establishment of a Liechtenstein foundation is very advantageous for the purposes of asset preservation. Thanks to the clear Liechtenstein legal situation, founders can ensure that the assets they have generated will not be fragmented by way of succession. At the same time, the statutory succession can also be easily reflected in the foundation documents, so that the heirs do not suffer any disadvantage from the establishment of the foundation.
In the third part of our series, we examine essential corporate law aspects of dispute resolution.
