The Austrian private foundation has become less attractive due to various legislative changes and recent supreme court judgements. At the same time, however, important family businesses are still structured via private foundations. The founding families often complain that they lack any influence over the administration of the foundation, leading to alienation between the foundation/the foundation board and the beneficiaries. This situation often becomes intrinsic from the death of the original founder at the latest.
The Liechtenstein sub-foundation offers an effective means of separating family lines and gaining more influence over the administration of the foundation.
In practice, the establishment of a Liechtenstein sub-foundation has proven to be an effective means of defusing the situation outlined above. The Liechtenstein foundation offers founders and beneficiaries considerably more opportunities to exert influence and have a say than their Austrian counterpart. For example, it is possible to set up an advisory board made up exclusively of family members, which has approval and consultation rights that would not be possible in this constellation in Austria.
In the case of a sub-foundation, the Austrian private foundation acts as the founder of a new – Liechtenstein – foundation. In addition, other persons can also act as founders and thus also exercise all founder rights within the framework of the Liechtenstein foundation. For this to be possible, the establishment of a sub-foundation and the addition of further founders must be provided for in the foundation declaration of the Austrian private foundation. However, as long as a founder has a right to make changes, this can also be subsequently included in the foundation declaration of the Austrian private foundation.
According to the Austrian Supreme Court, the purpose of the sub-foundation must be congruent with that of the founding foundation. It is therefore easiest to adopt the purpose of the Austrian private foundation in the Liechtenstein foundation. At the same time, the beneficiaries of the sub-foundation do not necessarily have to be identical to those of the Austrian private foundation. For example, the Liechtenstein sub-foundation can also be used to separate family lines in the Austrian private foundation and allocate ‘separate’ sub-foundations.
The question often arises as to which assets are suitable for transfer to a Liechtenstein sub-foundation. As a rule of thumb, all ‘bankable assets’ are well suited for transfer to a sub-foundation and all other assets, such as real estate, are not.
