Foundation law offers a foundation form, the trust foundation, that is particularly characterized by its flexibility and diverse design and transformation options.
With this legally compliant vehicle under foundation law, founders can devote themselves entirely to their philanthropic endeavors and address social challenges, as they can delegate administrative tasks and benefit from tax advantages.
What is a trust foundation?
A trust foundation is the "sister" of the traditional foundation under foundation law. A traditional civil law foundation, after state recognition, holds the foundation assets itself and is represented by its board of directors or managing director (see §§80 et seq. of the German Civil Code; BGB) (Other foundations are the corporate foundation, consumption foundation, art foundation, family foundation).
A trust foundation, on the other hand, is a dependent foundation without its own legal personality and does not itself bear any rights and obligations. The civil-law owner of the foundation's assets is the trustee, who manages them in his or her own name for the permanent realization of the foundation's agreed purpose.
The trustee, who acts externally for the trust foundation, can be any natural or legal person with legal capacity. For example, the founder can choose to appoint a trusted person or a registered association, a limited liability company (GmbH), or an independent foundation under foundation law.
The trust foundation does not fall under the provisions of §§80 et seq. BGB regarding legally capable foundations under foundation law, although it already existed in the early Middle Ages and is often referred to as the "basic form of foundation.“
Establishment of a trust foundation
A trust foundation under foundation law is established either through a private law contract between the founder and the trustee during their lifetime or through a testamentary disposition. The most common approach is to establish the trust during the founder's lifetime, as it is particularly suitable for pursuing philanthropic purposes, which the founder wishes to support during their lifetime.
To this end, the founder transfers the portion of their assets that they wish to transfer to the trust foundation as foundation assets. This separates the foundation assets from the rest of the founder's assets.
The contract can be a conditional gift contract. The respective trustee must manage the foundation assets as stipulated by the founder in the foundation's articles of association (§§ 516, 525, 518 (1) BGB).
A trust agreement can also be concluded. This is characterized by the trustee managing the transferred foundation assets in the interest of the founder and for the benefit of the foundation's purpose.
As with other foundation law, the foundation's statutes play a crucial role in trust foundations. The statutes are a declaration under foundation law that the founder makes upon establishing the foundation and which bindingly establishes the intention to establish the foundation and the foundation's precise purpose.
The foundation's statutes can also stipulate that foundation bodies, such as a foundation board, act within the foundation's "internal relationship" and make decisions, for example, regarding the specific use of funds. The founder can also appoint themselves as a member of the foundation board and thus exert concrete influence.
A further difference from a conventional foundation is that a trust foundation is established without state recognition and is not subject to foundation supervision.
Trust foundation upon death
A trust foundation can also be established upon death. The founder can appoint the trustee as heir or as legatee subject to conditions (§§1940, 2192 et seq. BGB).
Once the appointment is accepted, the trust foundation is created without the involvement of the foundation supervisory authority and upon the death of the founder. In this case, the formal requirements of inheritance law and, for example, possible burdens due to statutory share claims must be taken into account.
Advantages of a trust foundation under foundation law
The establishment of a trust foundation offers a number of advantages and design options under foundation law.
Special flexibility
A trust foundation is characterized by a particularly high degree of flexibility with regard to the design and restructuring of the foundation through amendments to its articles of association. Unlike an independent foundation, it does not require the approval of the foundation supervisory authority for amendments to its articles of association.
In particular, this has the advantage that founders can adapt their foundation immediately if external conditions change, specific social challenges arise, or the founder's ideas evolve.
It should be noted that the founder should limit the option for flexible amendments to the articles of association for the period after their death as far as possible. Otherwise, there is a risk that the foundation will no longer be continued in accordance with their original wishes.
Furthermore, a trust foundation offers considerable flexibility with regard to the original capital endowment when establishing a trust foundation. Unlike an independent foundation, there is no prescribed minimum capital requirement.
This means that, for example, an entrepreneur can establish a foundation under foundation law for the purpose of supporting smaller or temporary charitable projects. The hurdle of considerable start-up capital and the potential long-term and bureaucratic lead time are eliminated.
A trust foundation is also not subject to the capital maintenance requirement, which generally applies to traditional foundations. This means that the entire foundation capital can be used to pursue the foundation's charitable purpose, thus enabling effective and direct philanthropic work.
A trust foundation can also be established even if it is not yet clear at the outset which funds and the amount of assets will be transferred to the foundation.
Finally, a certain degree of financial flexibility can be achieved by saving on internal administrative and establishment costs. These, in turn, can be invested in the foundation's work, such as charitable projects, and lead to a more targeted use of the foundation's assets.
Structural options under foundation law
Trust foundations also offer a high degree of flexibility with regard to the structuring and transformation options under foundation law.
On the one hand, an existing foundation with legal capacity can establish a trust foundation under foundation law, for example, to pursue additional philanthropic purposes and initiate targeted projects or activities for the benefit of the charitable organization.
On the other hand, it is also possible under foundation law to establish a trust foundation as a preliminary or transitional stage and to later convert it into an independent foundation. Such an approach can be useful if the founder's foundation funds are initially limited and will be increased over time, or if the foundation's statutes are to be further flexibly adapted.
For example, a founder can thus leave it open during a "test phase" whether to make more specific adjustments to the use of funds in order to pursue charitable purposes more efficiently. During this phase, they can make additional donations or accept donations and contributions.
The non-profit trust
The establishment of a trust is particularly suitable for founders who are philanthropically active and pursue non-profit purposes aimed at solving social challenges (More about Social Entrepreneurship and non-profit organizations).
A well-known example of a non-profit trust is the Zeppelin-Foundation of the globally active and well-known German technology group and automotive supplier ZF Friedrichshafen AG. The city of Friedrichshafen has been the sponsor of the trust since 1947.
In the Zeppelin-Foundation’s statutes of 1908, Count Ferdinand von Zeppelin stipulated that the foundation's assets should be transferred to the municipality of Friedrichshafen and that it should "manage them separately under the name 'Zeppelin Foundation' and use the proceeds for charitable purposes."
Today, the trust foundation supports the city's "cultural and social commitment" with the annual dividends of the Zeppelin-Group, which last year generated revenues of almost 4 billion €.
Tax benefits
German lawmakers have recognized the eligibility of charitable foundations that address social problems and grant them certain tax benefits. Like a traditional foundation, a trust foundation can also receive tax benefits under foundation law (§§51 et seq. of the German Fiscal Code; AO).
For recognition as a charitable foundation, the legal prerequisite is that a foundation purpose is established, which is aimed exclusively and directly at pursuing charitable, philanthropic, or ecclesiastical purposes (see §51 (1) AO).
Specifically, an exemption from inheritance or gift tax applies when the foundation's assets are transferred to the foundation. The trust foundation can also be exempted from paying corporate income tax, acquisition tax, and real estate tax.
If the organization is recognized as a non-profit organization, a reduced VAT rate applies to certain services, and donations to the trust can be deducted as special taxes (§10b of the Income Tax Act; EStG).
These savings can, in turn, benefit the general public and be used for non-profit purposes. They can be used, for example, to initiate transformation processes within philanthropic work or to finance individual projects.
Résumé
The trust foundation is characterized by a special degree of flexibility and individual design options under foundation law, as it can be established with comparatively little effort and start-up capital or converted into an independent foundation. This provides a kind of trial period and the opportunity to respond immediately to new developments by amending the statutes.
"The trust foundation is an important vehicle for founders who are philanthropically engaged. It enables targeted, flexible, and direct commitment to social causes while simultaneously taking advantage of tax benefits," says Maximilian Brazel, dtb-lawyer and expert in foundation law and nonprofit organizations.
Status 05.09.2025