The consumption foundation makes it possible to use up all of the foundation's assets within a certain period of time. It can be an effective response to the ongoing low-interest phase and open up new structuring options in foundation law, particularly with regard to supporting relatives.
The recognition of the consumption foundation in foundation law
In 2013, the Consumption Foundation was legally recognized in foundation law by the Voluntary Service Reinforcement Act.
In foundation law, the consumption foundation is a foundation that is to be established for a specific period of time, during which all of its assets are to be used to fulfill the foundation's purpose (§80 (1) sentence 2 of the German Civil Code; BGB).
The Federal Association of German Foundations estimates that there are over 22.000 foundations with legal capacity in the Federal Republic of Germany, with an estimated starting capital of €68 billion. For these founders in Germany, the consumer foundation offers an attractive alternative to the traditional foundation.
What is a consumer foundation?
One of the essential elements of the traditional foundation, as opposed to other civil law institutions, is its lifespan (§80 I sentence 2 BGB). In principle, a conventional foundation under foundation law can exist for an indefinite period of time, even in perpetuity, and serve the purpose of the foundation continuously (perpetual foundation).
In contrast to this, the consumer foundation in foundation law is designed for a specific period of time (§80 I sentence 2 BGB). It therefore has a lifespan.
The other significant difference with the consumption foundation is that the foundation assets themselves must be used for the purpose of the foundation. In the case of a conventional foundation under foundation law, these must be preserved.
In other words, a consumer foundation is not restricted to using the income such as interest from its foundation assets to pursue the foundation's purpose. It may successively distribute and use up all of its foundation assets for the foundation's purpose.
An early role model in the US was the renowned Atlantic Philanthropies foundation run by entrepreneur Charles F. Feeney, who lived by the principle of „Giving While Living”. „Organizations that get older become sclerotic. You can see that in the oldest foundations. It's a passion of Charles F. Feeney and myself to make sure that doesn't happen. We said, let's have fun while we're still alive.” This is how Harvey Dale, the foundation's first president, explains the decision to dissolve the foundation and distribute the foundation's assets of $4 billion in full for philanthropic purposes in the coming years.
The Beatrice and Rochus Mummert-Foundation, which will be closed in 2040 after all of its assets have been used for charitable purposes, serves as a German model.
Establishment, recognition and termination
The establishment of a consumer foundation under foundation law requires state recognition. This in turn is granted if, among other things, the permanent and sustainable fulfillment of the foundation's purpose appears to be assured (§ 80 (1) BGB).
In the case of a consumer foundation, the permanent fulfillment of the foundation's purpose appears to be ensured if the period specified for the foundation in the articles of association is at least ten years (§82 sentence 2 BGB).
Recognition also requires that the founder specifies in the articles of association, among other things, which assets (dedicated assets) are to be used to pursue the precisely defined purpose of the foundation (§81 (1) BGB). This information must always be provided under foundation law.
In the case of a consumer foundation, additional details such as the period for which the foundation is to be established must be provided (§81 (2) BGB). Provisions on the use of the foundation's assets and their consumption must also be specified.
A consumable foundation must be dissolved in accordance with §87 (2) BGB if the period for which it was established has expired.
Consumer foundation as an answer to the low-interest phase in foundation law
A special feature of the consumer foundation in foundation law is that it can be a response to the ongoing phase of low interest rates and create new scope.
This has made it difficult for conventional foundations to pursue their foundation purpose in the long term with the income they generate. This is because in a low-interest phase, this is only financially possible to an insufficient extent, as the income is significantly lower.
A consumable foundation is not dependent on generating interest, as the capital of a consumable foundation is used to pursue the foundation's purpose. This means that, unlike conventional foundations under foundation law, founders do not have to accept higher liability risks.
Increased flexibility
In contrast to conventional foundations under foundation law and the conventional transfer of assets, consumer foundations offer an increased degree of flexibility, particularly for founders who wish to use their assets for a specific purpose during their lifetime.
In contrast to a conventional transfer of assets, foundation law makes it possible to determine exactly which financial resources are to be used for a specific purpose and at what time with the help of a specific foundation charter (see §81 BGB).
The founder can do good during his lifetime and support his relatives and follow and accompany the effects. His assets are not “fossilized” over decades, as in the case of the perpetual foundation, but can be used flexibly.
Foundation law also offers a variety of structuring and conversion options. In principle, the founder does not have to make a rigid decision in favor of a conventional or a consumable foundation before the foundation is established. This flexibility makes it possible to react to unexpected developments on the market and in the personal sphere.
Conversion
A foundation that has been established for an indefinite period can also be converted into a consumer foundation at a later date (§85 (1) sentence 3 BGB). The prerequisites in foundation law are that the founder's will and the foundation statutes permit this and that the statutes are amended to include the additional provisions in accordance with §81 (2) BGB (so-called amendment proviso).
It is also necessary that the foundation can no longer permanently and sustainably fulfill its purpose, in particular if a foundation does not have sufficient funds for the sustainable fulfillment of the foundation's purpose and this would change if it were converted into a consumer foundation (§85 (1) number 1 BGB).
This conversion option is particularly advantageous if the foundation still has foundation assets, but these can no longer be used to sustainably pursue the foundation's purpose as sufficient income can no longer be generated. Conversion is therefore an efficient solution in periods of low interest rates.
In response to a small question from CDU member of state parliament Daniel Sieveke in 2015, the state government of North Rhine-Westphalia replied to the question of how it assessed the impact of the low-interest phase on perpetual foundations: „The ongoing low-interest phase is increasingly presenting perpetual foundations with serious problems in fulfilling the purpose of the foundation because it is no longer possible to generate sufficient funds to fulfill the purpose when old investment contracts expire.”
Partial use foundation
Foundation law also offers the option of setting up a partial-use foundation. This combines the advantages of the perpetual foundation with those of the consumable foundation and offers a further option for flexible structuring in foundation law.
This is because with a partial-use foundation, the liquid funds can be used to pursue the purpose of the foundation. This part corresponds to a consumption foundation.
At the same time, the partial-use foundation is established permanently and for an indefinite period, like a conventional foundation, whereby the long-term purpose of the foundation is pursued with the income from the remaining foundation assets.
The establishment of a partial-use foundation under foundation law makes sense and is advantageous if a foundation is not fully able to pursue the foundation's purpose with its income.
In addition, it also offers the special possibility of using part of the assets for specific purposes, while the other part remains secure and generates income.
The partial consumption foundation is particularly suitable if the founder wishes to support future generations. The founder can finance the education of children and at the same time leave the remaining part of the foundation's assets untouched and use it for other purposes or for further educational or support activities in the future.
Consumption foundation as a succession planning instrument
In contrast to the traditional family foundation, the organization as a consumption foundation can also prove to be advantageous.
This is because in periods of low interest rates, the traditional family foundation, which serves as an asset succession instrument or as a maintenance foundation to secure and provide for family members, is less efficient.
The so-called family endowment foundation also offers the advantage that the founder can determine the distribution of the assets in a much more specific and planned manner.
Because the foundation is set up for a specific period of time, the founder can specify in the articles of association exactly which part of the assets should go to which relatives and for which purposes to support the relatives within the personally experienced generation. The founder can consciously decide against benefiting distant and unknown relatives if, for example, his children remain childless.
Whether income tax is payable on distributions to favoured family members in the case of the family consumption foundation, as would be the case with the conventional family foundation, can be examined. This follows from the fact that in the case of a consumption foundation under foundation law, the foundation assets and not the income are paid out.
A conversion from a family foundation to a family consumption foundation under foundation law can be reserved in the articles of association.
Non-profit status
In principle, a consumer foundation, insofar as it selflessly, exclusively and directly pursues a charitable purpose, can benefit from full tax concessions in accordance with §§51 et seq. Tax Code; AO.
In the case of family foundations under foundation law, it should be noted that these are often set up as private-benefit foundations if the main purpose is to provide for and benefit family members. In this case, the foundation cannot benefit from tax concessions.
However, founders have the option of setting up a charitable foundation and providing support for their relatives in accordance with §58 (6) AO. This is an exception to the law on foundations, in which tax relief is generally linked to the strict pursuit of charitable purposes.
The prerequisite is that the foundation uses a maximum of one third of its income for the maintenance of relatives ‘in an appropriate manner’. When maintenance is appropriate also depends on the standard of living of the relatives.
The prerequisite is that the foundation uses a maximum of one third of its income for the maintenance of relatives „in an appropriate manner”. This criterion has not been fully clarified in foundation law. When maintenance is appropriate probably depends on the relatives' standard of living.
Resumé
The consumer foundation opens up new scope in foundation law to utilise assets in a targeted and flexible manner during a person's lifetime. There is an exception to this rule if founders wish to use their assets to support relatives in a planned manner and at the same time take action in terms of tax planning.
„The endowment foundation supplements the traditional perpetual foundation with a modern and flexible solution. As a targeted response to periods of low interest rates, it creates room for manoeuvre for the planned and effective use of assets and their transfer." Says dtb-partner and foundation law expert Bertold Schmidt-Thomé.
Status 27.05.2025