What is a family foundation according to Swiss law?
Family foundations primarily serve to support or provide education to family members who are dependent. The permitted purpose is closely circumscribed and stems directly from the law. The normal statutory provisions also largely apply to family foundations.
The circle of beneficiaries is limited to the members of a particular family. Only they may profit from the benefits of the foundation. Family members are people who are related by blood, marriage or adoption. In-laws are also included if there is a blood relation to one of the spouses.
Purpose of family foundations
The purpose must satisfy strict criteria and may only pay for the costs of raising, endowing or supporting family members (Art. 335 Para. 1 ZGB (Swiss civil code)). This list is exhaustive and no other purpose descriptions are permitted. The fundamental idea behind the narrowly defined purpose is to help family members in situations with special needs (establishing their own livelihood, education, etc.) in a targeted way.
According to the ruling of the Federal Court, there is a ban on foundations which grant funds to family members without preconditions for maintenance or pleasure purposes. The foundation therefore may not serve to ensure greater prestige or a higher living standard for the family.
How it differs from a typical foundation
Generally, the same rules for normal foundations apply to family foundations (see. blog entry). One difference is that family foundations do not require an entry in the commercial register (Art. 52 Para. 2 ZGB) and are not subject to regulatory supervision (Art. 87 Para. 1 ZGB). Amendments may only be made to the foundation’s charter via judicial proceedings (Art. 87 Para. 2 ZGB). Family foundations do not benefit from the usual tax exempt status of foundations which means that establishing such a foundation is regularly connected with negative tax implications.
Consequences of inadmissibility
Family foundations are void ab initio if they have an illegal or unlawful purpose or are aimed at profiting family members in an illegal manner (Art. 52 Para. 3 ZGB). They are then declared as void in a judicial proceeding and cease to exist. An appeal can be initiated at any time.
In contrast to typical foundations, the donated funds go back to the donor. The void foundation may be converted into a permissible form if it is evident that the donor intended to establish a different type of foundation which would be permissible.
