Content of the Federal Court of Justice’s decision on formal requirements for foundation donations
In its judgment of October 7, 2009 (Case No. Xa ZR 80/08), the Federal Court of Justice clarified key aspects regarding the formal requirements for contracts on the allocation of funds to foundations. The central question was whether such allocation agreements require notarization if they merely contain pledges of funds to an already existing foundation.
Initial situation and reason for the decision
The decision concerned a contractual agreement between two parties, in which one party intended to transfer assets to an already established foundation in the future. The dispute focused on the validity of this contract, especially whether the formal requirements of Section 518 of the German Civil Code (BGB) on gifts or even Section 311b BGB on property transactions should apply by analogy, thus requiring notarization.
Key considerations of the Federal Court of Justice
Formal requirements for the allocation of foundation assets
The Federal Court of Justice determined that a contract assuring the allocation of funds to an already existing foundation does not require notarization. The crucial distinction was between the establishment of a foundation as such and the mere donation of assets to an existing foundation.
The establishment of a foundation as a legal act is associated in most German states with specific formal requirements, such as written or notarized form depending on the foundation’s purpose—particularly when real estate is contributed. However, if a contract relates solely to the subsequent endowment of an already established foundation with assets, and these contributions do not involve any special purpose, such as the transfer of real property, there is no statutory obligation for notarization.
Distinction from gifts and property transfers
In particular, the Federal Court of Justice clarified that the provision of Section 518 BGB (formal requirement for gifts) does not apply directly to such foundation donations. While the subsequent transfer of assets to a foundation may generally be subject to the form required under Section 518 BGB, this relates solely to the act of transfer itself. The contractual obligation to make a donation can also be validly fulfilled through actual performance (factual act) without notarization, provided the gift promise is executed by means of the subsequent donation.
Moreover, Section 311b (1) BGB, which requires notarization for contracts concerning real estate transactions, is only relevant if the transfer of real property is specifically involved as part of such a donation. If the donation promise relates to other assets, there is no formal requirement for notarization under the aforementioned provision.
Practical significance and implications for foundations and donors
The decision of the Federal Court of Justice has far-reaching significance for the practice of foundation law. It provides clarity regarding the formal requirements that donors and the management bodies of foundations must consider when entering into and structuring such agreements.
Structuring options and legal certainty
Foundations and potential donors can act flexibly when contractually recording commitments, without incurring the additional effort of notarization. Banks, asset managers, and institutional investors also receive reliable guidelines for contract drafting and compliance based on this decision.
Tax aspects
Although the Federal Court of Justice did not expressly comment on the tax consequences in the case at hand, it should be noted that the formal requirements for foundation donations can, among other things, affect tax recognition for the purposes of deductibility of donations or gift tax assessments. This requires a differentiated analysis of the relevant agreement and the tax authorities’ access to the specific contract contents.
International aspects
For cross-border matters, such as the donation of foundation assets to foreign foundations or by foreign legal entities, the decision of the Federal Court of Justice does not have immediate binding effect in other jurisdictions, but it can serve as guidance for the application of German law.
Conclusion
With its decision, the Federal Court of Justice sets a clear signal regarding the handling of formal requirements for allocation contracts in favor of already existing foundations. Neither the donation form under Section 518 BGB nor the stricter notarial form under Section 311b BGB is required, provided that no real estate transactions are involved or new foundations are being initiated. Nevertheless, it is always advisable to examine each individual case, taking into account all legal—especially tax—implications.
If you have further questions regarding the legal requirements and structuring options for donations to foundations, the Rechtsanwalt of MTR Legal, with sound expertise and comprehensive industry knowledge, are at your disposal.
