The first bill was for 12,000 euros. The founder had commissioned a law firm renowned for foundation law on an hourly basis. He checked the timesheets and in the end only paid a good third. His foundation had not yet been founded.
Today, two and a half years later, he has calculated how much a charitable foundation costs in everyday life. He has four million euros invested in bonds, distributing stock funds and certificates. Nothing exotic. Annual financial statements, accounting, document management, transparency register and an identification number for securities trading cost just under 4,900 euros per year. In addition, there are 118 hours of his own time: 50 for investments, 18 for accounting, 25 for foundation supervision, tax office and minutes, five for donation receipts. There are 20 hours left to decide who should get the money.
If invested carefully, four million euros can generate a good 110,000 euros in regular income per year. Depending on how expensive the funds are, a fifth to half of this goes to administration, bank and product fees, with your own time calculated at 50 euros per hour.
I know about a hundred such cases. A founder on Sylt told me last year that he had paid 150,000 euros in legal fees before giving up the foundation. Most people go through with it and have the experience that a well-known founder described to me like this: the foundation itself becomes a funding project. The art and culture for which he founded it come after. Peter Ackermann has found a way out for his Kreuzberg children's foundation. He has restructured his work in a non-profit stock corporation and is now using the foundation, which cannot be dissolved, as a source of assets with minimal effort.
He is the only one in this series who wants to be mentioned by name. The others prefer to remain anonymous. Anyone who gives a lot of money to a good cause is reluctant to admit that a large part of it never arrives.
What is annoying at four million becomes absurd below that. The costs do not shrink with the assets. Every foundation needs annual financial statements, a tax return, a securities account, a committee, and supervision. Half of the approximately 27,000 German foundations have capital of a maximum of 250,000 euros. Such a foundation, when invested safely, generates around 7,000 euros a year. Tax advisor, bank and fund fees realistically cost a good 5000 euros, without an hour of volunteer work. Three quarters. Around 150 euros per month remain for the purpose of the statutes.
No investor buys a fund whose costs eat up three quarters of the return. And no one with 250,000 euros would be able to afford their own family office for their wealth. With foundations, no one notices. There is no public register of their finances, no obligation to report administrative costs and no limit above which the tax office intervenes. In the United States, foundations must publish their tax returns and distribute five percent of their assets each year.
Given the diversity of foundations, uniform guidelines are difficult. However, their complete absence means that most of the approximately 20,000 foundations spend less than a million euros more on themselves than on their purpose. Such foundations survive on donations, or they need someone to manage their remains if the donors die or lose interest.
Several hundred foundations are registered under the address of a single Frankfurt bank. It manages the assets, appoints committee members if requested and calculates both. I call such foundations zombies: they are actually dead, but they continue to walk around because their assets must be preserved forever, no matter how small and unproductive they are.
The money could be woken up. Managed together, with costs of 0.4 percent and an investment that can afford more shares, the same assets would yield two to three times as much for their purposes as they do today. If the foundations were allowed to use their capital over 20 years, it would be ten times as much.
Community foundations, trust models and digital foundation accounts have long been offering such bundling, but very few people are aware of the offers when they are founded. And after that it's too late. However, foundation law only allows mergers if the circumstances have fundamentally changed or a foundation can no longer fulfill its purpose. Being uneconomical is not enough.
However, the individual foundations continue to be founded, advised by those who earn money from the individual foundation. Tax advisors, foundation lawyers and private banks calculate how much inheritance tax they will save. Who calculates how much of the income remains in the administration?
The donor with the four million did it himself. With today's knowledge, he says, he wouldn't have founded his own foundation.
