The family foundation across generations: what should be arranged in good time

The Austrian Private Foundations Act does not establish a separate legal form called a family foundation. The term describes a private foundation whose purpose, group of beneficiaries and assets are focused on a family. Under section 1 PSG, the foundation is itself a legal entity. Shares, real estate, securities and other assets validly transferred to it no longer belong to the founder and do not enter the founder’s estate on death.

The founder’s death nevertheless triggers a transition. Ownership of foundation assets does not change, but the previous system of influence may lose its central figure. Reserved governance powers, personal appointment rights and informal authority must be distinguished from the lasting rules contained in the foundation declaration.

The topic page on family wealth and succession explains the long term asset structure. This article focuses on the change of roles: who may act after the founder, who supervises the board, how beneficiaries are identified and which decisions family bodies may lawfully make.

Section 3(3) PSG provides that a founder’s rights to shape the foundation do not pass to legal successors. The Austrian Supreme Court has clarified that the rights of a natural person can no longer be exercised after that founder’s death. Nor can a representative continue to exercise the amendment power after death. Heirs therefore cannot amend the foundation declaration or revoke the foundation merely because they inherited the founder’s estate.

A foundation with several original founders must be distinguished from that position. Under section 3(2) PSG, they generally exercise founder rights jointly unless the foundation deed provides otherwise. The Supreme Court has accepted a sequence under which other existing cofounders may exercise governance rights after the death of a founder who previously had priority. This is not inheritance. It is an exercise regime agreed from the outset.

If members of the next generation are intended to assume such a position, naming them as future heirs is insufficient. They would need to hold founder status in law and be covered by a valid rule on the exercise of those rights. A later contribution of assets does not create founder status under section 3(4) PSG.

Once the private foundation exists, a founder can amend its declaration under section 33(2) PSG only if that power was reserved. Its scope and limits are found in the notarised text. If the founder route is later unavailable, the foundation board has only a narrow power to adapt the declaration to changed circumstances while preserving the foundation purpose, subject to court approval. The topic page on founder rights, amendment and revocation explains this distinction in detail.

The foundation board remains the managing body. Under section 17 PSG, it manages and represents the foundation, fulfils its purpose and complies with the foundation declaration. A generational transition must not turn it into the executor of changing family majorities. The foundation needs a board that listens to family interests while making its own decisions for the benefit of the foundation.

Section 15 PSG protects this independence through incompatibility rules. Beneficiaries, their spouses or partners and certain close relatives may not serve on the foundation board. The exclusion also applies to persons instructed by beneficiaries or covered relatives to represent their interests on the board. The next generation therefore cannot simply replace the founder through board appointments.

Family influence can be structured through an additional body under section 14(2) PSG. An advisory board may receive information rights, consent powers, proposal rights or authority concerning the appointment and removal of board members. The stronger its powers, the more carefully its membership, voting rules and statutory limits must be reviewed. If the body may remove the board, section 14(3) PSG generally requires a three quarter majority, or unanimity where the body has fewer than four members.

For removal on grounds other than those listed in section 27(2)(1) to (3) PSG, section 14(4) PSG also limits the voting influence of beneficiaries, their relatives and instructed representatives. Family members may participate, but they cannot replace independent foundation management with an unrestricted removal power. The topic page on advisory boards and supervisory bodies explains these powers more fully.

An informal family council can assist communication, shared values and conflict resolution. Without a basis in the foundation declaration, however, it does not make decisions for the foundation. If it is to receive binding powers, its tasks, members, election, departure, voting rights and relationship with the board must be documented in legally effective form.

Under section 5 PSG, a beneficiary is a person named in the foundation declaration or identified by the body appointed for that purpose. If no such body has been appointed, identification falls to the foundation board. The transition therefore depends on whether the declaration names individuals, defines family groups or establishes a procedure for later selection.

Abstract terms such as descendants, family members or family branch require precise definitions. The provisions should address adoption, stepchildren, unborn descendants, spouses, former spouses and movement between family branches. Whether a person becomes a beneficiary through membership in a class or only through a separate identification decision also affects information rights, distributions and the person’s position in a dispute.

Beneficiary status does not automatically create a right to equal or regular distributions. The board must consider the foundation purpose, the declaration, liquidity and creditor protection. Distribution criteria may cover education, health, maintenance, business projects or other purpose related needs. They should be concrete enough to support consistent reasons while preserving the discretion the board needs.

Section 30 PSG supports transparency. Beneficiaries may request information about fulfilment of the foundation purpose and inspect central documents. Structured communication reduces the risk that every refused distribution is treated as discrimination against a family branch. The topic page on beneficiaries and information rights explains the scope and enforcement of those rights.

If the foundation holds a family business, the next generation does not inherit its shares. The foundation remains the shareholder. Its board exercises ownership rights and decides how supervision, strategy and shareholder resolutions are handled. Operational management, foundation management and the family body therefore require separate areas of authority.

Succession in the company’s management is a separate project. A family member may be suitable to manage the business without holding an office in the private foundation. Conversely, the foundation board must be able to supervise the company without moving into day to day management. The articles of association, shareholders’ agreements and foundation documents must not create conflicting majorities or appointment rights.

Real estate presents similar tensions. A family home, rental property or business site remains a foundation asset. Use by beneficiaries, investment and sale require a legal basis, an economic assessment and a reasoned board resolution. Personal attachment to a property does not replace a decision made in the foundation’s interest.

The transition plan must also address liquidity. A foundation may hold valuable assets while lacking freely available funds for tax, maintenance, company finance and distributions. Realistic expectations, reserves and investment budgets prevent a dispute about governing bodies from becoming a disguised dispute about insufficient cash.

The inventory should include every version of the foundation deed and supplementary deed, the commercial register extract, appointments, internal rules, beneficiary identifications, distribution resolutions, asset schedules, articles of association, shareholders’ agreements, real estate records and existing family agreements. The question is not merely whether a document exists, but whether all documents reflect the same allocation of authority.

A common mistake is to equate inheritance with succession inside the foundation. Children may inherit from the founder without receiving founder rights, board offices or distribution claims. Another error is a powerful family advisory board whose membership and removal rules fail to respect statutory limits.

Excessive detail can also cause difficulty. Rigid age limits, mandatory distribution ratios or appointment routes tailored to people known today may fail in later family structures. Sound drafting combines clear authority with defined fallback mechanisms and controlled discretion.

A family constitution can record values, communication rules, qualification expectations and methods of conflict management. It does not replace the foundation declaration, governing body resolutions or corporate agreements. Where the two levels are aligned, the family understands the purpose of the legal rules and the board has a reliable basis for its decisions.