Comparison Between The Forthcoming Private Wealth Foundation And The Philanthropic Foundation In Luxembourg

Many years after the introduction of the Philanthropic Foundation1, the draft bill n° 6595 dated 22 July 2013 presents the private wealth foundation (the "Private Foundation"). Although the two vehicles share the same name of foundation, they actually serve very different purposes, which result in two specific set of distinct rules on their organization and legal framework.

This article was released in the Autumn edition of the Philanthropy Letter (Fondation de Luxembourg) and aims therefore at differentiating the respective characteristics of each kind of foundation and highlighting their compatibility.

Different purpose and different beneficiaries

According to the Draft Bill, the Private Foundation is a family estate planning vehicle: it principally aims at completing the range of wealth management instruments already in force.

This clearly differs from the Philanthropic Foundation, which serves a public interest, such as social, educational or charitable aim.

As a consequence, a Philanthropic Foundation is not allowed to transfer assets to specific persons or to allocate them back to the founders. It is solely allowed to allocate its assets to the implementation of the philanthropic purpose for which it was founded, or, in case of liquidation, to distribute them to another Philanthropic Foundation. In the contrary, managing and transferring assets to specific persons is exactly what a Private Foundation does.

There might sometimes be a tiny line between the two, but the distinction between private benefit and general purposes should avoid any confusion. As an example concerning the Private Foundation, we may mention a founder who wants to financially support a family member with a rare illness including after the founders' death. In that case, the founder thus supports a specific beneficiary. In the same context, where the founder wants to help and financially support people suffering from that rare illness in general, then the Philanthropic Foundation is the appropriate vehicle.

Conditions at incorporation

As with most other legal entities, the incorporation of the foundations is subject to an authentic act2, i.e. enacted in front of a notary.

Furthermore, whereas a Private Foundation may be established for a limited or unlimited duration, the Philanthropic Foundation is always set up for an unlimited period (with the exception of foundations set up under the aegis of an umbrella foundation, which can also be established for a limited...