Asset protection by means of a foundation in Liechtenstein

Liechtenstein is the best location for wealthy private individuals and entrepreneurs to protect themselves against political risks and the risk of tax changes. The family foundation / business foundation in Liechtenstein is the ideal instrument for minimising entrepreneurial liability risks, protecting family assets from third-party access in good time and preventing liquidity outflows due to compulsory portion claims or marital property settlement claims.

For a non-binding enquiry, please contact us by phone or e-mail or use the contact form at the bottom of this page.

Asset protection through the transfer of assets to a Liechtenstein family/corporate foundation as a gift or against payment

An entrepreneur or a wealthy private individual can counter company-specific and other liability risks by means of a Liechtenstein foundation:

– Transfer of his assets to the Liechtenstein foundation as a gift, completely detaching him from the assets while at the same time allowing him to exert indirect influence and utilise them.

– Paid transfers of assets to the Liechtenstein foundation with simultaneous financing via a loan agreement with a deferral agreement.

Note: Both options can be secured „enforcement-proof“ by means of suitable clauses in the sense of effective asset protection.

The founder divests himself of his property with the result that the founder’s liability substrate is reduced at the expense of potential business or private creditors or creditors from the family circle (compulsory portion beneficiaries, persons entitled to equalisation of gains).

Within certain time limits, however, creditors or family members have the option of challenging the founder’s disposition of assets (avoidance) and legally enforcing their claims against the foundation.

The founder therefore has a particular interest in short limitation periods for challenges / crediting periods and a generally limited enforceability of court judgements by law.

The Liechtenstein family foundation/corporate foundation offers very interesting advantages here.

Asset protection by family foundation / business foundation in Liechtenstein against corporate and private creditors

In Liechtenstein, a transfer of assets to a Liechtenstein family foundation/corporate foundation can only be challenged within a period of one year in the event of asset liability situations at founder level.

Important: The limitation period for challenge begins to run when the donor finally disposes of the donated assets (disenrichment). After the expiry of the limitation period for challenge for the gift, the donated assets are no longer part of the personal liability estate of the former asset holder (founder).

The challenge to the transfer of assets by a foreign founder can be brought before the foreign or Liechtenstein court.

In Germany, a creditor can challenge the original foundation transaction and dedications within a four-year period. In the case of additional or subsequent foundations, freedom of choice of law applies in both Germany and Liechtenstein, i.e. the donation agreement can be governed by Liechtenstein law or German law.

A challenge in Germany is lengthy for procedural reasons and has little chance of success in practice.

Important: In the event of a challenge in Liechtenstein, in addition to the short limitation period for challenge of one year, the rule applies that dispositions in accordance with moral obligations cannot be challenged. This means that appropriate pension payments by the foundation to the family are not subject to avoidance. The same applies in principle to dispositions in favour of charitable foundations.

Ultimately, foreign plaintiffs in Liechtenstein must provide a substantial deposit for legal costs.

Important: A court judgement obtained abroad is only enforceable with regard to assets located there. It is not possible to enforce a foreign judgement in Liechtenstein (with the exception of Switzerland and Austria).

Conclusion: As a rule, it will not be possible in practice to conclude multi-instance court proceedings in Germany or Liechtenstein within the short preclusive period of one year and will therefore be doomed to failure.

Asset protection for corporate liability risks in DE, AT

DE: Challenge in Germany Foundation transaction: four-year period
In the case of dedication: four-year period, unrestricted choice of law Enforceability of the
challenge pursued in Germany: unrestricted
Enforceability of the challenge pursued in Germany in the country in which the foundation is domiciled: given
Challenge in the country in which the foundation is domiciled: given
AT: Challenge in Germany Foundation transaction: two-year period
For dedication: two-year period, unrestricted choice of law
Enforceability of the challenge pursued in Germany: unrestricted
Enforceability of the challenge pursued in Germany in the foundation’s country of domicile: given
Challenge in the foundation’s country of domicile: given

For a non-binding enquiry, please contact us by phone or e-mail or use the contact form at the bottom of this page.

Asset protection through a family foundation / corporate foundation in Liechtenstein vis-à-vis persons entitled to a compulsory portion

If a foreign founder dedicates assets to a Liechtenstein foundation as an original foundation transaction or as a subsequent foundation, a national personal and inheritance statute, including a right to a compulsory portion, often applies before foreign courts.

For example, under German law, the claims for the supplementation of the compulsory portion against the Liechtenstein foundation can be asserted before the German courts within a ten-year period in accordance with the German melt-away model (10% per year), whereby the start of the period is deemed to be the date on which the founder completely disposes of his assets.

Important: The assets of the foreign testator must be used first to satisfy the claims for a compulsory portion or supplementary compulsory portion. The Liechtenstein foundation can only be utilised on a subsidiary basis.

Any foreign court judgements are neither recognised nor can they be enforced in Liechtenstein, as there are no international agreements with Liechtenstein.
The foundation’s assets located abroad can be enforced, though.

However, the beneficiaries of the founder’s compulsory portion can also assert claims for foreign compulsory portion supplements against foundations domiciled in Liechtenstein before the regional court in Liechtenstein.

Important: In Liechtenstein, gifts for charitable purposes are generally exempt from being offset against the compulsory portion.

Under Liechtenstein law, the limitation period for challenge for compulsory portion rights is only two years. The Liechtenstein courts assume that the two-year period begins with the complete separation of the founder from his assets.

Any rights to information of a beneficiary of a compulsory portion vis-à-vis the Liechtenstein foundation are also subject to the two-year duty to provide information, which is relevant because in the case of merely „deposited foundations“ there is only limited publicly accessible information between the testator and the foundation.

Practical tip: If the initial investment is of a symbolic nature and the majority of the assets are transferred as an additional or subsequent investment, the law applicable to this gift – under Liechtenstein law – is freely selectable and could be subject to a legal system that does not recognise the right to a compulsory portion.

Conclusion: A foreign testator could therefore avoid claims to a compulsory portion without having to relocate or acquire a new nationality.

For a non-binding enquiry, please contact us by phone or e-mail or use the contact form at the bottom of this page.

Asset protection for compulsory portion rights in DE, AT

DE: Against the original foundation business (operated in Germany): Rights to a compulsory portion in the amount of 50% of the total inheritance, 10-year time limit (melt-away model)
Against subsequent foundations (operated in Germany): Rights to a compulsory portion in the amount of 50% of the total inheritance share, 10-year time limit (melt-away model)
Enforceability of the compulsory portion action brought in Germany in the country where the foundation is domiciled: Given
Against the original foundation transaction (operated in the country where the foundation is domiciled): Given
Against the subsequent foundation (pursued in the foundation’s country of domicile): Given
AT: Against the original foundation transaction (operated in Germany): Rights to a compulsory portion in the amount of 50% of the total inheritance, 10-year time limit (melt-away model) Against subsequent foundations (operated
in Germany): Rights to a compulsory portion in the amount of 50% of the total inheritance share, 10-year time limit (melt-away model)
Enforceability of the compulsory portion action brought in Germany in the foundation’s country of domicile: Given
Against the original foundation transaction (operated in the foundation’s country of domicile): Rights to a compulsory portion in the amount of 50% of the total inheritance share, 10-year time limit (melt-away model)
Against the subsequent investment (operated in the foundation’s country of domicile): Rights to a compulsory portion in the amount of 50% of the total inheritance, 10-year time limit (melt-away model)

Asset protection through family foundation / corporate foundation in Liechtenstein vis-à-vis spouses (property settlement claims)

Claims for equalisation of gains enforced abroad against Liechtenstein foundations effectively established by foreign founders are not recognised in Liechtenstein and cannot be enforced. This does not apply to access to the foundation’s assets located abroad.

In principle, the claimant can also assert his claims for equalisation of gains before Liechtenstein courts, whereby foreign law would generally apply.

Important: Liechtenstein law does not, however, provide for a challenge in the event of a reduction in equalisation of gains claims through the transfer of assets to the foundation.

There have not yet been any court decisions on this. It is possible that the substantive foreign matrimonial property regime law will be used with a matrimonial property regime equalisation of 50% of the gain difference, but with limited enforceability for foundation assets located abroad.

Asset protection for equalisation of gains claims in DE, AT

DE: Against the original foundation transaction (operated in Germany): Property settlement in the amount of 50% of the gain difference; 10-year time limit
Against subsequent foundations (operated in Germany): Property settlement in the amount of 50% of the difference in gains; 10-year time limit
Enforceability of the challenge pursued in Germany in the foundation’s country of domicile: Given
Against the original foundation transaction (pursued in the foundation’s country of domicile): Given
Against the subsequent foundation (pursued in the foundation’s country of domicile): Given
AT: Against the original foundation transaction (operated in Germany): Equalisation of matrimonial property regime in the amount of 50% of the gain difference; 10-year time limit Against subsequent foundations (operated in
Germany): Property settlement in the amount of 50% of the difference in gains; 10-year time limit
Enforceability of the challenge pursued in Germany in the foundation’s country of domicile: Given
Against the original foundation transaction (pursued in the foundation’s country of domicile): Property settlement in the amount of 50% of the gain difference; 10-year time limit
Against the subsequent foundation (operated in the foundation’s country of domicile): equalisation of matrimonial property in the amount of 50% of the difference in gains; 10-year time limit

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