Foundation or endowment fund for an artist's estate or a collection

Endowment fund, public-interest foundation, sheltered foundation

The corporate foundation (law no. 87-571, art. 19) is reserved to companies, industrial and commercial public bodies, cooperatives, provident institutions and mutual societies: it does not suit the project of a family or an artist.

The endowment fund, a tool for families and artists

• Nature. A not-for-profit private-law legal entity, it receives and manages, by capitalising them, assets and rights of any kind contributed free of charge and irrevocably, and uses the income from that capitalisation for a mission of general interest, or redistributes it to other bodies (law no. 2008-776, art. 140, I).
• Creation. Declaration at the prefecture of the registered office, with filing of the articles; legal personality runs from publication in the Official Journal (art. 140, II). The founders contribute an initial endowment of at least EUR 15,000 in cash, paid during the first financial year (decree no. 2009-158 of 11 February 2009, art. 2 bis), to which the works and rights contributed are added.
• Endowment not to be consumed. The fund may not consume its capital endowments and uses only their income, unless the articles set the conditions for their consumption (art. 140, III). For a collection meant to stay together this is a protection; for a fund that must sell works to finance its programme, the clause has to be written.
• Public funds. No public funds may be paid to it, except by exceptional order of the ministers for the economy and the budget (art. 140, III).
• Bequest to a fund yet to be created. A bequest may be made to a fund that does not yet exist at the death, if it acquires legal personality within the year; its personality then takes effect retroactively from the day of the death. Failing persons named in the will, the fund is constituted by a public-interest foundation or association or by another endowment fund (art. 140, IV). This is the natural route for an artist who wants a structure to receive the studio.
• Oversight. A board of at least three members, appointed the first time by the founders (art. 140, V); annual accounts published no later than six months after the year end; an auditor once resources exceed EUR 10,000 at the end of the year (art. 140, VI); an activity report sent every year to the administrative authority together with the auditor's report and the accounts (art. 140, VII). That authority checks that the fund operates properly and may, after formal notice, suspend its activity or apply to the court for its dissolution where the general-interest mission is no longer carried out (art. 140, VII).
• Dissolution and conversion. On liquidation, net assets pass to another endowment fund or to a public-interest foundation: they never return to the founders (art. 140, VIII). The fund may also be converted into a public-interest foundation by decree of the Conseil d'État, without creating a new legal entity (art. 140, XI).

The public-interest foundation, for a lasting and open project

A foundation is the act by which one or more persons irrevocably allocate assets, rights or resources to a not-for-profit work of general interest; where the act creates a legal entity, it has legal capacity only from the entry into force of the decree of the Conseil d'État recognising it as of public utility (law no. 87-571 of 23 July 1987, art. 18). It must comply with the republican commitment contract.

The recognition file includes in particular the draft articles, the notarial deed or deeds constituting the initial endowment, a forecast budget for the first three financial years with a note on the economic model, and the list of the first directors (decree no. 2007-807 of 11 May 2007, art. 6-8). In practice the articles follow the model articles approved by the Conseil d'État, which serve as guidelines without excluding justified adaptations. The law sets no minimum endowment: the authorities assess whether the endowment allows the foundation to fulfil its purpose over time, which presupposes a project of some scale.

A public-interest foundation that meets the general-interest conditions of article 200 is, with the foundations it shelters, the only one of the three structures whose donors benefit from the IFI reduction, and the only one able to shelter other foundations, where its articles have been approved for that purpose. In return the procedure is longer and the family has less room for manoeuvre in governance.

The sheltered foundation: bearing a name without creating a legal entity

The irrevocable allocation of assets, rights or resources to a public-interest foundation whose articles have been approved for that purpose may be called a foundation, where those assets are managed directly by the host foundation, without creating a separate legal entity (law no. 87-571, art. 20). Several public-interest foundations, such as the Fondation de France, shelter foundations in this way. The Institut de France, a public-law entity with a special status, also shelters some, under its own regime, to be examined case by case.

The formula avoids the recognition procedure and the administrative management of a legal entity. The price is autonomy: the host foundation manages the assets directly and keeps the final decision, according to its articles and the rules it applies to its sheltered foundations, which generally provide for management fees. For a collection that must stay together, the agreement has to say precisely what may be sold, lent or restored, and by whom.

What gifts, bequests and the structure cost and yield

• Gift and inheritance duties. Gifts and bequests to public or public-utility bodies meeting the characteristics of (b) or (f bis) of paragraph 1 of article 200 are exempt: a public-interest foundation qualifies if it meets those general-interest characteristics, recognition alone not being enough; gifts and bequests to endowment funds meeting the conditions of (g) of paragraph 1 of the same article are also exempt (CGI, art. 795, 2° and 14°). Gifts and bequests of works of art, historic objects, books, printed matter or manuscripts made to bodies with legal personality, where intended to form part of a public collection, are exempt as well (art. 795, 1°). For a sheltered foundation, which has no legal personality, the gift is made to the host foundation with an allocation to the sheltered foundation, and the exemption is assessed in the host's hands.
• Income tax reduction. An individual donor obtains a reduction of 66% of the gift, taken into account up to 20% of taxable income, the excess being carried forward for five years (CGI, art. 200, 1 and 1 bis). Gifts in kind are admitted, notably the delivery of a work of art with transfer of ownership; its value is determined at the time of delivery, the body checking that the donor's valuation matches the real value (BOI-IR-RICI-250-20, § 40 and 50). For an endowment fund, it must itself meet the characteristics of (b) or (f bis), notably cultural ones, or, if managed on a not-for-profit basis, pass the income from gifts to the bodies exhaustively listed (art. 200, 1, g).
• Companies. Payments give right to a reduction of 60% up to EUR 2 million and 40% beyond, taken into account up to EUR 20,000 or 5 per thousand of turnover if higher, with a five-year carry-forward; a gift in kind is valued at its cost price (CGI, art. 238 bis, 1 to 3).
• The IFI reduction. A taxpayer may set against the IFI 75% of cash gifts and gifts of full ownership of shares listed on a regulated market, made in particular to a public-interest foundation meeting the conditions of (a) of paragraph 1 of article 200, up to EUR 50,000 (CGI, art. 978). For a sheltered foundation, the host foundation must itself be eligible. Endowment funds are not on the list, and a gift of works does not qualify. A given portion of a gift cannot benefit from both this reduction and the income tax reduction.
• Foreign bodies. The income tax reduction is open, for a body established outside France, only if its seat is in a Member State of the European Union or of the European Economic Area that has concluded an administrative assistance convention, and subject to approval (art. 1649 nonies) or justification (CGI, art. 200, 4 bis). A Swiss foundation does not fall within it: its interest is measured in Switzerland, with local advice.

The structure itself is not an investment: it must operate in the general interest, without benefiting a restricted circle of persons or being managed for private gain, failing which the donors' tax advantages are called into question. For the IFI effect of a building or a collection passed to the structure, see art collections and the IFI.

Works, archives, copyright: what can be passed to the structure

• The works. They may be contributed as endowment, given during life, or bequeathed. The contribution is irrevocable; the articles or the deed may provide that certain works are neither to be sold nor dispersed. The limits that the Civil Code places on inalienability clauses (temporary duration, serious and legitimate interest) do not apply to gifts to legal entities or burdened with creating one (Civil Code, art. 900-1). The clause must remain compatible with the purpose of the structure and its ability to fund conservation, insurance and loans.
• Exploitation rights. The reproduction and performance rights still held by the artist or the estate may be contributed; they often fund most of the running costs. They last in principle for the calendar year of death and the seventy years that follow (Intellectual Property Code, art. L. 123-1).
• Moral right. It is perpetual and inalienable: it cannot be contributed or sold. The artist may, however, entrust its exercise to a third party by will (Intellectual Property Code, art. L. 121-1), for example to the officers of the structure, which has to be coordinated with the heirs' rights.
• The resale right. Inalienable, it cannot be assigned, but the artist may bequeath it, subject to the rights of descendants and of the surviving non-divorced spouse (Intellectual Property Code, art. L. 123-7).
• Archives and catalogue raisonné. Correspondence, photographs, notebooks, sales records: the structure that receives them becomes the point of contact for researchers and experts. The status of the opinions it will give on authenticity, and their caution, should be set from the articles onwards. See the artist's estate pillar page.

What can be given to the structure without harming the children

• The disposable portion. Where there are children, gifts, during life or by will, may not exceed one half of the estate if there is one child, one third if there are two, one quarter if there are three or more (Civil Code, art. 913); failing descendants, the surviving non-divorced spouse is a forced heir for one quarter (art. 914-1). An endowment or a bequest to the structure is a gift subject to this limit.
• The calculation at death. The mass is formed from the assets existing at death, to which the assets given are notionally added, according to their condition on the day of the gift and their value on the day of death (art. 922). A work contributed early whose price has risen therefore counts at its value at death.
• Reduction is paid in value. The recipient, even if not an heir, compensates the forced heirs up to the excessive portion (art. 924): the structure in principle keeps the works but must pay an indemnity that it cannot always afford. The action is time-barred five years from the death, or two years from knowledge of the impairment of the reserved share, without exceeding ten years; the notary informs each heir concerned (art. 921).
• The tools. A presumptive forced heir may waive in advance the right to bring a reduction action, in favour of a named person, including for a gift of a specific asset (art. 929), by a specific notarial deed received by two notaries (art. 930). A prior distribution-gift (donation-partage), a measured endowment and a clause allowing consumption of the endowment are other answers. For an artist who leaves children, this chapter is often the first to settle.
• International estates. Where the foreign law applicable to the estate has no reserve protecting the children, they may, under conditions, take a compensatory levy on the assets existing and located in France on the day of death, within the limit of the French reserved share. It requires that the deceased or at least one child be a national of, or habitually resident in, a Member State of the European Union, and that the applicable foreign law provide no protective reserved-share mechanism for children (art. 913, para. 3).

Involving the family without confiscating the structure

• A balanced board. The family may sit on the board; independent figures (curators, art historians, lawyers) protect the general interest and the scientific credibility of the structure.
• Written rules. Quorum, majorities, renewal, conflicts of interest, the role of a scientific committee for acquisitions and loans: what is not written will be decided in dispute.
• A clear separation. The structure's works do not decorate the family's homes, except under a loan agreement on normal terms compatible with the purpose; the structure does not indirectly remunerate the heirs.
• Relations with the estate. Where the family also holds works, rights or the moral right, an agreement between the structure and the heirs sets out reproduction authorisations, exhibitions and the sharing of revenue.
• Duration. A fund may be set up for a fixed term, and the implementing decree specifies the limits within which it may then use its endowment (art. 140, I and VIII); later conversion into a public-interest foundation remains possible.

Three decisions on gifts to a foundation and forced heirship

Court of Cassation, first civil chamber, 4 November 2015, no. 14-22.630 (Fondation Vasarely). The heirs of an artist had submitted to arbitration their action to reduce the works given to the foundation. The Court dismisses the appeal against the judgment that had set aside the awards: the conditions in which the arbitration had been decided and conducted, with a foundation chaired by a person close to the heirs and no market expert to value the works, formed a body of evidence of a fraud on the arbitration contrary to public policy. The lesson for a family structure: separate governance from the family and have the works valued by independent experts. Text of the judgment (Court of Cassation, in French).

Court of Cassation, first civil chamber, 17 October 2019, no. 18-22.810. To calculate the reserved share, assets given are notionally added to the mass according to their condition at the time of the gift and their value at the opening of the succession (Civil Code, art. 922), including where the gift was a sum of money used to acquire an asset. Transposed to an endowment of works, the reasoning is that of the text: the price at death counts, not the value on the day of the contribution. Text of the judgment (Court of Cassation, in French).

Court of Cassation, first civil chamber, 27 September 2017, no. 16-17.198. A foreign law that ignores forced heirship is not in itself contrary to French international public policy; it is set aside only if its concrete application leads to a situation incompatible with the essential principles of French law. The Court so held for an estate governed by Californian law. For an artist or collector living abroad, French forced heirship therefore cannot be taken for granted. Text of the judgment (Court of Cassation, in French).