Spoke fiducie — Foundations & endowment funds

Fiducie + foundation:
structuring wealth philanthropy

For foundations (Law of 1987 as amended, public-benefit foundations) and endowment funds (Law of 4 August 2008, art. 140), the fiducie offers a complementary structuring tool: it makes it possible to durably endow the foundation while preserving flexibility of management, to frame the endowment (multi-year allocation, governance), and to structure complex philanthropic operations (gift with reserved usufruct, targeted patronage, financing of cultural or scientific operations). A crucial interaction with the patronage regimes (French Tax Code 200 and 238 bis).

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— In brief
Public-benefit foundation
Recognised as of public benefit, by decree issued after review by the Conseil d'Etat (Law of 1987).
Endowment fund
Law 2008-776 of 4 August 2008, art. 140, declaration to the prefecture.
Patronage (income tax)
French Tax Code 200, 66% tax reduction (60K euros or 20% of taxable income).
Patronage (corporate tax)
French Tax Code 238 bis, 60% reduction (40% above 2M euros), cap of 20,000 euros or 0.5% of turnover.
Transfer-duty exemption
French Tax Code 794, gifts to public-benefit foundations and endowment funds are exempt.
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Why combine the fiducie and the foundation

High-level wealth philanthropy calls for sophisticated tools. A public-benefit foundation or an endowment fund is the culmination of the philanthropic project, a lasting legal entity dedicated to a general-interest purpose. But their creation and their initial endowment raise questions of wealth architecture that the fiducie can resolve efficiently.

Our conviction: the fiducie is the ideal tool for the intermediate phase between the philanthropic decision and the effective endowment of the foundation. It makes it possible (a) to set aside assets for the future foundation, shielding them from the donor's wealth contingencies, (b) to organise the progressive endowment (in successive tranches), (c) to protect the endowment in the event of a succession dispute (forced heirship), (d) to coordinate the endowment with the tax optimisations (French Tax Code 200, 238 bis, 794).

Please note: the fiducie-libéralité (fiducie as a gift) is prohibited under French law (Civil Code art. 2013). This means that the fiducie cannot serve in itself to transfer assets definitively to the foundation: a separate gift or bequest is required. The fiducie serves as an intermediate management tool to prepare and secure those final acts.

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Case study handled by the firm

Industrial family, creation of a 50M euros endowment fund with a pre-endowment fiducie

An industrial family wishing to create an endowment fund to support medical research, endowed with 50M euros mainly from the shares of the family holding company. Issue: (a) the holding does not distribute enough dividends to make the endowment immediately, (b) the sale of shares would trigger immediate taxation of capital gains, (c) some family members are not aligned on the philanthropic project. Our architecture: (1) a pre-endowment fiducie covering 25% of the holding's shares for the benefit of the future fund (set up in parallel), managed by a lawyer fiduciary, (2) progressive disposal of the shares by the fiduciary over 5 years (spreading of the capital gains), (3) annual payments to the endowment fund corresponding to the liquidity generated, (4) benefit of the patronage regime under French Tax Code 238 bis (60% corporate-tax reduction for the holding on the payments). Outcome: a secured philanthropic project, optimised taxation (cumulative corporate-tax reduction over 5 years of around 30M euros), and family cohesion preserved through the transparency of the arrangement.

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3 architectures to structure philanthropy

1. Pre-endowment fiducie + deferred gift

The donor transfers assets to the fiduciary (Civil Code art. 2011) with a mandate to hold and manage them until the effective creation of the foundation or endowment fund. On creation (or later, on scheduled dates), the fiduciary transfers the assets to the foundation by way of a formal gift (notarial deed for real property, simplified formalities for securities). The gift triggers the tax benefits of patronage (French Tax Code 200 or 238 bis) and the transfer-duty exemption (French Tax Code 794).

2. Security fiducie for a multi-year patronage commitment

For multi-year patronage commitments (typically, the financing of a university programme or a research chair over 5 to 10 years), the security fiducie enables the patron to guarantee future commitments. The fiduciary assets (securities, receivables) secure the beneficiary (university, foundation), which can thus plan the programme with confidence. Tax regime: the fiducie is neutral, and patronage continues to benefit from the French Tax Code 200 / 238 bis reductions as and when the payments are actually made.

3. Management fiducie for a family foundation

A family foundation can be backed by a pool of assets managed under a fiducie. The fiduciary administers the assets; the income of the fiducie is paid to the foundation to finance its actions. A useful architecture to preserve capital while distributing the fruits, in the manner of the Anglo-Saxon endowment model. Coordination with the permanent endowment of the endowment fund (the 2008 law provides that a fund may retain all or part of its endowment as permanent, non-expendable capital).

— Frequently asked questions

What is the difference between a public-benefit foundation and an endowment fund?

Public-benefit foundation: created by decree issued after review by the Conseil d'Etat (Law of 23 July 1987), minimum capital of around 1.5M euros, heavy governance (board of directors, administrative supervision), maximum tax treatment (patronage + transfer-duty exemption). Creation time: 18 to 36 months. Endowment fund: created by declaration to the prefecture (Law of 4 August 2008, art. 140), minimum capital of 15,000 euros, lighter governance, tax treatment largely equivalent to the public-benefit foundation. Creation time: 1 to 3 months. The endowment fund is today the reference tool for new family philanthropic structures.

Can the fiducie directly transfer assets to a foundation?

No, not directly: the fiducie as a gift is prohibited by article 2013 of the Civil Code. The fiducie may however hold and manage assets pending their formal gift to the foundation. The gift is then made by the settlor (who remains the legal original owner) for the benefit of the foundation, by notarial deed for real property or by civil formalities for other assets. This gift triggers the tax benefits (French Tax Code 200, 238 bis, 794).

What is the taxation of a gift to an endowment fund?

For an individual (French Tax Code 200): an income-tax reduction of 66% of the gift, up to 20% of taxable income (excess carried forward for 5 years). For a company (French Tax Code 238 bis): a corporate-tax reduction of 60% (40% for the fraction above 2M euros), up to 20,000 euros or 0.5% of turnover (whichever is higher), excess carried forward for 5 years. Transfer duties: total exemption (French Tax Code 794, 2°), the gift does not enter the succession estate and does not trigger gift duties.

Can a foundation be the beneficiary of a fiducie without becoming the owner?

Yes, this is precisely the scheme of a management fiducie for the benefit of a foundation. The fiduciary remains the owner; the foundation is the beneficiary of the fruits (income, dividends, rents). This architecture is particularly useful for foundations that wish to keep their capital permanently intact while financing their social or cultural action, the Anglo-Saxon endowment model. Tax regime of the fiducie: transparent (French Tax Code 238 quater A to I), the income remaining taxed according to the regime applicable to the foundation (in principle exempt from corporate tax for its general-interest activities).

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A philanthropic project to structure?

A confidential initial consultation, analysis of the project, choice between public-benefit foundation / endowment fund / combined architecture, and coordination with the fiducie and the patronage regimes.

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Jonathan Bensaid, avocat fondateur

Written by

Me Jonathan Bensaid, avocat fiscaliste, fondateur du cabinet Bensaid Avocats, inscrit aux Barreaux de Paris & Genève.

© BENSAID Avocats — The information on this site does not constitute legal advice and cannot replace a personalised tax and legal analysis.