by Stefan Rullkötter, Euro am Sonntag
EMario Draghi and Christine Lagardethen Corona came. The permanent zero interest rate policy of the European Central Bank and the pandemic also pose major challenges for charitable foundations. Because they have to preserve their foundation assets and are only allowed to spend their annual income, many organizations currently have little financial leeway to promote their charitable projects effectively.
Foundations with less than one million euros in capital find it difficult to at least offset the price increase with their earnings, the Federal Association of German Foundations (BDS) found in a survey. At the beginning of the year, 62 percent of the small foundations estimated that their yield in 2019 was above the inflation rate. For the large foundations, it was 84 percent. The fundraisers were therefore more optimistic about their investments than in the previous year.
But a lot has changed since Corona. “No foundation needs to be affected by the pandemic – even if the earnings are lower at least this year,” says Reinhard Vennekold, managing director of the Munich Fundsraising School.
Investment guidelines as an obstacle
Because foundations are usually “geared towards infinity”, the price falls were even more welcome buying opportunities. The book losses do not have to be realized and can therefore remain in the deposit for a long time. “However, many foundations finally have to change their investment guidelines – and instead of traditional government bonds, put good corporate bonds and stocks in their portfolio,” Vennekold demands.
A little less than half of the foundations surveyed by the BDS have so far not invested capital outside the bond and equity markets. If they do invest, most of the investments will be in real estate, around 40 percent said. Private equity and venture capital play a subordinate role with around ten percent.
If a foundation is recognized as a non-profit, it is tax-privileged: it offers donors and donors the opportunity to contribute their donations to reduce taxes. This means that not only when the foundation is newly founded, but every ten years, they can once again claim the maximum amount of one million euros for donations to the assets. Married couples have the opportunity to sell a total of two million euros. The amount can be spread over any period of ten years. “Further relief for commercial foundation purpose companies would be desirable here,” says Vennekold.
Please note: Anyone who brings assets into a non-profit foundation can no longer dispose of the money. Such foundations are therefore not a classic tax-saving model.
In addition, there is the possibility of a general donation deduction in the amount of 20 percent of taxable income. This is important if additional funds are to flow to the foundation for specific projects. In addition to the income from the foundation’s assets, donations are an important source of income, especially for smaller foundations. Because numerous charity events are canceled this year due to Corona, these additional earnings are likely to decrease.
Consumption foundations are on the rise
If the assets in the event of planned new “Eternity Foundations” are less than one million euros, the supervisory authorities are increasingly recommending a consumer foundation as an alternative. It is only established for a certain period of at least ten years.
An example of this is the reconstruction of the Frauenkirche in Dresden. The foundation, which was founded specifically for this purpose, spent both the proceeds and the foundation’s assets for the reconstruction of the church – and dissolved after its construction was completed. There is also the possibility to write the later conversion into a consumption foundation in the statutes.
What is certain, however, is that foundations will be more digital and global in the future. Many foundations need a modern update for this: They will have to become more professional, particularly in the areas of fundraising and communication.
Ursula Beckers-Peloso, Munich Fundraising School (MFS)
Foundation management » The partner of the educational institute and consulting company MFS about the current challenges
€ uro on Sunday: What do you advise foundations that have lost earnings due to the Corona crisis?
Ursula Becker-Peloso: If sufficient income is no longer achieved to fulfill the foundation’s purpose, strategic fundraising should be built up over the next few years. It usually takes two to four years for significant income to be generated here. But in that case it is necessary for the future of a foundation to act here and now.
The long-debated reform of the foundation law should be cast into law by the end of the year. Will it work despite Corona?
The hope is there. There is no fear that the federal government will shift priorities as a result of the pandemic. Nevertheless, the urgency of the reform for the foundations needs to be made clear, right now.
Why are the new regulations so important?
This guarantees and creates sustainably better conditions for the foundation’s work. With the reform of the foundation, legislators could ensure more uniform supervision, clear liability rules and, above all, improved options for amending the statutes and merging them.
And what undesirable developments in practice should the reform of the foundation law remove?
Around ten billion euros of foundation money are lying around as dead capital in Germany, because around three quarters of all foundations with their assets of less than one million euros do not regularly generate any noteworthy income for their charitable purposes. These are currently being eaten up by administrative costs. In addition, the Low interest rates remain intact until further notice. Nothing falls away for the actual purpose of the foundation.
What ways could the reform open up?
Small foundations with the same statutory purpose must be able to be merged. The establishment of consumer foundations, which are only set up for a certain period of time and during which time all of their assets are earmarked, should be made easier.
How will the foundation landscape change?
Smaller foundations will disappear. There will also be no board members who volunteer to invest the foundation’s capital. However, foundations remain a large and important part of civil society.
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