Charitable purposes—­Three ways to financially engage

Supporting a charitable purpose is something that is important to many people, whether they do this in their lifetime or after their passing away. The right approach here depends on various personal factors such as the available resources and the degree of autonomy desired. Tax considerations may also come into play.

1. Donations to existing institutions

2. Creating your own foundation

For those with a substantial wealth and a clear vision, establishing your own foundation is an option. The founders decide how their wealth supports specific purposes and influence the foundation’s governance and investment strategy.

When, in terms of assets, is it worth setting up your own foundation?

A foundation has to be managed, which is something that involves fixed costs. You need to have a certain level of assets to ensure that the charitable work can be carried out after these costs have been covered. Minimal amounts typically range from CHF 5 to 10 million. Foundations that are meant to spend-down their capital (known as “limited-term foundations”) may suffice with less assets involved.

3. Set up a sub-foundation or fund

Structuring foundations in a tax-efficient way

In Switzerland, charitable foundations are generally tax-exempt, allowing donations to be fully allocated to the charitable purpose. Otherwise, donations may be subject to gift and estate tax of up to 50 percent.

The location of the foundation’s domicile is also relevant for tax purposes: As an example, donations to a charitable foundation based outside the canton of residence or even abroad may trigger inheritance taxes without reciprocal agreements, even if the foundation is tax-exempt in its canton of domicile. It is therefore advisable to ascertain which donations to the foundation qualify for exemption from inheritance and gift taxes.

 
Tax benefits of donating

Not only can charitable foundations receive tax benefits, but founders can also deduct their contributions, up to certain limits) from their income in Switzerland.

In terms of direct federal tax, the donation must be a minimum of CHF 100 and must not exceed 20 percent of the net income. Most cantons have similar provisions.

Donations during your lifetime or after your passing?

Whether you’re supporting your own charitable foundation or a pre-existing charitable institution, you can do so during your lifetime or upon death.

If you want to set up your own foundation, it makes sense to do so during your lifetime. As the founder, you can then ensure that the foundation is created exactly as you imagined it to be. By doing so, the founder can ensure alignment with his vision and respond directly to regulatory requirements.

Making a donation upon death preserves full access to one’s assets until the end.

Alternatively, founders can also establish a foundation during lifetime with a portion of their wealth and contribute the remainder to the foundation upon death.

Even the smallest undertaking starts with a conversation