Asset protection in Germany with the help of foundations – René Benko as a role model for asset protection?

The need to protect your assets from third parties is legitimate. Asset protection is an important issue, particularly for people with large and very large assets, and should always be considered when planning your estate.

A recent example of asset transfers to protect assets from third-party claims is the case of René Benko, who was able to live a luxurious life in a villa in Austria despite personal bankruptcy until he was imprisoned. The reason: he had ‘transferred’ a large portion of his assets to various foundations.

But is this form of asset protection legal? How risky is it, and would this form of asset protection also work in Germany?

This article addresses these questions.

The Benko case: private assets transferred to foundations

Continuing to live in the same opulent surroundings despite personal bankruptcy: René Benko was able to do so because he apparently transferred considerable assets to a total of four foundations in good time before filing for personal bankruptcy.

Two foundations are located in Liechtenstein, while the other two – the Familie Benko Privatstiftung and the Laura Privatstiftung – are located in Austria. These foundations are believed to be family foundations whose beneficiaries include family members. This allowed Benko to shield the transferred assets from creditors while continuing to live a luxurious lifestyle until he was taken into custody.

How foundations in Austria allow Benko to live carefree

A large portion of Benko’s assets, consisting mainly of real estate, was transferred to the Laura Privatstiftung, named after his daughter. The market value of the Laura Privatstiftung’s assets is said to have been 740 million euros.

This foundation was established by René Benko and his mother Ingeborg in 2006. According to reports, he is no longer a beneficiary of the foundation, but continues to receive financial support from it via his mother – presumably in the form of gifts. The villa in Innsbruck, where René Benko lived until he was remanded in custody, is also not his property. Rather, the property is made available to him free of charge. The owner of the villa in Innsbruck is Schlosshotel Igls Betriebs GmbH & Co KG. Its limited partner is the Laura Privatstiftung.

Asset transfers, personal bankruptcy and implications for foundations

The possibility that René Benko could shield his assets from creditors and continue to live luxuriously on his estate is based on the transfer of assets to foundations that appear to have been carefully tailored to the ‘needs’ of the family and, above all, of René Benko himself.

Looking at the history of the Laura Private Foundation, it becomes clear that its statutes in particular have been amended several times since its establishment – mainly in favour of the rights of the mother and to the ‘disadvantage’ of co-founder René Benko.

• When the foundation was established in 2006, René Benko was the sole founder and had sole authority within the foundation.
• In 2010, his mother was also granted extensive rights within the foundation.
• In 2013, following his criminal conviction, René Benko transferred all his rights as founder to his mother. From then on, she was the sole founder.
• At the beginning of 2024, five days before filing for personal bankruptcy, René Benko finally resigned from the foundation’s advisory board (supervisory body).

The timing of the establishment of the foundation and the timing of asset transfers (known as endowments) to the foundation are relevant to the question of whether asset protection is successful, as these can play a role in insolvency law deadlines in the event of personal insolvency.

This is because if a founder files for personal bankruptcy, Austrian law allows for asset transfers to the foundation to be contested retrospectively within certain time limits. Similarly, the establishment of the foundation itself may be subject to contestation.

On the one hand, asset transfers when establishing the foundation and in the case of additional donations are contestable if the transfer took place within ten years prior to the filing of the insolvency application and the foundation was aware at the time of the donation that the intention was to disadvantage creditors. The executive board must therefore have been aware of the founder’s intention to disadvantage creditors at the time of the donation. In the Benko case, therefore, a critical look must be taken at the amendments to the statutes under which René Benko left the board.

On the other hand, it may be possible to retroactively contest Benko’s asset transfers to the foundation if they were made without consideration, i.e. if they constitute a gift. However, under Austrian law, this so-called ‘gift contestation’ is only possible for asset transfers made in the last two years prior to insolvency. By comparison, the corresponding period in Germany is four years.

In addition, it must be carefully examined whether the foundation is merely being used as a shell or an extension of the debtor and whether the debtor still exercises de facto control over the foundation. If so, certain legal transactions within the foundation could also be contested by the insolvency administrator.

Considering these possibilities, it does not seem impossible that

• the amendments to the Laura Private Foundation’s articles of association can be challenged as sham transactions and
• it can be proven that René Benko’s mother acted as his trustee.

This would mean that there is a chance that asset transfers to the foundation were invalid from the outset, giving creditors hope that they will be able to access at least part of the assets that René Benko did not transfer to foundations ‘in good time’.

Is the legal situation transferable to Germany?

This raises the question: Would it also be possible in Germany to transfer assets to a foundation in order to protect them from creditors?

In principle, this is possible. This is because a foundation is an independent legal entity. Once the period for contesting the transfer has expired, the assets are protected from access by third parties (known as asset protection). This means that transferring assets to a foundation – either by establishing a foundation or making an endowment – is generally an effective means of asset protection.

However, there is one small but important difference to the legal situation in Austria, namely that there is no gift tax in Austria. In Germany, the endowment of assets when establishing a foundation is a taxable gift transaction, as are subsequent donations. The initial endowment or subsequent transfers of assets may be taxed at between 7% and 50%, depending on the individual case. In Austria, there is only a fixed foundation entry tax of 2.5%.

This tax difference between Germany and Austria – i.e. the high tax burden when setting up a foundation or making an endowment contribution – raises the question of whether such asset transfers to foundations for the purpose of asset protection in Germany would make financial sense.

In Benko’s case, the transfer of the property to René Benko free of charge would also be subject to gift tax in Germany, as would the ‘endowment’ of René Benko by his mother from the foundation’s income.

Foundations for asset protection? Just one option among many!

A foundation can be a sensible option for asset protection. This form of asset protection is completely legal under ‘normal circumstances’ – even in Germany.

However, there are numerous other ways to protect assets, depending on the objective of the asset protection. In addition to a foundation, other options may be considered depending on individual needs, such as

• the establishment of a family company,
• a lifetime gift with usufruct or
• special arrangements between spouses.

These structures in particular can also be used to take advantage of tax benefits in Germany. The foundation offers very special tax advantages, but these can only be used effectively if you have a certain amount of assets, especially in the case of corporate assets. When it comes to asset protection, it is important to seek reputable advice and take steps to protect your family’s assets at an early stage.