Most Liechtenstein foundations function properly. But what if yours doesn’t? What if you don’t feel comfortable with the transparency level of your foundation or if you are uncertain about the actions of the foundation board? If you are a beneficiary of a dysfunctional Liechtenstein foundation, you don’t just have to accept it. You have rights – and you should use them.
Right to be notified of your status as beneficiary
The first and most important factor is knowledge of your position. Normally, beneficiaries just know that they are beneficiaries, because they have been told by their parents or have been involved with the foundation from the outset. But there are other cases, too.
Example 1 – Sudden wealth
“Settlor Mary dies and the beneficiary status passes on to her daughter Emy who dies shortly thereafter. The by-laws provide that the benefit passes on to the respective heirs of a beneficiary. Since Emy does not have any children, it passes to her father’s sister, who also dies within a couple of months. The cousins from Emy’s father’s side are now lucky beneficiaries of a foundation set-up by Emy’s mother.”
Emy’s cousins obviously didn’t know about her aunt-in-law’s fortune. How would they be informed about their new position as beneficiaries? Liechtenstein case-law established: the board of foundation has an active duty to search for beneficiaries, and they have to inform them. This means that you have a right to be informed about your position as beneficiary and about what this means for you.
Right to a mandatory share of inheritance (forced heirship)
Let’s say you’re already aware of your father’s foundation, already. But upon your request, the foundation board informs you that you are not a member of the circle of beneficiaries. What can you do? – Chances are that you have a claim on your mandatory share of the estate (so-called forced heirship) and, thus a claim to a part of the foundation assets. This is especially true if the foundation was poorly structured or if your father maintained some sort of control over the foundation assets.
Forced heirship is a concept present in many, but not all countries. Especially amongst countries whose law is based on continental European traditions, the concept of forced heirship is widely spread. In short, it means that everybody can set-up a last will and pass on their estate to whoever they wish, but a certain share of the estate must go to their children. The rules differ from country to country. However, when it comes to Liechtenstein foundations, it gets even more complicated. The law says that a beneficiary may only claim their mandatory share of the estate from a Liechtenstein foundation, if both:
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- they have a claim according to the law of the estate (usually the law of the jurisdiction in which the person died) and
- they have a claim according to Liechtenstein law.
In other words: a quite technical and complex rule that often requires a closer legal analysis.
If you feel you have a claim out of forced heirship against a Liechtenstein foundation, you should not waste any time and consult a lawyer in Liechtenstein. Claims out of forced heirship must be filed within three years after the last will was handed to the estate court, else they are forfeited.
Right to receive information
If you are a beneficiary of a Liechtenstein foundation, you have the right to receive information about the management of the foundation, the foundation documents, the assets, and how the assets are used to pursue the purpose of the foundation. Don’t believe anyone telling you something else. Nobody can strip you of these rights, not even if there is a forfeiture clause!
Example 2 – Denied information: Jane’s case
“Jane and her grandmother are beneficiaries of a foundation set-up by her late grandfather. Her grandmother is incapacitated, so the fight with the foundation board is all on Jane’s shoulders. The foundation documents state that anyone who dares to attack the foundation forfeits all their rights in the foundation. Jane won. The courts held that requesting information from the foundation and trying to make sure that the foundation is managed according to Jane’s grandfather’s wishes is never a ground to forfeit Jane’s benefit.”
The foundation is allowed to refuse to give information only in very narrowly defined cases, in particular if handing out the information would endanger the foundation itself or if the information would be used in bad faith. Most of the time this defence is used, it’s bogus. The Liechtenstein law acknowledges that foundations need checks and balances in order to function properly. Beneficiaries play an important role in making sure that the foundation assets are being used according to the foundation purpose and that they find their ways to the beneficiaries.
Right to receive distributions
The key question is of course not so much about receiving information but getting distributions from the foundation. Many beneficiaries expect major payments from the foundation once the settlor dies. Unfortunately, this is where reality and expectation usually do not meet. Most Liechtenstein foundations are set-up as discretionary foundations. This means that the foundation board has the right to decide on when, how much, and under which conditions they are going to distribute funds from the foundation.
However, the Liechtenstein courts have held that a foundation board must not keep the distributions back over an extensive period of time if the purpose is sufficiently clear. For example, if the purpose explicitly states that the foundation shall support beneficiaries when they start a family or set-up a business and those conditions are met, the foundation board has a hard time arguing why they would not comply with a distribution request. Ultimately, the foundation board cannot withhold distributions indefinitely. At some point in time, they must make a distribution.
Whether a beneficiary has a right to receive a distribution or whether they are subject to the discretion of the foundation board is a delicate question. If the relationship with the foundation board is not too good, it is certainly advisable to consult with a lawyer before approaching them with a distribution request.
Right to renounce your beneficiary status
At first rather strange, but for some people a real problem: renouncing your beneficiary status. A beneficiary has the right to waive all rights, titles and positions they have in a foundation. Nobody can be forced to be a beneficiary of a foundation. They can refuse to accept a single distribution or ask to be crossed from the beneficiaries list entirely.
Example 3 – Get out quick!
“Bob learns that he is a beneficiary of a Liechtenstein foundation. Due to his place of residence, he would be subject to throw-back taxes, so he refuses to accept becoming a beneficiary, thus freeing the way for his children to follow as beneficiaries.”
Negotiations
The reason why foundations become dysfunctional lies often in poor communication between the board and the beneficiaries. Beneficiaries do not see why they should not receive all assets immediately, board members on the other hand are bound by the founder’s will and the foundation documents. Such situations can turn sour quickly. Clever negotiation can help making the foundation board understand the needs of the beneficiaries and, thus, turning them into partners rather than opponents.
Example 4 – Talking your way out
“The founder died, leaving a wife and three children behind. The wife and children request the dissolution of the foundation and the distribution of all assets according to their inheritance shares. The board of foundation refuses because this is not a legitimate ground to dissolve the foundation. After long negotiations, the board and the family work out a plan to abandon the strict boundaries of the statutes by using the flexibility offered by the law.”
Right to file for supervisory measures and access to state courts
Finally, as a beneficiary, you always have the right to go to the supervisory court. The supervisory court is your last resort if you have problems with your foundation.
The supervisory court has an extensive toolbox at hand. It is entitled to demand information from the foundation and, through an auditor, inspect the books and documents of the foundation. Moreover, it may obtain information from other administrative authorities and the courts, and it may in special non-contentious proceedings order the measures that are necessary to ensure the good functioning of the foundation, such as appointing a curator or special control body for the foundation, perform special audits, or even declare a resolution of the foundation board invalid. If need be, the supervisory court may also dismiss the members of the foundation board.
What you should do
If you believe a foundation is not fulfilling its duties, don’t wait. Legal remedies exist – but some have strict deadlines. Talk to a Liechtenstein lawyer specialised in foundation law and protect your rights.
Philipp Konzett is a Liechtenstein-based lawyer and notary public who advises international clients on foundation and trust law. He represents his clients in all commercial matters in the Liechtenstein courts and before arbitral tribunals. In 2024, he featured in the “Excellence” category in the renowned Private Client Global Elite Directory. Alongside his career in law, he sits on the supervisory board of a regional bank.
