In projects conducted by PLA.partners, the question of whether distributions from a family foundation paid to one of the spouses increase the joint estate or the personal estate returns regularly. The answer is significant both for the family’s current financial situation and for potential future events, including divorce or enforcement carried out against the assets of one of the spouses. PLA.partners helps private clients understand this mechanism and design the distribution policy accordingly.
Short answer, distributions go into the personal estate
Distributions from a family foundation paid to one of the spouses usually go into the personal estate of that spouse, not into the joint estate. This mechanism works on similar lines as a gift received from a third party. Assets contributed to a family foundation become its property, and assets received by beneficiaries from the foundation increase their personal estates.
Maciej Pilarek, attorney and partner at PLA.partners, emphasises that this parameter is one of the significant advantages of the family foundation in a situation where the family wishes to secure financial flows against the risk of life events of one of the spouses.
Why distributions from a family foundation do not increase the joint estate
This mechanism has a logic consistent with the legal character of the family foundation. The foundation is an autonomous legal person, separate from the founder and beneficiaries. Distributions paid by it are similar in character to gratuitous transfers of property from a third party. In Polish family law such transfers, for example gifts, as a rule enter the personal estate of a spouse and not the joint estate.
In the practice of the PLA.partners team this parameter means that the family foundation can be used as a tool that supplies beneficiaries predictably while not disturbing the spouses’ property structure. Distributions go where the founder planned, that is to the beneficiary indicated in the statute.
Practical effects for the beneficiary and the family
Distributions going into the personal estate have significant practical effects. First, in the event of divorce they are not subject to division in the property proceedings between spouses. Second, in the event of enforcement carried out against the other spouse, they are not directly exposed to satisfying the creditor. Third, these distributions are accounted for in the beneficiary’s records according to the rules applicable to personal property.
PLA.partners experts design the distribution policy so that this feature is genuinely used in the long term family strategy, not left merely as a formal characteristic.
Can spouses contractually change this effect?
Through appropriate contractual arrangements, spouses may influence the scope of their joint and personal estates. In private client practice this area, however, requires particular care and should be designed together with the family foundation, not in isolation from it.
From the PLA.partners team’s perspective, all modifications of the spouses’ property regime that affect distributions from the foundation are analysed together with the distribution policy and the foundation’s statute, so that the end result is coherent and predictable.
Legal and business consequences for the client
From the decision-making perspective within the family, the legal character of distributions from the family foundation means:
- increase of the beneficiary’s personal estate, not the spouses’ joint estate,
- reduction of the risk that distributions will be divided in property proceedings after divorce,
- reduction of exposure of distributions to enforcement against the other spouse,
- predictability of the distribution policy regardless of the dynamics of the beneficiary’s family situation,
- the need to take this mechanism into account when designing the distribution policy,
- the possibility of modifying the spouses’ property regime through separate arrangements.
Possible actions, a plan for the business owner
In the practice of the PLA.partners team, this area is designed through:
- diagnosis of the beneficiaries’ family situation and their property arrangements,
- design of a distribution policy taking the personal character of foundation distributions into account,
- assessment of the tax consequences of planned distributions,
- coherent inclusion of any spousal arrangements in the statute and distribution policy,
- monitoring beneficiaries’ family situation during the foundation’s operation,
- periodic reviews of the distribution policy as part of ongoing foundation servicing.
Contact PLA.partners Law Firm
Do you need legal support or an individual analysis of your matter? Visit PLA.partners and contact our team, we will help assess the situation and propose specific solutions.
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