In summer 2025, the Cologne Administrative Court (4 K 514/24) dismissed a lawsuit filed by a charitable foundation that sought to be converted into a limited term trust. The ruling emphasizes the high barriers for a later conversion under Section 85(1), sentence 4 of the German Civil Code (BGB) as well as the importance of clear articles of association designed with the principle of perpetuity in mind.
Foundation seeks conversion to a limited term trust
A charitable foundation based in Cologne was established and recognized as a foundation with legal capacity by the Cologne District Government on December 14, 2005. Pursuant to § 2 of its original statutes, it pursued exclusively and directly charitable purposes, in particular the promotion of sports within the meaning of § 52(2)(2) of the German Fiscal Code (AO). The foundation fulfills its purpose, among other things, through individual support in youth competitive sports and through public relations activities. The endowment capital amounted to EUR 200,000 and, pursuant to § 3(2) of the articles of association, was to be “maintained in its value permanently and undiminished,” i.e. preserved in perpetuity.
The foundation later applied for an amendment to its articles of association with the aim of converting to a limited term trust, i.e. to be permitted to systematically deplete the assets – in deviation from the principle of perpetuity.
The founder’s original intent is decisive
The Cologne District Government denied approval of the conversion in a decision dated January 11, 2024, on the grounds that the substantive requirements for conversion into a limited term trust were not met. It emphasized in particular that the foundation had been established as a perpetual foundation and that there were no apparent compelling reasons justifying a subsequent departure from its permanent nature. The foundation filed a lawsuit against this decision, citing the current intent of the surviving founders, who expressly desired a limited term trust.
The defendant countered that the historical intent of the founders was decisive. At the time of establishment in 2005, only a perpetual foundation had been legally provided for, which is why a limited term trust had specifically not been intended.
Court upholds strict interpretation by the foundation supervisory authority
The Cologne Administrative Court declared the lawsuit admissible but dismissed it as unfounded. It found that the decision of the Cologne District Government dated January 11, 2024, is lawful and does not infringe upon the plaintiff’s rights. In the court’s view, the plaintiff has no claim to approval of the conversion into a limited term trust.
Requirements for a limited term trust in Germany
The court bases its legal review on Section 85(1), sentence 4 of the German Civil Code, which governs the requirements for the subsequent conversion of a perpetual foundation into a limited term trust. According to this provision, a limited term trust is generally only considered when the permanent and sustainable fulfillment of the foundation’s purpose from income, donations, and other funds has failed.
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The Cologne Administrative Court emphasizes that the foundation was originally endowed with a core asset base intended to be preserved in perpetuity and was thus clearly conceived as a perpetual foundation. The explicit statutory requirement to preserve the foundation’s assets “permanently and undiminished” is regarded as strong evidence of the historical intent of the founder, which was directed toward permanence and not toward the consumption of assets.
The foundation’s purpose must truly no longer be achievable
The fact that, at the time of its establishment in 2005, the perpetual foundation was effectively the only standard model available under the legal framework then in force in Germany further supports, in the court’s view, the assumption that the foundation was intended to be a permanent entity. By contrast, the subsequent wishes of the still-living founders, who now prefer a limited term trust, can only be taken into account to a limited extent and cannot simply override the original, legally established concept.
The court requires concrete evidence that the permanent fulfillment of the foundation’s purpose is no longer possible with the available funds; mere practical considerations or a changed funding style are insufficient. The Cologne Administrative Court could not identify such evidence – such as a structural failure to finance the foundation’s purpose or a definitive failure to achieve the purpose in its current form.
Therefore, it denies the factual requirements for an approvable conversion under § 85(1) sentence 4 BGB and upholds the foundation supervisory authority’s decision to reject the application. Overall, the decision classifies the conversion of a perpetual foundation into a limited term trust as an exceptional measure that may only be considered after strict review and in the event of the failure of the permanent purpose.
Conscious decision on a foundation model at the time of establishment
The ruling has significant implications for the practice of establishing foundations in Germany, as it highlights the importance of a clearly identifiable concept of perpetuity and the high priority of the endowment capital.
For founders, this means that they must make a very conscious decision at the very outset of the establishment process as to whether they wish to create a perpetual foundation designed to last indefinitely or a structure conceived from the start as a limited term trust – or, if applicable, even a hybrid model, i.e. one in which conversion to a limited term trust may be provided for from the outset after a certain number of years have elapsed.
The wording of the statutory purposes and, in particular, the provisions regarding the foundation’s assets (“to be preserved permanently and undiminished” vs. planned consumption of assets) thus play a key role, as they will later serve as criteria for interpreting the founder’s intent.
Options for adaptation in foundation statutes
In practice, this means that options for adaptation – such as flexibility clauses, opening clauses, or provisions for modifying funding instruments as well as the articles of association themselves – should be incorporated within the framework of the perpetual model, rather than relying on a later “escape” to a limited term trust.
At the same time, the ruling makes it clear that the “current will” of living founders, however important it may be politically and morally, can only take legal effect within the limits set by the articles of association and the law. Particularly in the context of charitable foundations dedicated to promoting sports or culture, the decision makes clear that changes in funding strategies (e.g. more project-oriented funding or time-limited priorities) are possible even without converting to a limited term trust, but must be designed within the framework preserving the endowment’s core assets.
Comprehensive consulting on foundation establishment in Germany
For prospective foundation founders, this means: If you want flexibility in achieving your objectives, you must ensure that this flexibility is precisely and legally soundly reflected from the outset in the list of measures, asset management rules, and amendment clauses of the articles of association. Our experienced foundation consultants are happy to assist you with this. Please feel free to contact us!
