The Family Foundation Act grants founders considerable freedom in shaping the rules of their foundation. The regulations introduce relatively few restrictions on who can be a beneficiary or what they must do to receive benefits. However, in practice, the question arises whether the limits of this freedom extend to the possibility of conditioning the right to benefits from the foundation on, for example, religion, gender, or sexual orientation.
Does the Family Foundation Act allow the right to benefits to be made conditional upon meeting certain conditions?
Pursuant to Article 34 of the Family Foundation Act, benefits from a family foundation may be granted on condition or subject to a deadline.As of the date of writing this article, no court rulings have yet been issued that would define the legal boundaries within which the conditions for the payment of benefits could be established, therefore further analyses must be based on our own analyses and the achievements of legal doctrine.
For context, it's also worth noting that Article 26, paragraph 2, point 4, states that beneficiaries can be determined based on objective criteria. Typically, these will be descendants of the founder, but the provisions of the Act indicate that they may also include other individuals.
The literature we analyzed shows that criteria that make the payment of benefits dependent on factors such as reaching a certain age (both maximum and minimum), getting married, having children or completing a certain type of school are undoubtedly permissible. In his commentary, R. Adamus argues that it is also possible to condition the payment of benefits on membership in a given religion or religious association. The same publication also indicates that it is permissible to use a family foundation to subsidize a religious association of one's choice, as well as the founder's fellow believers.
Other authors (P. Bender, J. Miłaszewski) go a step further – in the commentary to the Act on Family Foundations edited by K. Osajda, they claim that Even if it is difficult to objectively justify, the founder may make obtaining beneficiary status dependent on factors such as gender, religion, sexual orientation or the marital status of the parents at the time of birth. It is worth noting, however, that the people writing the commentary emphasized that the statute must be in accordance with generally applicable legal acts – including the Constitution.
Unacceptable is to make the right to a benefit conditional on the beneficiary meeting conditions that are contrary to the law or principles of social coexistence. In particular, it would be invalid to condition the payment of a benefit on the commission of a prohibited act, such as a misdemeanor or a crime. Provisions should also be deemed contrary to the principles of social coexistence. demanding from the beneficiary breaking off contacts with family members or restrictions on his fundamental rights and freedoms, including the right to free movement. It would also be unacceptable to require the beneficiary to complete education before the age of 18, as this would be contrary to applicable law. Similarly, imposing an obligation on a minor to undertake employment within a specific period should be viewed negatively, especially if the minor is still in secondary school and the work performed is not part of the educational program or vocational training. Such provisions could be deemed contrary to the principles of social coexistence and, consequently, invalid.
It's also worth noting that the founder's freedom is not limited solely to defining the group of beneficiaries and the rules for benefit payment. The founder may stipulate that funds transferred to the beneficiary are to be allocated to specific goals. For example, although the beneficiary of a family foundation can only be an individual or a non-governmental organization specified in the act, the founder may obligate the beneficiary to allocate a portion of the benefits received to the maintenance and care of their animals, including covering the costs of veterinary treatment, food, and other expenses related to their well-being. This is an example of the founder's broad freedom in pursuing personal and family goals through a family foundation.
What does the Constitution say about this?
It is worth remembering that neither statutory provisions nor contractual or statutory provisions may be inconsistent with the Constitution. Article 32, paragraph 2 of the Constitution, in turn, states that no one may be discriminated against in political, social or economic life for any reason.
Let us note, however, that the legal community (e.g. P. Tuleja in his commentary on the Constitution) indicates that discrimination consists in unjustified differentiation based on objective characteristics. In this case, the key issue is the justification or lack thereof. Therefore, in our opinion, limiting the payment of benefits from a foundation solely to individuals of a specific gender or sexual orientation creates a much greater risk of discrimination than, for example, limiting payments to individuals with political views different from those of the founder.
It's worth noting that, in addition to the Constitution, the provisions of the Civil Code must also be considered. According to Article 58 of the Civil Code, acts that are contrary to statutes, intended to circumvent them, or that are contrary to the principles of social coexistence are invalid. Once again, we are dealing with vague concepts, but it's worth noting that both Article 32 of the Constitution and Article 58 of the Civil Code clearly limit the freedom to engage in legal acts.
Can foundation beneficiaries be discriminated against?
It's worth noting that the foundation's core purpose is to accumulate and manage property in the interests of its beneficiaries, with the founder having the ability to precisely define the purpose of establishing and managing this legal entity. The provisions of the Act clearly indicate that the legislator's intention was to create a tool for the effective transfer of property between generations. Therefore, it is, in a sense, a supplement to a will or statutory succession.
Although Polish civil law has a relatively strong legal system for compulsory portions, a testator has considerable freedom in shaping their will and, under certain statutory conditions, can also disinherit someone. Decisions made do not need to be justified, and invalidating the disinheritance of someone who has separated from the testator can be extremely complicated. As a result, a properly motivated testator can exclude a person from inheritance without having to justify their position. Such a decision may be based on a conflict of views (e.g., a difference in religion) or life decisions made by the heir (e.g., entering into a relationship with someone the testator disapproves of).
Since the testator enjoys a significant degree of freedom when creating a will, it would be logical to assume that the founder of a family foundation would also be able to shape its statute in accordance with his or her beliefs. This position is supported by the legal doctrine (R. Adamus), which states that the Family Foundations Act does not impose an obligation to treat beneficiaries equally. It seems, however, that given the level of detail in some regulations, the absence of such a provision is deliberate.
It should be emphasized that legal science has identified two types of criteria, also for designating beneficiaries. simple and complex criteria:
- Simple criteria – we understand it as the necessity to meet one condition, e.g. reaching the age of 30, completing studies, giving birth to a child,
- Complex criteria – understood as a combination of at least two conditions – completing studies and reaching the age of 30, starting a family and simultaneously working for at least 5 years in a family business.
When establishing beneficiaries of a foundation, both types of criteria can be applied. In our opinion, the court would evaluate each condition individually, as well as their combinations. Otherwise, multi-level structures that circumvent the prohibition of discrimination would be legal.
However, we wouldn't consider it problematic to differentiate beneficiaries based on factors they can influence. Therefore, benefits could be revoked or limited for those struggling with addiction, beneficiary status could be contingent upon completing a degree, and benefits could be awarded to those who decide to start a family. We also consider it acceptable to vary the frequency, duration, priority, and so on of benefits.
When can beneficiary status be made dependent on objective criteria?
We were inspired to write this post by a real case that we investigated on the need to register a family foundation for our client. After reviewing all available sources, we concluded that Reservations of this type should only be introduced after analysis of a specific case and it is impossible to create any top-down rule of conduct. However, we can indicate several factual situations in which making the beneficiary status dependent on objective criteria would be permissible, as well as several situations in which discrimination most likely occurs.
Membership in a religious association
Legal doctrine suggests that a founder may attempt to condition a beneficiary's status or entitlement to certain benefits on membership in a specific religious association or religion. The argument advanced in support of this position is the founder's broad discretion in determining the goals of a family foundation and the principles for granting benefits to beneficiaries. It should be emphasized, however, that this issue raises significant legal uncertainties, and the lack of established case law prevents a clear determination of the permissibility of such provisions. A case-by-case assessment of their compliance with legal provisions would be necessary, particularly the constitutional principle of equality and the prohibition of discrimination.
Plec
In practice, solutions may be found in which the beneficiary's status or entitlement to benefits is contingent on maintaining a specific family relationship. For example, the founder's daughter-in-law is assumed to remain a beneficiary for as long as she is married to his son, or during her pregnancy. However, greater uncertainty may arise when beneficiaries' situations are differentiated solely based on gender. On the one hand, the founder enjoys broad discretion in shaping the principles of operation of the family foundation, but on the other, the provisions of the statute should be consistent with legal provisions, including the constitutional principle of equality and the prohibition of discrimination. Assessing the admissibility of such solutions would require a case-by-case analysis of the purpose of the provision, its proportionality, and the circumstances of the specific case.
Sexual orientation
There is currently no court case law that would clearly establish the admissibility of making beneficiary status dependent on sexual orientation. However, it should be assumed that such a criterion could be particularly difficult to defend in the event of a dispute, given the constitutional principle of equality and the prohibition of discrimination. At the same time, it is important to distinguish criteria directly related to sexual orientation from conditions related to specific life events, such as marriage or having children, which can generally be a factor in determining the rules for granting benefits. However, assessing such provisions would require a case-by-case analysis of the foundation's purpose and the circumstances of the specific case.
It should also be remembered that family law regulations are subject to change, which influences the assessment of the effects of specific statutory provisions. Introducing an additional requirement that marriage be concluded only with a person of a specific gender could increase the risk of such a provision being challenged as violating the principle of equal treatment.
Ethnic and national affiliation
It would be equally unlikely to construct a permanent and effective provision in the statute that would make the beneficiary's status dependent on nationality, skin color, or parents' country of origin. Although these are merely our guesses, the founder could most likely make the beneficiary's status dependent on citizenship—as this depends much more on the individual's will. This thesis is also supported by the existence of provisions in the Polish legal system that make the possession of certain rights dependent on citizenship, never on national identity or country of birth.
How to construct a family foundation statute that will not be challenged by the court?
As always, the security and stability of legal transactions depend on many factors, including the cultural and social context, factual circumstances, and the true motivations of the founder. While we currently consider the risk of litigation related to discriminatory provisions in the statute to be moderate, in 10, 20, or even 40 years, the situation could change dramatically.
First and foremost, consider the purpose of specific restrictions. Are they intended to secure the estate in the long term, or are they intended to influence the life decisions of the donor's descendants? Is there a logical basis for limiting beneficiaries to individuals of a specific gender or sexual orientation?
The statute should also allow for the reconstruction of the founder's reasoning. Favoring individuals of a particular faith will be more justified if the founder has been religiously committed throughout their life. This, of course, does not mean that such action is entirely permissible, but in this light, excluding individuals with differing religious views may no longer be entirely contrary to the principles of social coexistence.
Moreover, rationality should always be applied. A condition that limits access to benefits will be much easier to defend than one that denies them entirely. It will be easier to deprive benefits of distant relatives or informal partners of children, but much more difficult to exclude spouses, children, or grandchildren.
Family Foundation? Only with the help of a lawyer
Finally, let's add that from the perspective of asset security, seeking legal assistance is crucial. Given the often significant value of assets and the long-term management horizon of invested capital, every founder should ensure the creation of a secure and less contestable statute. Attempts to draft such a document on their own can end disastrously, for example, through invalidation by an excluded heir.
If you're planning to create a family foundation and need to establish specific terms in your bylaws, please contact us. We'd be happy to help.
