They do not exist for nothing: the countless films, books and reports on inheritance disputes. Inheriting and bequeathing is a complicated matter. Even if you leave out the interpersonal conflicts and concentrate only on the jungle of paragraphs.
If you are thinking of giving away or inheriting a property, you are strongly advised to consult a specialist. Jens urban is one of them. The eltmanner is a lawyer and tax consultant and has been advising on inheritance law (among other things) for 25 years. " How to transfer a property to the next generation while it is still alive and tax-free is one of the most difficult issues of all", the expert then also begins the conversation. Since gift law, inheritance and compulsory portion law, tax law and guardianship law all play a role, the subject is very complex.
Founding a family company
If a family owns several properties, it is often advisable to set up a family company. "When parents and children form a family company to which they contribute the real estate, the company shares can subsequently be transferred at will. In this way, the allowance of 400,000 euros per child can be exhausted every ten years", jens urban explains and adds: "if the amount exceeds 400,000 euros, inheritance or gift tax becomes due, which can be avoided in this way." If you want to transfer your property to the next generation while you are still alive, it is advisable to do so in good time.
"Most parents do not want their children to have to pay for their nursing home costs for once. If the (real estate) gift was made more than ten years ago, the state no longer has any access to the asset. However, if the amount is less than this, the state can still use it to cover the costs of care."
Who inherits what? Consequences must be considered
Before tackling the issue, it is important to be clear about who should get what and what the consequences will be in terms of inheritance law. "An example: the parents transfer their house during their lifetime to two of their children. The third shall go empty. In order to be able to continue using their house, the parents have a right of use established by a notary public. After the death of the parents, the two heirs must nevertheless pay the third child a compulsory share of one sixth, regardless of how long ago the gift was made. Because of the right of use, no time limit applies to this gift, and the right to a compulsory portion, which entitles each child to a compulsory share, thus also applies."
Another problem that many of jens urban’s clients run into is the lack of a notarized power of attorney for health care. "Houses remain empty for ten to 15 years because the parents have a registered right to use them. Until this is cleared, the children cannot move in or use the house in any other way – even if the parents have been living in a nursing home for a long time."
The list of possible constellations and problem cases could go on forever. "It is complicated", urban property.
Epertin explains: should you give away or bequeath real estate??
A house owned by the family, certain sums of money and movable property: what to do with them?? "If you have assets, you should think about the distribution already when you are young", says sophie mecchia. The lawyer works at "finanztest the topic of inheritance and bequeathing, and gives rise to the consideration that the legal regulations do not coincide with personal wishes. In the case of real estate ownership, it can be a good solution to give away the house instead of bequeathing it. What is better in principle: to bequeath a property or to give it as a gift?? Sophie mecchia has tested both options for the september issue of finanztest and says: there is no one-size-fits-all answer. If it’s just a matter of saving inheritance tax, it’s worth taking a look at the heirs’ personal allowances. If these are not sufficient to transfer a property tax-free, a gift may be the better option." What are the personal allowances?? Spouses and registered partners are entitled to a general allowance of 500,000 euros, children to an allowance of 400,000 euros. Both also benefit from a pension allowance (of up to 256,000 or more). 10,300 to 52,000 euros) and allowances for household effects (41,000 euros) and other assets such as cars (12,000 euros).
If the inherited property exceeds the allowance, the tax office demands money for the difference between the allowance and the value of the inheritance. The then applicable tax rates depend on the relationship of the inherited property. Partners and children fall under tax class I: depending on the size of the inheritance, seven to 30 percent tax is due. Siblings and their children are entitled to an allowance of 20,000 euros and a household allowance of 12,000 euros. In tax class II, you will be subject to inheritance taxes of between 15 and 43 percent. How a gift saves taxes? Taxes are due on a gift just as they are on an inheritance, but only if the assets donated exceed the individual allowances. But the gift has an advantage: "the beneficiary can use his allowance every ten years", explains mecchia. "In order to transfer the house tax-free from one generation to the next, the donor can pass on a portion of the house every ten years, the value of which remains within the limits of the allowance ." How and when to start a gift? The lawyer recommends making a plan for the distribution of the assets and a will. In order for the donee to be able to exhaust their personal allowances every ten years – and thus save taxes – it is advisable to start passing on an estate as early as possible. A house can be given to one or more heirs and can be given in stages. It is not necessary to register in the land register who owns what space. Dividing the property, such as giving away the garden, is also an option. Whoever wishes to continue using it, reserves the right to use it. What are the advantages of a gift? "It can be a good feeling to settle the succession of property while you are still alive and to see the joy of the recipients", says mecchia. A gift can provide legal and financial security for the beneficiaries and perhaps give a boost to multigenerational living. What speaks against a gift? "A gift can be difficult to reverse", explains mecchia. The real estate should be paid off, otherwise you remain debtor of the loan, if the bank does not let you out of the contract. If a company bankruptcy or divorce is imminent, a gift is not appropriate. "Family relationships should be stable", says the expert. Very important: the own provision must be secured. After the new owner has been entered in the land register, the donor cannot sell the property or use it as collateral for a loan or for retirement provisions. Can a house be inherited tax free?? "Yes, it is possible within the family if it is the family home that is used by the owner", says mecchia. But the trick is in the details: spouses, registered partners and children can inherit a property tax-free, provided they stay in the house or move into it within six months of death. "They must remain living there for at least ten years", explains mecchia. Inheritance tax becomes payable on an early departure, unless the heir has a good reason to do so. A professional transfer is not covered. For children, only properties up to a maximum of 200 square meters are tax-exempt. Is it possible to reduce the compulsory portion of the inheritance by making a gift?? The compulsory portion represents half of the legal inheritance and is due to close relatives. "Who is disinherited does not necessarily go completely empty-handed", says mecchia. But by making an early gift, you can reduce the compulsory part of the estate. Then the portion of the value that is included in the calculation of the compulsory portion will decrease year by year." However, this rule does not apply without restriction if the gift is made to the spouse. "The right to a compulsory portion is complicated. A lawyer should be consulted beforehand." As the sole owner, can i give the house to my partner tax free?? If the house belongs to only one spouse and the other spouse is not registered in the land register (this does not happen automatically through the marriage), the gift must be made to the other spouse!) he can become a co-owner through a partial donation. A gift between spouses is tax free. Can you continue to use and live in a house that has been given away?? "This is possible by agreeing on a usufruct, for example in the form of a lifelong right of residence and use, says mecchia. The usufructuary can live in the house or rent it out. The donor and the donee must agree on who will pay for expenses such as property taxes and repairs. Usufruct is registered as a charge in the land register.
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