Save taxes Donate instead of bequeathing – this is the right way to do it
Donate instead of bequeath.
Image: Getty Images
Anyone wishing to leave assets to children or close relatives should consider making a gift during their lifetime. Why this is advantageous.
- Share article by:
- Share article by:
Germany’s prosperity is increasingly based on lavish inheritances. According to a study by the German Institute for Economic Research (DIW), up to 400 billion euros per year are currently likely to be inherited and given away. According to other estimates, almost three-quarters of inherited wealth consists of real estate. And it is not uncommon for heirs to argue about what to do with the house or apartment: Sell and divide the proceeds or use and pay out co-heirs.
Giving is more blessed than receiving, as the Bible says. Analogous to this, the otherwise less Christian tax law says: Giving is better than inheriting. Because gifts between close relatives and dependents offer high tax allowances and help avoid the frequent and often bitter dispute between heirs. Because who gives, can steer the transmission of its bequest actively – and plan strategically.
Another plus: If you want to leave private assets to your family members, you can save them high tax payments by making gifts. However, there are formal requirements, clever planning and a few risks that must be taken into account.
The same tax rules and rates apply to inheritances and gifts in Germany. According to this, it would not really matter whether gifts were made or inherited. However, gifts offer some special features and design options that are missing in the case of inheritance. The main advantage: The tax allowances for gifts take effect anew every ten years. If you are clever, you can save your descendants unnecessary tax payments by making multiple use of the tax-free allowances.
Find the best jobs now and
be notified by e-mail.
High tax allowances
The amount is determined according to the relationship of the children. The latter is also decisive for the gift tax class according to which the donees must pay taxes. For everything that exceeds the tax-free amount, the tax office demands its share of the gift according to the tax rates of this class. "Basically, the more distant the degree of relationship, the higher the tax rate," says attorney Joachim Caesar-Preller of the Wiesbaden law firm of the same name. "For the donee, there are two hurdles in the process. On the one hand, the tax-free allowance. The closer the relationship, the higher the tax rate. On the other hand the tax class, which is the more unfavorable, the more distant the degree of relationship is."
Inheritance and gift tax How to transfer real estate without incurring taxes
Accordingly, the tax offices sort the donees into three tax classes, with Class I being the most favorable and Class III the least favorable. They are regulated in the inheritance tax law (ErbStG).
The following applies to the allowances: For the closest relatives such as spouses or children, the allowances are usually sufficient for a tax-free gift. Each parent is allowed to submit 400 to his or her child every ten years.Make a gift of € 000 without incurring gift tax. For most real estate that passes to the children by gift or inheritance, this amount should be sufficient to rule out tax liability.
Transfer between spouses is tax-free
Grandma and Grandpa are allowed to give their grandchild 200.000 Euro left tax-free. Spouses and registered civil partners can even transfer assets of up to 500.000 euros tax free. For siblings, unregistered partners and friends, the tax authorities allow an allowance of 20 percent.000 Euro before.
However, there is a special rule for the donation of real estate between spouses. The transfer of an owner-occupied property to a spouse is always tax-free – to an unlimited amount.
Tax classes according to degree of relationship
The tax rates within the tax classes are progressive, i.e. the higher the amount to be taxed, the higher the tax rate that the tax office requires.
How exactly the assignment to a tax class works, can be clarified best at an example. In tax class I, the donee must pay 30 percent tax in the worst case if the taxable portion exceeds the sum of 26 million euros. In tax class III, a hefty 50 percent tax is due on taxable amounts above 13 million euros.