Anticipated succession: Gift allowances can be used more than once

Published on 18.03.2007

Gifts inter vivos are also taxed like inheritances – both are regulated in the same law, the Inheritance Tax Act: When assets are transferred, the inheritance tax allowances of 307,000 euros for the spouse, 205,000 euros for children and children of deceased children and 51,200 euros for other grandchildren – every 10 years – are granted again. In the case of a large estate, it may therefore be advisable to start transferring assets in good time in order to make multiple use of the tax allowances (§§ 14, 16 ErbStG). It is important that wills and inheritance contracts are regularly reviewed as part of succession planning – a typical tax trap is the so-called “Berlin Will” which often results in much more inheritance tax than necessary. Additional assets can also be transferred through tax-free occasional gifts (jewelry, car, holiday allowance, etc.). A limit for tax-free occasional gifts is not regulated in the law. Generally, values of around 40,000 euros can be transferred here. If the inheritance tax is only up to 50 Euros, it is not assessed or levied, § 22 ErbStG. The tax-free amounts (including § 22 ErbStG) as of 2002 are: tax class I 307,714 Euro for the spouse or 205,714 Euro for children, tax class II 10,716 Euro (e.g. for siblings) and tax class III 5,494 Euro (e.g. for the girlfriend). It is important for the arrangement within the family to check the question of maintenance in advance: This is because maintenance payments cannot usually be deducted for the payer (except, for example, in the case of divorce with an agreement on taxation in conjunction with Annex U). However, alimony payments remain tax-free to the recipient for income and estate tax purposes….
Source:Fiala, Freiesleben & Weber Law and Patent Attorneys, Auditors and Tax Consultants