Asset Protection: How millionaires are misled by financial planners and consultants

– Why some asset protection leads to poverty or prison –


It is common practice for credit institutions of all kinds and independent advisors to sell “private financial planning” to their clients. This may well cost a few thousand euros in fees – only for the time being, because the damage done in the process is often up to more than six figures. Bank(st)ers let it cost up to more than 10 TEUR to be trained accordingly with half-knowledge.


Modified community of gains

A typical misconception among the population is that one spouse would be liable for the debts of the other spouse under the legal matrimonial property regime of community of gains. Advisors take advantage of this, including tax advisors, to recommend modified community of gains. There is a fee for this with the adviser, and another with the notary – completely unnecessary, of course, because already by law there is no liability for the spouse’s debts.

The main idea behind the modification is that you only receive a gain in the event of death (modified). However, the spouses have now deprived themselves of the tax exemption of the matrimonial property gain even in the case of separation with divorce, § 1378 BGB, § 5 II ErbStG. Up to more than double the tax burden can then result in the case of asset transfers. The tax authorities will see inheritance law effects, and not property law effects, in the foreground.

The Federal Court of Justice allows notaries to exclude their own duty to advise on tax consequences in their general terms and conditions. It will be useful to obtain written tax advice in individual cases, if necessary including information from the tax authorities, in order to avoid unpleasant surprises later on.



If, due to the choice of the matrimonial property regime, no gain accrues during the marriage, it is not possible to settle it before death or divorce. If, however, a separation of property is only agreed during the marriage, the previous gain, which is in itself initially protected against realisation of the lien, could then be compensated, § 852 ZPO. However, such a legal claim can also be seized in advance by creditors. And furthermore, a settlement shortly before execution or bankruptcy can still be contestable for two or 10 years, and this by both old and new creditors, §§ 138, 133 I InsO.

Often a four-year contestation period is added because there is no expert calculation of the value of the settlement and creditors later prove that it was partly a gift. In a trade daily newspaper the wrong reference was recently given to the fact that with payment of the Zugewinnabfindung this money is withdrawn from the creditor access, because this legal transaction is against payment – the BGH decided it however already completely differently.

According to case law, the waiver of “claims to compulsory portions or equalisation of gains” is in any case not a realisable countervalue, so that in case of doubt there is no consideration, but a gift, and therefore at least a four-year contestation period then runs, § 4 AnfG, § 134 InsO.

In many cases, the most diverse types of a maintenance obligation are also settled or excluded. Then the question arises later not only about the technically correctly determined values, but also about whether the exclusion of any maintenance is immoral and therefore null and void? Often advisors fail to realize that the valuation according to tax regulations, which is typical for tax advisors, is not suitable for the defense against a later contestation of a gift.

Where future developments, uncertain events and life expectancies are also important, an expert opinion based on realistic economic principles, e.g. by an actuary, is more reliable. Since around 2006, post-marital maintenance has been owed for a few years at most anyway. Therefore, at the latest when the future housewife and child(ren) mother gives up her occupation, a strategic regulation of the property situation for the provision of the family should be considered.

Since 01.09.2009 it is also possible to settle the pension equalisation and to exclude it contractually for the future. Without an expert opinion, it will hardly be possible to prove the equal value of the settlement in order to shorten the contestation periods. Lawyers, tax, insurance and pension consultants will always be overwhelmed with such calculations. And then, of course, the question arises as to how the money, i.e. the severance payments, could be invested sensibly.

It should not be forgotten that the build-up of a sufficient old-age pension – also in the case of the non-earning or lower-earning spouse – corresponds with one’s own obligation to pay maintenance.


Community of gains ends with the death and a right of choice of the survivor

If the spouse bequeaths or inherits, the gain shall be deemed to have been settled as well. On the other hand, the legal share of the inheritance is increased by ¼, as an inheritance-law equalization of gains, which is not to be compensated as a liability of the estate in the compulsory share of the children, §§ 1371 I, 1967, 2311 BGB. The fictitious equalisation amount for the gain remains tax-free in accordance with § 5 I ErbStG.

The spouse entitled to a compulsory portion is entitled – for example after a disclaimer – to a property law equalisation of gains, and this is completely tax-free, § 1371 II BGB, § 5 II ErbStG.

Only a settlement calculation for the decision on the disclaimer provides a basis for a decision, which must be made within six weeks due to the disclaimer deadline.


issue of property settlement on death

Other experts recommend the complete separation of property, without considering that this eliminates the lump-sum tax-free equalization of ¼ (§ 5 ErbStG), and the spouse then inherits only ¼ – but shares the estate with the children at least according to heads, as a minimum the so-called child part. Since 1994, a retroactive return to the community of gains according to § 5 ErbStG is no longer possible.

The well-intentioned advice through financial planning thus turns out to be manifest damage, so that often only a declaratory action avoids the statute of limitations. The conceivable error of motive (only) in inheritance law with subsequent contestation will remain irrelevant for tax purposes. Here, too, it is often overlooked to document the value of the assets of both spouses as status on the relevant cut-off dates.


Transfer of the family home to the spouse

This tax-free model can be taken advantage of several times in the EU if real estate is the jointly occupied family home. Family-legally it concerns often an unnamed donation or a donation, which is loaded with legal and often contractual claims for restitution – and these are seizable after the iurisdiction, even if there are (only) in the specialized literature in addition since approximately the year 2000 different opinions than so far unfounded hopes. For in this country the constitutional protection of property, in particular of creditors, is so strong that attempts to create unseizable assets through the drafting of contracts will only rarely succeed, § 851 II ZPO. Even a simultaneous waiver of the compulsory portion does not lead to the gratuitousness of unnamed gifts (BGH, judgement of 28.02.1991, ref. IX ZR 74/90).

The BILD newspaper had published cautionary examples of notarial contracts with which the owner of a drugstore chain wanted to secure himself shortly before insolvency. A business newspaper added to this recommended “frequent tessera” the advice to grant the spouse a right of residence after all. Such an arrangement would be contestable for two, or four, or even 10 years, depending on the design – a later auction of the property cannot prevent this; and in the case of senior bank debts, the right of residence then proves to be an ineffectual attempt at asset protection anyway.

Foundations and other legal structures

On the other hand, a more effective approach is to think in terms of asset protection over generations, if necessary with the involvement of a foundation or a well-supervised trustee. Supervision of the trustee in Liechtenstein by a co-foundation council and additionally by a trustee will not be sufficient, since foundation councilors disliked by the trustee can, if necessary, simply be voted out of office for no reason at all, and Liechtenstein trustees, as foundation councilors, have even put the voting out of office of a trustee supervising them, together with the appointment of a new trustee from their own family circle, on the agenda. Liechtenstein trustees like to build bogus securities for the founder into the foundation statutes, which in the end prove to be unsuitable and suitable so that the trustee can later manage the foundation undisturbed as he sees fit.

In addition, easements, including those for owners, tenants and third parties, offer a wide range of possibilities based on established case law. Another approach is that of personal service obligations which are in principle unseizable in return for the transfer of assets, as is traditionally the case with Leibgeding and the transfer of a farm. Also highly personal and (fiduciary) earmarked claims are not transferable (§ 399 Alt.1 BGB) and therefore unseizable, § 851 II ZPO.

Even claims for repayment which are only to be exercised on a highly personal basis can be seized as future claims even before they are exercised, because they are transferable without further ado (BGH, judgement of 20.02.2003, ref. IX ZR 102/02). However, it is allowed not to make the claim at all later – just as you can disclaim an inheritance so that it does not fall to creditors. If it were a matter of recovery “only for the divorce case”, even this could not prevent the attachment in advance, but at most the realisation before the exercise, § 852 II ZPO.

Incidentally, gifts to spouses de facto lead to compulsory portion supplement claims forever, at least until the end of the marriage. If it were not a spouse receiving a gift, there would no longer be a supplement to the compulsory portion once 10 years have passed since then. Also treated as “perpetual” is the case where a conditional usufruct has been attached to a gift. The financial planner does not learn this either – even if he then advises the bank customers on this as a bank employee. Also some family lawyers are not aware of the fact that there are corresponding claims for information about events more than 10 years in the past, so that the child placed on the compulsory portion does not receive too small a share of the estate in the end.


Transfer of real estate to an asset management company

When the press is already reporting high tens of millions of dollars of debt due, it’s hard to prove you had no malicious intent to shake down your creditors. In many cases, such models then cost considerable consultancy fees and subsequently gift tax to implement. Creditors will sue – and the insolvency administrator will challenge. In many cases it is safer to relocate and to choose a more flexible legal system. Then, at best, even with a lead time of one year, you can secure your assets for retirement, including real estate.

It is of little help to rely on advertising brochures of foreign credit institutions or insurers, because for nationals, foreign off-the-shelf solutions may fail due to domestic and international tax law as well as local values (ordre public). In particular, foreign foundations and life insurance wrappers for succession planning involve a high risk of violating mandatory domestic legal requirements, so that the assets end up being distributed quite differently than intended.

Criminals also use asset management companies, because you can transfer their shares at any time (almost) form-free, even without a notary. However, the catch remains that an insolvency administrator can demand that the debtor or heirs release all notaries and advisers (including those abroad) from their duty of confidentiality, as well as the granting of additional powers of attorney already on the basis of an unspecified suspicion, § 97 II InsO. This also makes banking and insurance secrecy abroad a waste of time.


privileges of the welfare state

In the Internet one finds lecture documents of renowned experts, who mean there that it is a “highly personal decision” whether one makes a obligation part valid, or for instance because of impoverishment earlier donations back demands (BGH, judgement of 10.01.2006, Az. X ZR 109/05), and a Zugewinn makes valid. However, the state can transfer such legal claims to itself, and thus remove such decisions from the “highest personality”.

A professor with a chair in planning in business administration said “Planning replaces chance with (legal) error.” Less informed experts then consider this daily practice of the state with the subsidiarity principle in lectures to be a “manageable worst-case scenario”: presumably what is meant is that when all assets are gone, as a total loss after faulty design, the rest becomes “manageable”? The surviving spouse’s right of renunciation alone cannot be transferred to the social welfare agency, § 93 SGB XII (BGH, judgment of 19.01.2011, file no. IV ZR 7/10).

A further cruelty contains the tax code (AO) in § 278 AO. Accordingly, spouses cannot simply have the tax liability of both spouses divided (on application) in order to then pay only their own tax liability. The consequence of § 278 AO is that, despite the division of tax debts, there is joint liability if, in the assessed tax year or later, assets were transferred from one spouse to the other.

Private pension insurances often immediately completely seizable

Whereas, for example, accessory rights and, for example, a right of first refusal are deemed unseizable (§ 473 BGB), the future payment of a life insurance policy on death can be seized by a creditor and the subscription right revoked, § 829 ZPO.

The Federal Fiscal Court (Bundesfinanzhof, BFH) decided in its ruling of 31.07.2007 (Ref. VII R 60/06) that an endowment life insurance policy is fully attachable despite the right to choose an annuity. After the attachment, a pension option can also no longer be exercised.

For many years, it was safer to choose an annuity policy with a lump-sum option right from the outset, i.e. the “reverse” design, because the lump-sum option right was regarded as a highly personal right (not subject to attachment). Thus also still with judgement of 07.11.2000 (1 K 168/99) the tax court of the Saarland had judged. The seizure of the lump-sum settlement then came to nothing if the debtor did not exercise his right to the lump-sum settlement (of course!) and thus the insured pension remained. Another prerequisite: no surrender value could be agreed in the annuity insurance, only the conversion into a non-contributory annuity.

The “trick” of at least keeping the lump-sum settlement option open against seizure now seems to be over, because the BFH is of the opinion that option rights are apparently generally not highly personal – consequently the option right is transferred to the pledgee, just as the possible right of termination and the right to the surrender value have been up to now.

In addition to pensions (where applicable by law or on application with exemption from seizure), according to the new BFH ruling any lump-sum settlement can also be seized, even if it is only agreed as an option, and this applies to any life insurance or pension insurance contract that includes such an option.

So-called guaranteed annuities are popular, which are paid until the end of the guarantee period (e.g. for 10 or 15 years) even in the event of death during the guarantee period. Depending on the insurance conditions, the option is offered to choose a lump-sum settlement instead of the remaining guaranteed annuity at any time. According to the BFH ruling, this can then be seized – the insured person will then only see a further lifelong pension payment after the guarantee period has expired.

If the insured person dies, a “widow’s pension” is often agreed, e.g. in the amount of 60 %. It is not uncommon for the terms to give the widow the option to choose a lump sum settlement instead. This can now be seized immediately after the BFH ruling – the widow then receives nothing at all.

Some life insurers even offer the option of having all future annuities paid off once at any time if the annuity is already in payment – a found meal for any creditor by permanently destroying the annuity. The flexible disposal options recently built into so-called “variable annuity” life insurance policies from abroad also benefit mainly the creditors in the event of insolvency.


Life annuity via foundations as a solution approach

Instead of such unsuitable off-the-shelf solutions, an individual design via foundations is promising. Existing life insurance policies can also be transferred to them, even with a tax advantage if the foundation is non-profit. With the transfer, the reservation of a life annuity is possible. Severance pay may be excluded. However, it may also be stipulated in the foundation statutes that the entitlement to the life annuity is suspended under certain conditions. This leaves the creditors empty-handed.


Why the tailor-made suit fits better than almost free half-knowledge

Even in dissertations, “recommended regulations across case groups” are touted for “asset protection”, i.e. for the protection of assets, which simply ignore the prevailing and more recent case law. Already the accompanying goal of “asset protection” leads in case of doubt temporally to the contestability for up to 10 years. Corresponding “specialists for asset protection” lead onto the ice, not least that of bankruptcy criminal law.

In intact family relationships, the core of asset protection will be based on a fair and balanced distribution of property at all times with the prospect of mutual support – and precisely not on legally erroneous “highly personal” claw-back clauses. If you don’t have family, you should look for friends to protect you – so that your assets serve the purposes you want during your lifetime and afterwards. To implement this in the framework of a joint foundation is quite promising. Moving one’s own assets abroad, at least in part or even by oneself, is an option with unimagined possibilities, especially for structuring them in a proven manner there.

In the case of assets abroad, not only real estate, one will have to look at each legal system, because even a simple notarial Berlin will will usually be ineffective if the testator and parts of the assets originate from South Tyrol. In addition, there is also a need for so-called “perpetual files”, because the tax authorities sometimes demand documents as evidence concerning transactions that can date back more than 40 years. This applies, for example, to the payment of capital contributions for corporations, the depreciation of real estate or also the gift tax already paid – otherwise there is a risk of actual double taxation. Asset protection also means ensuring sufficient tax documentation.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of (June 2015 issue)

and (published in Apartment & House, issue 1/2018, pages 12-15)



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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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