Lifetime Transfer of Assets Instead of a Will: Opportunities, Risks and International Aspects

Published on 02.10.2026

Lifetime Transfer Instead of a Will

Anyone who does not want to pass on their assets only on death will sooner or later face the question: is a will sufficient, or is a lifetime transfer of assets the better solution? The answer depends on tax, compulsory portion rights, your own financial security and the family situation. Anyone moving abroad must also bear in mind that not every German rule applies where the donor or the recipient lives abroad or assets are located abroad. This article sets out German law (as of September 2026) and the particular features of cases with an international connection.

Two Routes of Asset Succession at a Glance

In succession upon death, you determine by will or by an inheritance contract (Erbvertrag, a binding contract on succession concluded before a notary) who inherits and who receives which items, for example through a partition order (Teilungsanordnung) or a legacy (Vermächtnis). In a lifetime transfer, you pass on assets in whole or in part now, by way of gift, anticipated succession (vorweggenommene Erbfolge), transfer in return for maintenance payments (Versorgungsleistungen) or sale to relatives.

In legal terms, three forms can be distinguished:

• Pure gift: You give without receiving anything in return.
• Mixed gift: The recipient provides consideration, but it is worth less than what is transferred.
• Endowment (Ausstattung, Section 1624 BGB, German Civil Code): Parents transfer assets to a child with a view to marriage or to establishing an independent position in life. An endowment is treated as a gift only to the extent that it exceeds what is appropriate to the parents’ financial circumstances.

Consideration such as a usufruct (Nießbrauch), a right of residence (Wohnungsrecht), an annuity or an obligation to provide care belongs in the transfer agreement, which must be notarised where real estate is involved.

← Tabelle nach links wischen, um weitere Spalten zu sehen

A Will Is Not an Alternative but a Necessary Complement

In practice, a lifetime transfer rarely replaces a will entirely. Only the assets transferred leave your estate. Whatever remains with you or is acquired later is distributed after death. Without a will, statutory succession applies; its consequences for emigrants are described in our article on statutory succession and emigration. Transfer agreements and the will must be coordinated with one another.

Tax Advantages: Allowances Every Ten Years

The most important tax lever lies in the personal allowances under Section 16 (1) ErbStG (German Inheritance and Gift Tax Act), which, in the case of unlimited tax liability, apply equally to inheritances and gifts:

← Tabelle nach links wischen, um weitere Spalten zu sehen

The allowance applies per donor. Each parent can therefore transfer up to EUR 400,000 to a child. Under Section 14 (1) ErbStG, acquisitions from the same person within ten years are aggregated. If more than ten years lie between two transfers, the allowance becomes available again. Anyone who starts early and transfers in stages can therefore pass on considerably more tax-free than with a single transfer on death.

Example (fictitious): Renate and Karl have a daughter, Mia. Today they each transfer EUR 300,000 to her. After more than ten years, they do the same again. Both transfers remain tax-free within the allowances, although each parent has transferred a total of EUR 600,000. If Mia were to receive the same EUR 600,000 from each parent in one go on death, the acquisition would clearly exceed the allowance of EUR 400,000. If the donor dies within the ten-year period, earlier gifts are aggregated for inheritance tax purposes.

Usufruct and Right of Residence Reduce the Tax

If you reserve a usufruct or a right of residence when transferring a property, the capitalised value of that right reduces the basis of assessment for gift tax. Economically, the use remains with you, and in the case of let properties so does the rent. A usufruct entitles the holder to all uses, whereas a right of residence primarily entitles the holder to live in the property and can relate to individual rooms. The usufructuary bears the ordinary charges and ordinary maintenance; measures affecting the substance are regularly borne by the owner, although the contract may provide otherwise. The capitalised value depends on age and on the multipliers published annually by the Federal Ministry of Finance (Section 14 BewG, German Valuation Act) and is capped by Section 16 BewG; if the holder of the right dies early, the tax is subsequently corrected (Section 14 (2) BewG). A usufruct also has a downside in succession law, which is explained below in the section on compulsory portion periods.

Valuation of Real Estate since 2023

Since 1 January 2023, new valuation rules have applied to real estate that are closer to market values and often lead to higher tax values. Have the tax value calculated before every transfer. For let residential property, Section 13d ErbStG provides for a reduction of ten per cent.

Chain Gifts

Where the allowance in relation to the child has been used up, assets are sometimes first transferred to the spouse and from there to the child (Kettenschenkung, chain gift). For tax purposes, this only holds if the first recipient is free to decide. If they are obliged to pass the assets on, the tax office treats it as a direct gift. The pattern is also used for children-in-law, who have an allowance of only EUR 20,000. Such a structure should only be implemented after tax advice.

Tax Obligations

Both the recipient and the donor are liable for the tax. The gift must generally be notified to the tax office within three months, even if no tax arises because of the allowances. For income tax purposes, income from transferred capital assets is attributed to the child in future. Clarify this with your tax adviser.

Compulsory Portion: Why Lifetime Gifts Do Not Automatically Protect

A common motive is to reduce later compulsory portion claims. The compulsory portion (Pflichtteil) amounts to half of the statutory share of the inheritance and can in principle not be excluded by will; deprivation of the compulsory portion is only possible in the narrow cases of Section 2333 BGB. A lifetime gift also has only a limited effect. Under Section 2325 BGB, persons entitled to a compulsory portion can assert a supplementary claim (Pflichtteilsergänzungsanspruch) in respect of gifts. The gift is taken into account in full in the first year before death and by one tenth less in each further year (gradual reduction, Abschmelzung). Once ten years have passed since the performance, it is in principle disregarded. The period begins with the performance, in the case of land regularly only with registration in the land register.

← Tabelle nach links wischen, um weitere Spalten zu sehen

The intermediate steps follow the same pattern (ten percentage points less per year).

Exceptions to the Start of the Period and Valuation

• Gift to the spouse: The period does not begin before the marriage is dissolved (Section 2325 (3) sentence 3 BGB).
• Comprehensive reservation of use: If, for example, you reserve a usufruct over the entire property or a similarly comprehensive right of use, the case law of the Federal Court of Justice holds that the period does not begin, because the donor in fact continues to use the item (BGH, judgment of 27 April 1994, IV ZR 132/93). A right of residence covering only parts of the house, by contrast, prevents the period from beginning only in exceptional cases (BGH, judgment of 29 June 2016, IV ZR 474/15). Do not agree a usufruct or a right of residence without first reviewing the compulsory portion implications.

Valuation in the supplementary claim: Consumable items (such as money) are taken into account under Section 2325 (2) BGB at their value at the time of the gift. Other items, including land, are taken into account at their value at the time of death, but at most at the lower value at the time of the gift. A real increase in value after the gift therefore does not increase the supplementary claim, whereas a loss in value does have an effect; the value at the time of the gift is, however, adjusted upwards for the loss of purchasing power.

Set-off and Equalisation: What You Must Provide for in the Transfer

Two instruments are frequently confused and only rarely used.

Set-off against the compulsory portion (Anrechnung, Section 2315 BGB): A person entitled to a compulsory portion only has to accept that gifts are set off if the donor so determined when making the gift. The determination must be made before or at the latest together with the gift; subsequently, the effect can only be achieved through a notarised (partial) waiver of the compulsory portion by the recipient (Sections 2346 (2), 2348 BGB). Include the determination in the transfer agreement, and for sums of money at least in the payment reference of the bank transfer.

Equalisation among co-heirs (Ausgleichung, Section 2050 BGB): Whether children are treated equally among themselves is governed by equalisation. Endowments must as a rule be equalised unless you determine otherwise. Other gifts must be equalised only if you ordered equalisation when making the gift (Section 2050 (3) BGB). Where there are imbalances, an equalisation payment (Gleichstellungsgeld) for the siblings who do not receive the asset can be agreed. Notarised waivers of the compulsory portion limited to specific items prevent supplementary claims, but are often only obtainable in return for a settlement payment. A person entitled to a compulsory portion must allow gifts they received themselves to be set off against a supplementary claim (Section 2327 BGB).

Under a Berlin will (Berliner Testament, a joint will in which spouses appoint each other as sole heirs), the children are disinherited on the first death and have compulsory portion claims. Lifetime transfers can prevent these from burdening the surviving spouse, provided the periods described above are observed.

Binding Dispositions and Prejudice to the Contractual Heirs

If you have an inheritance contract or a joint will with binding effect, you cannot later give away assets as you please. Gifts that prejudice the intended heirs can, under Section 2287 BGB, give rise to a claim for restitution against the recipient if the donor had no legitimate lifetime interest of their own. Remedies include release clauses in the inheritance contract or notarised waivers of the gift by the persons affected.

Life Insurance and Bank Accounts

Beneficiary designations under life insurance policies and bank balances given on death are treated under civil law as gifts between living persons (contract for the benefit of a third party, Section 331 BGB); for tax purposes they are deemed to be acquisitions upon death (Section 3 (1) no. 4 ErbStG). They pass outside the estate but can trigger supplementary compulsory portion claims. According to the case law, the decisive figure is usually not the sum paid out but the value the deceased could last have realised from the contract, as a rule the surrender value (BGH, judgment of 28 April 2010, IV ZR 73/08). Document these gifts as well.

Risks of Lifetime Transfers and How to Protect Yourself

Impoverishment and Recourse by the Social Welfare Authority

Anyone who gives away assets and later needs care may have a claim for return of the gift on grounds of impoverishment under Section 528 BGB. If the donor receives social assistance, the social welfare authority can transfer this claim to itself, up to the amount of its expenditure, by written notice to the recipient (Section 93 SGB XII). Under Section 529 (1) BGB, the claim is excluded if ten years have passed since the performance when the need arises, or if the donor brought about the need intentionally or through gross negligence. The ten-year period is a fixed period without gradual reduction. You should not rush to transfer assets that you need for your own maintenance and care. Reserved rights of use, annuity payments and care obligations serve as protection. In case you become unable to act, an advance power of attorney (Vorsorgevollmacht) ensures that a person you trust can act on your behalf.

Contractual Rights of Recovery

In addition to the statutory claims (including Section 530 BGB, revocation for gross ingratitude), contractual rights of recovery are frequently agreed, for example for the following cases:

• The recipient sells or encumbers the property without your consent.
• The recipient becomes insolvent.
• The recipient dies before you, so that the assets would pass to their spouse.
• The recipient’s marriage ends in divorce.
• The tax office assesses gift tax although none was expected.

If a gift has to be returned because of a right of recovery, the gift tax lapses retroactively to that extent (Section 29 (1) no. 1 ErbStG); a voluntary return is not sufficient. Rights of recovery are only as effective as their conditions are clearly worded.

Formal Requirements

Under Section 518 (1) BGB, a promise to make a gift requires notarisation. The defect of form is cured under Section 518 (2) BGB when the gift is executed, for example by handing over cash or by a transfer between accounts. For real estate located in Germany, notarisation is mandatory in any event (Section 311b (1) BGB). Where the recipient is a minor, a supplementary guardian (Ergänzungspfleger) must regularly be appointed for gifts that are legally disadvantageous, such as a let property; depending on the item, for example interests in a company carrying on a business (Erwerbsgesellschaft, Section 1852 BGB), approval by the family court must also be obtained.

Disadvantages beyond Tax and Law

You lose the power of disposal and sometimes influence, and the recipient’s development cannot be predicted. For businesses, a gradual handover with a trial phase helps. Anyone who hands over a business in return for maintenance payments must bear in mind that their maintenance may be at risk if the successor fails. Special tax rules apply to such handovers and should be reviewed with your tax adviser in advance. On company shares in the case of emigration, see our article on business succession when a shareholder emigrates.

What an International Connection Changes

For emigrants and people with assets abroad, the situation is more complex.

Gift Tax Despite Emigration

Under Section 2 (1) no. 1 ErbStG, the entire acquisition is subject to German tax if the donor or the recipient is a resident (Inländer). A resident is anyone who has a residence or habitual abode in Germany, but also a German national who has not been permanently abroad for more than five years and has no residence in Germany. If you move away and your children remain in Germany, a gift to them is therefore still taxable in Germany. The same applies the other way round. Emigrating alone does not make gifts tax-free. After the five years have expired, extended limited tax liability (erweiterte beschränkte Steuerpflicht) under Section 4 AStG (German Foreign Tax Act) can additionally apply in the case of a move to a low-tax country, reaching up to ten years after emigration. On the concept of habitual abode, see our article on habitual abode in German tax law.

Individual double taxation treaties deviate from this. According to the overview published by the Federal Ministry of Finance (as of 1 January 2026), specific treaties on inheritance and gift tax exist only with Denmark, France, Greece, Switzerland and the USA; the treaties with Greece and Switzerland cover only inheritances, not gifts. The former treaty with Sweden has no longer applied to inheritances and gifts since 2024. Whether a treaty applies and what this means for allowances and periods is explained in our article on German inheritance tax and double taxation treaties. Without a treaty, foreign inheritance or gift tax may be credited under Section 21 ErbStG, but only under narrow conditions and to the extent that the foreign assets are also subject to German tax.

If neither the donor nor the recipient is a resident, there is only limited tax liability for certain domestic assets (Section 2 (1) no. 3 ErbStG). The personal allowance is then reduced proportionately under Section 16 (2) ErbStG to the extent that assets not subject to tax were also acquired from the same person within ten years. The former option of becoming subject to unlimited tax liability on application no longer exists.

Exit Taxation on Shares

Anyone who transfers shares in corporations within the meaning of Section 17 EStG (German Income Tax Act; an interest of at least 1 % within the last five years) free of charge to a person who is not subject to unlimited tax liability triggers taxation under Section 6 (1) sentence 1 no. 2 AStG as if the shares had been sold at their fair market value (gemeiner Wert), provided the transferor was subject to unlimited tax liability for at least seven of the last twelve years. Such a transfer is therefore not automatically tax-neutral. More on this in our article on exit tax for GmbH shareholders.

Which Succession Law Assesses the Gift on Death?

The EU Succession Regulation (EuErbVO, Regulation (EU) No 650/2012) excludes gifts between living persons from its scope (Art. 1 (2) (g)). How such a gift is treated on death, that is, whether it is equalised against shares of the inheritance or triggers a supplementary claim, is, however, determined by the law applicable to the succession (Art. 23 (2) (h) and (i) EuErbVO). This is the law of the state in which the deceased last had their habitual residence, or the law of their nationality if chosen. For you, this means: the German ten-year reduction under Section 2325 BGB applies only if German succession law is applicable. If the deceased lives abroad at the time of death and has not made a choice of law, the compulsory portion, equalisation and abatement of gifts may be governed by foreign law, which has different periods and different legal consequences. A foreign adviser should be consulted on the foreign rules. The risk can be limited by a choice of law in the will; see our article on wills and succession law when living abroad. The basics are covered in our article on German inheritance law with a residence abroad, and the compulsory portion in our article on the compulsory portion and foreign assets.

Real Estate Abroad

For foreign real estate, the state where the property is located determines how the transfer becomes formally effective and whether taxes or notarial fees arise there. This belongs in the hands of a foreign adviser. From a German perspective, tax liability and crediting remain to be examined.

Structuring Family Assets

A family company, a foundation or a trust pools assets, hands over control in stages and protects young heirs from too much responsibility. With an international connection, additional questions of recognition and taxation arise. An introduction is provided by our article on the German family foundation and asset protection. For spouses, a matrimonial property regime agreed by marriage contract can also play a role, for example in the form of the so-called Güterstandsschaukel (a switch of matrimonial property regime to realise the equalisation claim tax-free). How matrimonial property law works in marriages with an international connection is explained in our article on equalisation of accrued gains in an international marriage.

Common Mistakes in Practice

Typical mistakes are a set-off against the compulsory portion ordered only after the event, a comprehensive usufruct combined with the hope that the period will expire, an overlooked binding effect, emigration seen as a supposed free pass, and an overlooked foreign law applicable to the succession.

Keep an Eye on Tax Policy

On 12 October 2026, the Federal Constitutional Court will hear a case in abstract judicial review proceedings concerning, among other things, valuation, personal allowances and tax rates under the Inheritance and Gift Tax Act (1 BvF 1/23), and on 13 October 2026 a case on the relief for business assets (1 BvR 804/22). A one-off lifetime allowance instead of the ten-year rule is also being discussed politically. Nothing has been decided so far; the rules described continue to apply unchanged. Draft agreements so that they remain viable even if the law changes.

Unclear legal position: obtain a binding ruling. Where the German tax treatment is not settled or may foreseeably change, an application to the tax office for a binding ruling (verbindliche Auskunft, Section 89(2) of the German Fiscal Code, AO) should come before implementation. For a precisely defined transaction that has not yet been carried out, the ruling binds the tax office, and it is subject to a fee. In our view, a tax adviser who does not recommend this in such a situation is acting irresponsibly: the client risks having to litigate over the outcome years later, which costs time and money.

Conclusion

A lifetime transfer of assets can save tax, prevent inheritance disputes and give the next generation room for manoeuvre at an early stage. As a rule, however, it does not replace the will but complements it. What matters are the periods in tax and compulsory portion law, your own financial security and a well-drafted agreement with rules on set-off, equalisation and recovery. With an international connection, the five-year continuing effect of German tax liability, the importance of the law applicable to the succession and possible taxes abroad are added.

FAQ

Can I transfer all my assets during my lifetime and do without a will?

This rarely makes sense. Without a will, assets that you keep or acquire later are distributed according to statutory succession.

How long must I wait after a gift until it is safe from compulsory portion claims?

In principle ten years, with an annual reduction of one tenth (Section 2325 (3) BGB). For gifts to the spouse, the period only begins when the marriage is dissolved. A comprehensive reservation of use can prevent the period from beginning.

What happens if I need care after the gift?

If, after the gift, you are unable to meet your reasonable maintenance, you may have a claim for return of the gift (Section 528 BGB), which, where social assistance is received, the authority can assert after transferring it to itself. Once ten years have passed since the performance, counted up to the point at which the need arises, the claim is excluded (Section 529 BGB).

Does the gift become tax-free if I move abroad?

No, at least not automatically. German nationals remain subject to unlimited tax liability for up to five years after emigrating, and a recipient resident in Germany also establishes German tax liability. After that, extended limited tax liability under Section 4 AStG can apply in the case of a move to a low-tax country. Individual treaties, for example with the USA, may contain different rules and longer periods.

Does the German ten-year period apply to a death abroad?

Only if German succession law is applicable. Under the EuErbVO, this is as a rule determined by the last habitual residence or a choice of law. Otherwise, foreign law may apply, for which a foreign adviser should be consulted.

Attorney Dr. Johannes Fiala has published extensively on international tax and asset law and supports clients in setting up lifetime transfers of assets and succession planning with an international connection with legal care, from coordination with the will and the compulsory portion through to reviewing German tax obligations on emigration. Please contact the firm without obligation to discuss your situation in an initial consultation.