Three ten-year periods to consider – there's a lot to think about when it comes to gifts too!
People who give away assets during their lifetime often think about tax advantages. However, three different ten-year periods—in tax law, gift and social law, and compulsory inheritance law—actually determine whether a gift ultimately has the desired effect. For many, this is a surprising finding that shows that asset transfers are often less a spontaneous act of generosity than a strategic tool for life and estate planning.
„Time is a crucial factor when it comes to gifts,“ says Tobias Bresselau von Bressensdorf, managing director of the Saxony Chamber of Notaries. „Many people have heard of the ten-year periods relevant to gifts, but misunderstand the requirements or even their effects. Early planning and proper advice are therefore essential.“
Right to a compulsory portion: The long shadow of inheritance
In terms of compulsory inheritance rights, the earlier assets are gifted, the lower the risk of subsequent claims for supplementary compulsory inheritance. This is because the compensation claims of relatives who have not been considered „melt away“ by 10 percent per year and are thus completely settled after ten years. „However, the period only begins to run when the recipient of the gift actually obtains full, or at least predominant, power of disposal,“ explains Bresselau von Bressensdorf. Reservations such as usufruct or a right of residence can prevent the period from beginning. In the case of gifts between spouses, the clock only starts ticking when the marriage is dissolved. As a result, many gifts reduce compulsory portion supplement claims much later than expected – or not at all.
Gift and social law: When a gift can be reclaimed
The situation also becomes complex with regard to possible social welfare needs. Gift law stipulates that a donor who becomes needy within 10 years of making the gift can reclaim it. The tricky thing is that if the donor receives social benefits for care or living expenses in the meantime, the decision on whether to reclaim the gift is not solely up to them. Rather, the social security provider can transfer the right of reclamation to itself. What is transferred today with good intentions may therefore be up for discussion again tomorrow. Only after this ten-year period has expired is reclamation generally excluded.
„If a need for care is foreseeable, you should weigh up your options carefully. After all, your hard-earned assets should give you some leeway in your old age,“ says Bresselau von Bressensdorf. In individual cases, social welfare law may also raise concerns about passing on the costs of care to the general public while transferring assets to children.
Tax law: Allowances that renew themselves—but take time
From a tax perspective, however, the ten-year rule opens up scope for maneuver. Personal allowances for inheritance and gift tax are available again every ten years. „Those who start early and transfer assets in stages can make use of these allowances multiple times. This is the main reason why gifts are an important tool for tax optimization today,“ concludes Bresselau von Bressensdorf.
Why act now?
A gift can be beneficial from a tax, social security, and civil law perspective. Those who plan early are better off: lower tax burden and greater protection against claims for repayment and compulsory portion claims. However, due to varying legal requirements, not every gift automatically leads to the desired outcome.
„This is precisely where notarial advice comes in,“ emphasizes Bresselau von Bressensdorf. „It helps to reconcile individual goals with the legal framework—and to structure gifts in such a way that the donor's motives are implemented while taking into account the interests of the recipient.“
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