There is nothing better than giving. However, you have to note a few things in order to make the gift for your children tax deductible. There are allowances for donations that you should benefit from.
Gift suits for children
A tax-free allowance of €400,000 applies to gifts for your children. This amount can be used every 10 years to give tax-free gifts to children. The amount of the gift allowance corresponds to the inheritance allowance.
In the case of donations from both parents, the allowance is doubled, as each parent can individually donate €400,000 of their own assets. A gifted child can get up to €800,000 tax-free.
Example: Gifts for children from both parents
You want to give your child your possessions worth €600,000. Because of this allowance, €400,000 is tax-deductible. However, the difference of €200,000 is taxable. If you and your registered spouse or partner are registered in the Land Registry with equal shares, each of you can make donations of up to €400,000. In this case, the donation remains tax-exempt.
What are chain gifts?
The important thing here is that a person can only give away his or her own property. Many try to avoid this problem with chain gifts: for example, you give your wife property, which he, in turn, gives to the child. Such chain gifts are allowed only if there is no obligation on the first recipient to send the gift and there is a sufficiently long period of time between gifts. If this occurs at the same time, the tax office suspects the existence of a bypass gift for the purpose of tax evasion.
gifts for grandchildren
Orphaned grandchildren are also entitled to a bonus of €400,000. Otherwise, grandparents can give tax-free gifts to their grandchildren in the amount of €200,000.
However, the opportunity to part with tax-free money only exists every 10 years. If you are in the fortunate position of having a very large fortune, you can come up with a gift plan and start giving gifts in a timely manner using allotments.
Gifts for children: Legally useful gifts
Donations must also be accepted by the recipient.
A contribution made by one person to enrich another person’s possessions is a gift if both parties agree that the contribution is free.
§ 516 I BGB
Minors have limited legal capacity from the age of 7 to the age of majority. In the event of a donation, they must be duly represented by their parents.
Only in the case of donations with legal privileges representation is not necessary. This is the case if no obligations arise from the donation, for example if the minor did not enter into existing rental or rental relationships when donating property.
In the case of donation for minor children, there is another special feature to consider: a supplementary guardian appointed by the family court (the person appointed by the court to take over part of the parental care of a minor child) may be to assess whether the donation is in the best interest of the child.
Otherwise, the parents decide to donate themselves as legal representatives of their children. This is to prevent the child receiving the gift from suffering legal disadvantages as a result of the gift. Disadvantages, for example, obligations under the Code of Obligations, as found in a rented apartment.
Gifts for children as an inheritance during their lifetime
If your donation to the children serves to pay the entire inheritance during your lifetime, you must record this in writing when giving the gift. If there is no corresponding disposition or written disposition after the donation, the child who received the gift remains entitled to the so-called compulsory portion.
Credit gifts to children for inheritance
If the inheritance occurs before the expiry of the ten-year period, the donation will be allocated proportionally to the inheritance according to the liquidation model. However, the value to be restricted is reduced by 1/10 for each past year.
The same principle of the discount model applies to the determination of the so-called supplementary entitlement to a mandatory portion.
Can you take back gifts given to children?
In some cases, recovery is possible within 10 years.
These cases include:
- You become poor after donating and can no longer earn a living.
- When transfer payments are received (keyword sponsorship costs), the social welfare agency can also refund the donations (social welfare agencies are public law institutions that provide social services).
- In the case of “gross ingratitude” on the part of the recipient, this presupposes that the recipient has committed a criminal offense towards the donor or relatives of the donor.
The donation can be canceled if the recipient is guilty of gross ingratitude through gross misconduct towards the donor or a close relative.
§ 530 I BGB
With large donations in particular, you can avoid high tax burdens on the recipient by planning ahead and making partial donations.
If you want to give gifts to children, you must first calculate how much money you need to live …
Image source: Getty Images / kate_sept2004
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