Inheriting vs. gifting

Inheritances and gifts are subject to the same tax law in Germany (ErbStG, Inheritance and Gift Tax Act) – but gifts offer a big tactical advantage.

The allowances (identical for inheritance AND gifts):

• Spouse: €500,000
• Children (per child): €400,000
• Grandchildren: €200,000
• Siblings, friends: €20,000

The 10-year trick with gifts:

• The allowances can be used again every 10 years
• Example: parents give their child €400,000 at 50. At 60: another €400,000. At 70: another €400,000. = 1.2 million tax-free (with an inheritance only €400,000 would be tax-free)

Usufruct – the secret weapon:

• You give your house to your children but keep the usufruct right (right to live there or collect rent)
• Tax effect: the usufruct considerably reduces the taxable value of the gift
• Example: house worth €600,000, usufruct worth €200,000 → taxable value: only €400,000 = tax-free!

When inheritance is better:

• Family home: passes tax-free to the spouse (if lived in for 10 years) and to children (up to 200 m²)
• Maintenance allowance: an extra €256,000 for the spouse ONLY in the case of inheritance
• If the giver needs the assets themselves in old age

Watch out for the compulsory share:

• Gifts made in the 10 years before death are partly counted towards the compulsory share (§2325 BGB) – so start early!