date | theme

21. August 2020 | GmbH shares tax-free inherit or give away

17. March 2021 | Gift of assets to nieces or nephews – Optimize gift tax

14. December 2021 | Succession planning: Basics for reducing the inheritance tax burden in the case of private asset succession

15. December 2021 | Avoid gift tax when gifting large assets

24. December 2021 | Effectiveness of gifts to children: problems with property gifts (this contribution)

It can be useful to give a child a property during his lifetime in order to make extensive use of allowances under the inheritance tax and gift tax for succession planning. Of course, it is not only the tax regulations that must be observed. It is also important that the donation is effective under civil law at all. However, since minors are at most limited in legal capacity or even incapacitated, various civil law regulations apply. Therefore, this article explains when gifts to children are effective or when the family court or a supplementary caregiver should be involved.

In order to effectively submit and receive declarations of intent and thus participate in legal transactions, one must be able to act. Between 0 and 7 inclusive, however, one is incapable of doing business. This means that you yourself cannot conclude legal transactions and do not participate in legal transactions. In order to safeguard the interests of the disabled, however, he has a legal representative who acts for him. These are basically the parents (§§ 1626 ff. BGB). Instead of a guardian (§§ 1793 ff. BGB) or a supervisor (§§ 1896 ff. BGB) can be used.

From inclusive 8 to inclusive 17, on the other hand, one is limited. This means that in principle you cannot do your own business. The law provides for many exceptions. Therefore, the limited capacity to act is more difficult to assess than the inability to act. The question therefore arises as to how a gift to a minor with limited capacity for business should be assessed.

Limited to have the ability to do business as a representative who acts for them in legal transactions. Again, these are the parents (§ 1626ff BGB) or a possible guardian (§ 1793 BGB). Nevertheless, in contrast to incapacitated persons, limited legal capacity is not generally excluded from participation in legal transactions. Only legal transactions that discriminate against him should be able to take place only with the consent of his legal representative. In other legal transactions, however, he should be able to act alone. This is also the objective of the law on minors.

Consequently, the aim of the minors’ right is that gifts to a limited legal capacity should actually be effective without the consent of the legal representative. However, this cannot be said in such a general way, but must be examined in individual cases.

First, § 107 BGB can be recognized. This standard stipulates that legal transactions which bring a merely legal advantage to the minor are effective even without the consent of the legal representative. (For students, the following note: In the context of an appraisal, in which the effectiveness of the legal transaction of a limited legally competent person is to be examined, is therefore always to start with § 107 BGB.) Only then are §§ 110, 108 BGB to be addressed.

Only legally advantageous can also be described as not legally disadvantageous. A legal transaction is not legally disadvantageous if it does not entail any obligations for the minor. But no legal transaction can be found that does not at least remotely have such legal disadvantages. Accordingly, it is not easy to determine when a legal transaction is merely legally advantageous.

When assessing whether a transaction is merely legally advantageous, the so-called separation principle and abstraction principle prevailing in German law must be observed. Accordingly, a distinction must be made and strictly separated between the so-called disposable business and the commitment business. The commitment transaction is the legal transaction by means of which a concrete claim to the disposable transaction is established. The disposable transaction, on the other hand, is the transaction with which the entity is actually disposable. So it is cancelled, transferred, charged or changed in content. Therefore, according to § 433 BGB, a purchase contract is the commitment transaction, whereas the transfer of ownership of the purchase object according to § 929 BGB constitutes the commitment transaction.

On the basis of these principles, disposable transactions such as the donation (§ 518 BGB) or the promise of guilt (§ 780 BGB) or the acknowledgement of guilt (§ 781 BGB) are free of consent, since these do not constitute any obligations for the minor. However, something different applies if the gift is made under a reservation of withdrawal. Nevertheless, it can be stated overall that the commitment transaction for gifts to children is in principle free of consent and therefore effective without the participation of the parents.

However, in the context of gifts to children, the corresponding legal entity must then also be transferred to the limited legal capacity through the commitment transaction. Accordingly, the question arises whether this transaction is also merely legally advantageous. The transfer of ownership of a thing on the basis of a gift to a minor brings the legal acquisition of the minor and is therefore free of consent.

3.2.1. Problems with property gifts

Nevertheless, the assessment of property gifts to children is highly problematic. The disposable business then amounts to the transfer of ownership of the property. However, the transfer of ownership of a property may entail certain obligations and burdens.

For example, a property can be charged with a lien. As owners, however, minors may also meet obligations under private law, such as landlord, neighbourhood law or traffic safety obligations. As a result of the transfer of ownership of a condominium, the minor also becomes a member of a condominium owners' association, which also creates far-reaching obligations for him, such as the obligation to participate in the burdens of the joint property according to § 16 paragraph 2 WEG or the liability for liabilities towards the condominium owners according to § 10 paragraph 8 sentence 1 WEG. However, ownership of a property also creates public-law charges, for example ground exploitation fees and residential contributions, but of course also the real estate transfer tax. All these considerations prove that the assessment of a property donation to a minor should not be so easy.

Corresponding obligations affect the lesser limitations and thus threaten his assets even if they are not wanted by the participants. Accordingly, the assessment of the transaction cannot depend on whether those legal consequences are sought by the parties. On the other hand, it would also be unreasonable in general to make a property gift dependent on the consent of the legal representative. This means finding a middle ground, taking into account the meaning and purpose of the law on minors. Therefore, § 107 BGB should be interpreted in a limited manner if the legal disadvantage of the donation of land, by its abstract nature, typically does not entail any danger to the minor. In this case, an objective legal representative would not refuse his consent.

3.2.2. When is a property gift to a limited legally competent consent free?

For land gifts, the following basic rules have therefore been developed on the basis of the aforementioned derivation: