If an aunt or uncle wants to transfer her property to a niece or nephew by donation, then the allowances are very small. At the same time, however, tax rates are also increased. Thus, in such situations, there are often high taxes. But there are ways to use much higher free amounts. If it can be achieved through adoption that nieces or nephews are also regarded as children of aunt or uncle, then they benefit from the gift from the same allowances as biological children. This is only possible with adult nieces or nephews. Because under certain conditions, an adult adoption can take place. And this is also possible if the actual parents are still alive. In the case of underage nieces or nephews, however, such adoption is excluded.

Property regime swing: Tax-free gift between spouses

1st Gift to nieces or nephews – Introduction

If a wealthy person wants to transfer assets to another person free of charge, this is usually done through a gift or inheritance. However, in inheritance tax and gift tax law such a transfer of assets is a matter of taxation in principle (§ 1 ErbStG). The legislature has introduced a staggering of the tax, which in addition to marriage also includes the degree of kinship as a measure. Thus, first-degree relatives are privileged over more distant relatives in terms of both the granting of allowances and the tax rate.

Of course, children are considered first-degree relatives in their family relationship with their parents. This applies to both biological and adopted children or to stepchildren of a partner who are integrated into the family. For stepchildren, this is also possible without marriage of the parents. On the other hand, nieces and nephews are second-degree relatives in their relationship to their aunts and uncles.

Thus, the legal regulation for taxation in the case of gift or inheritance also affects nieces or nephews. Therefore, we now want to see if there are ways to make nieces or nephews tax better in a gift.

2nd gift to nieces or nephews compared to children

First of all, we examine how big the difference in tax is when a gift is given to nieces or nephews compared to children. For this purpose, we consult the following compilation on inheritance tax and gift tax:

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We realize that children can use an allowance of EUR 400,000, but nephews and nieces as second-degree relatives only EUR 20,000. Thus, in this aspect, they are on a par with completely strangers. Only the control class is different here. Because nieces and nephews fall into tax class II, with tax rates between 15% and 43%. But here, too, children of any kind are better off because they belong to tax class I by law. Tax rates start at 7% and end at a maximum of 30%.

It is very clear from this that children pay significantly less tax on gifts or inheritance from their parents than when an uncle or aunt considers their nieces or nephews in the same way.

Since we now know that children can claim much better conditions than nieces or nephews on gift or inheritance, the idea is obvious to follow this example. What does that mean? Well, basically it is often the obvious things that, although so obvious, hardly come into consideration as a solution. So in plain language: we make nieces or nephews children of aunt or uncle. by adoption.

3.1. Requirements for adoption of nieces or nephews by aunt or uncle

Admittedly, without fulfilling certain prerequisites, an aunt or uncle can not easily adopt a niece or nephew. Especially since this is only possible for minors if the parents have died. So the first requirement that you have to meet in this design is an adult adoption of nieces or nephews.

Now different criteria have to be observed in an adult adoption than in adoptions of minors. The most important condition here is that a moral reason justifies adult adoption. This means that between aunt or uncle and niece or nephew a relationship has arisen that is comparable to a parent-child relationship.

For this purpose, you apply for adult adoption from a notary. The notary then orders the family court, which now carries out the examination of the requirements for adult adoption. Such aspects come into consideration that suggest that the aunt or uncle has behaved towards the niece or nephew in the past as one would expect with parents.

For example, this is the case when an aunt or uncle primarily cared for a niece or nephew. This can also include the regular overnight stay or supervision of homework. Holidays spent together can also be considered relevant. The emotional attachment of nieces or nephews to aunt or uncle is also relevant. It can be decisive whether an aunt or uncle of a niece or a nephew was available as a preferred contact person, especially in situations that are stressful for children. All of these can be moral justifications that establish a parent-child relationship between aunt or uncle and niece or nephew.

3.2 Consequences of Adult Adoption

First, we distinguish between the legal and tax consequences of adult adoption.

3.2.1. Legal Consequences of Adult Adoption

On the legal consequences of adult adoption, one point in particular is worth noting, namely the relationship of the child to his parents. Because of adult adoption, the child with uncle or aunt now has one more parent than before. This is also reflected in the fact that nieces or nephews can now receive another birth certificate and change their surname by accepting that of their aunt or uncle. But unlike the adoption of a minor child, adult adoption does not lead to a solution of the childhood relationship with his or her actual parents. Therefore, the child now has a correspondingly extended inheritance right. However, this is also accompanied by an extended duty of the child regarding maintenance and care. It now also assumes this duty for uncle or aunt.

3.2.2. Tax consequences of adult adoption

In addition to the tax consequences, in certain situations, a consideration of the niece or nephew in the income tax of the aunt or uncle as a adopted child. Thus, the same allowances (child allowance, allowance for care, upbringing or education) are available to them as the actual parents.

More important, however, are the tax consequences that now affect a gift or inheritance from aunt or uncle to niece or nephew. For now such a gift or inheritance to nieces or nephews takes place under the assumption that a kinship relationship of the first degree is present. So nieces or nephews can use the same beneficial allowances and tax rates in such a transfer as in a gift or inheritance from their actual parents. These allowances continue to apply in the case of donation or inheritance by the original parents.