date | theme

10. February 2021 | Property Swing – Transfer assets to spouses without gift tax

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

4. May 2021 | Empowerment needs test and save inheritance tax

23. June 2021 | No gift tax or inheritance tax in Austria

14. December 2021 | Succession planning: Basics for the reduction of the inheritance tax burden in the case of private asset succession (this contribution)

In order to preserve private assets in the long term, the optimal asset structuring should be considered at an early stage. The main aim here may be to reduce the tax burden. For this purpose, the legal provisions must be known. Of course, you also have to consider the individual family structure. Therefore, any future legislative changes and family changes must be foreseen to some extent. Succession planning is therefore particularly difficult. This article therefore provides an overview of the basics of succession planning.

Succession planning serves to optimally transfer private assets and aims above all to reduce and optimize the tax burden. For this, you have to look at the current legal situation but also examine whether innovations are pending, planned or expected. This includes not only inheritance tax law and gift tax law, but of course also the civil law foundations for inheritance law. In addition to the legal circumstances, you must of course also consider your personal circumstances and in particular how these will change over time, for example whether and how many grandchildren you expect. Of course, you also have to keep an eye on your own assets and roughly evaluate them. You also need to know how much assets you have earned free of charge from whom within the last 10 years.

The German inheritance law is based on the principle of the so-called universal succession according to § 1922 (1) BGB. This means that the property of the deceased is transferred as a whole to one or more persons (heirs) upon his death. This is also expressed by the so-called “footsteps theory” among lawyers. Thus, the heir follows in the footsteps of the testator. Of course, social networks such as YouTube or Instagram are of particular relevance today. Consequently, the account of an influencer also belongs in his (digital) estate. Of course, the evaluation of the account in the context of the calculation of the assets can cause problems.

Nevertheless, there is the possibility of individual legal succession in the case of company law references. Then the succession relates to individual estates. Otherwise, the system of universal succession will be difficult to break, since the heir will in any case become the owner of all assets. Legacies can only oblige the heirs to pass on individual items to a third party. The legatee owner then has a debt-law claim against the heir in accordance with § 2174 BGB. The object of the legacy can be any asset benefit, which can also be the content of a contract. Therefore, entirety of matters or exemption from liabilities can also be the subject of a legacy.

A distinction is made between the legal and the arbitrary succession. The arbitrary succession can be an instrument in the context of succession planning. A distinction is made between will (§ 1937 BGB) and inheritance contract (§ 1941 BGB). One possible regulation for succession is, for example, pre- and post-inheritance. On the other hand, the so-called Berlin Testament is only an interpretive rule for the case that the will is incomprehensible and does not constitute an independent arbitrary succession.

Of course, minors and even unborn life can also inherit. But there are some hurdles that need to be considered. Minors are particularly protected in §§ 105 ff. Consequently, the final decision-making authority according to § 107 BGB remains in principle with the legal representatives. Therefore, the legal representative must consent to all transactions that are not merely legally advantageous for the minor or approve them afterwards. In particular, in the question of whether gifts and inheritances to minors are only legally beneficial for them, the circumstances of the individual case must be carefully considered.

Professional advice on legal aspects of succession planning?

In the context of succession planning under company law, it can make sense to set up family companies. In addition, however, foundations such as the double family foundation are also important. This is especially true for wealthy people without descendants. In the case of so-called family foundations, the purpose of the foundation is to provide for family members.

But even outside of companies, succession planning can be optimized with regard to tax law. Then it is especially important that you align the succession to the allowances. Accordingly, on the one hand, you should optimally use the 10-year period of § 14 ErbStG, according to which the individual acquisitions are to be added together. On the other hand, they must sufficiently observe the personal allowances of § 16 ErbStG on the basis of this. For example, if both parents are wealthy, the children can make full use of the allowances to mother and father. If, on the other hand, only one parent is wealthy, part of his wealth can be transferred to the other parent tax-free by way of a property swing. Then the allowance can also be used against the non-high-net-worth parent or grandparent.

As part of succession planning, usufruct is regularly granted in order to be able to transfer the assets during their lifetime. This is particularly common for real estate gifts. The donor often reserves a lifelong right of usufruct. In the case of such gifts from parents to their minors, however, in accordance with § 181 BGB, a supplementary nurse must be appointed regularly. In the case of other close relatives, it must be ensured that the right of use is effectively justified under civil law and that the agreement is actually implemented (principles of the conclusion of a contract between close relatives). The net present value of the usufruct can also be deducted from the tax base. This results in an attractive tax advantage.