Use usufruct to transfer GmbH shares or partnerships to your children. Real estate can also be given away tax-optimized under conditional usufruct. For this purpose, German laws provide for the use of the reservation usufruct and the use of the grant usufruct. Through these two variants, the inheritance tax and gift tax can be significantly reduced.

The order of a usufruit shifts income from the person of the owner to the usufruit user. If the civil law possibilities are optimally used, the usufruct is the ideal design instrument for optimizing the current income taxation. If the usufruct is also used within the framework of the anticipated succession, it must be attributed an income value which reduces the inheritance tax as an estate liability. Due to the high demand, we provide our presentation on usufruct for free download below on the basis of the current legal situation, the latest announcements of the financial administration, the literature and the relevant jurisprudence.

2nd usufruct object

Especially often the usufruct company and real estate is ordered:

2.1 usufruct of real estate

If the parents transfer their houses and land to the next generation, they can reserve the usufruct (reserved usufruct). This has the advantage that the children already become civil owners of the properties, but the income still remains with the parents. If the parents both receive the rental income and have to bear the property costs, the income is also taxed at the parents. This has the advantage that the lower income tax rate of the parents is used. If, on the other hand, the children have a smaller tax rate, it is also possible to transfer the taxable income to the children. In this respect, a grant usufruct can also help.

2.2 Use of usufruct in GmbH shares

Also GmbH shares can be transferred if the donor retains the usufruct. The donor (mostly the parents) will still have the right to receive profit distributions and exercise voting rights in the shareholders’ meeting. Based on current BFH jurisprudence of 12 January 2012, the parties can design the contracts in such a way that the parents or children have to tax the dividends. What is important here is who is the beneficial owner, i.e. who can exercise the property and administrative rights. This structure thus offers a great deal of design potential.

2.3 usufruct of partnerships

Shares in partnerships – GbR, oHG, KG or GmbH & Co. KG – can also be transferred with usufruct. However, it is important here that the children also become so-called “co-entrepreneurs” under tax law, i.e. bear co-entrepreneur initiative and co-entrepreneur risk. With competent advice, the income can be shifted skillfully.

In case of reserved usufruct, the parents transfer their property to the children. They then become civil owners. However, the income continues to flow to the parents and – if no other arrangement is chosen – must also be taxed by the parents.

3.2. Benefits

In the case of grant usufruct, the civil property remains unchanged with the parents. Instead, the parents grant their children the income on the property. This is always appropriate if the children have lower tax rates than the parents.

Very good design options for inheritance tax and gift tax

In the case of reserved usufruct, less inheritance tax or gift tax applies. This is due to the fact that the net present value of the usufruct can be deducted from the value of the transferred property. With a 70-year-old donor, experience shows that about 50 percent of the gift tax is saved.

In the case of grant usufruct, however, the net present value of the usufruct is subject to gift tax. An exact calculation must be made in advance.