In the design of tax-optimized asset successions, usufruct plays a particularly prominent role as a design means. In our design model presented here, we want to show an example of how this can work. We rely on the assumption that usufruct is not an administrative asset. We supplement our presentation with a measure with which potential tax risks can be clarified in advance when dealing with the financial administration, namely by a request for binding information.

Introduction: Does usufruct constitute administrative assets?

For a large real estate portfolio, inheritance can trigger a high tax burden because the allowances are quickly depleted. One way to avoid high tax burdens is to combine the founding of Eltern GmbH & Co. KG and the use of a usufruct right. In doing so, the parents place their objects in the company tax-neutrally, while the children purchase them for a low value under conditional usufruct via their own civil company (GbR).

After the death of the parents, the GmbH & Co. KG passes to the children – with a usufruct in the company assets, which according to the prevailing opinion does not constitute administrative assets. This model enables tax-free succession and at the same time secures the parents' income from usufruct.

First steps of a design

In the first step, the parents who have the real estate in private assets set up a commercial parent GmbH & Co. KG. After the notarial deed, the assets held in private assets are tax-neutrally transferred to GmbH & Co. KG.

In parallel, the children, or the heirs, found a GbR together.

usufruct is not an administrative asset but a tax advantage

After the foundation, the parents sell the properties via their GmbH & Co. KG to the GbR of the children. It is important that this is done subject to usufruct. The reservation of a usufruct constitutes a right of use which reduces the fee. In the case of a lifetime right of use, the capital value is assessed in accordance with § 14 (1) BewG. Furthermore, the law stipulates that the annual value of the usufruct is multiplied by the maximum capitalization factor 18.6, since a limited partnership knows no death in the classical sense. The annual value of the properties is determined on the basis of the expected average returns in the future.

This valuation of usufruct yields a value which corresponds almost to the common value of all wealth. As a result, GmbH & Co. KG and GbR can agree on only a small purchase price. However, income tax and property transfer tax consequences should be discussed with the tax consultant.

So the property passed to the children. At the same time, the parents receive the income from the rental. Taxation under the principle of transparency makes this possible. Even a tax-free sale of the properties after the expiration of the ten-year speculative period is possible. Only it is unlikely, because the parents will be entitled to the income even after a sale and hardly a buyer should get involved. Only when the reserved usufruct of the parents expires, a sale by the children is worthwhile.

4. Is usufruct not an administrative asset? Then we use it.

After the death of the parents, the children receive the GmbH & Co. KG of the parents. The valuation of a company is based on the common value, which is largely composed of the usufruct value. In principle, operating assets can benefit from the standard protection of 85% or the option protection of 100% if, among other things, the share of administrative assets is below the legal limits.

A real estate portfolio is basically harmful management assets due to the orientation of asset management. However, in the assets of Eltern GmbH & Co. KG there is no stock custodian or other type of company participation, but only the usufruct of it, which in the prevailing opinion does not constitute administrative assets.

5th conclusion: usufruct is not an administrative asset

What is specifically part of the administrative assets is finally regulated in § 13b (4) ErbStG. The usufruct is not explicitly listed, so that this does not constitute administrative assets according to the law.

The literature also sees this in principle, which opens up the previously described scope for design. As a result, the inheritance is completely tax-free.

Not only the design with real estate is conceivable, but also with all other assets that can represent administrative assets. For example, this is feasible with an extensive stock custody. However, these should mainly be shares in which the parents as shareholders primarily benefit from the dividends. If these are shares that only generate profits through their increase in value, a usufruct makes little sense.

In any case, it makes sense to consult your tax advisor before implementing such a design and, at best, to obtain binding information from the competent tax office. If the binding information is positive and the usufruct does not constitute administrative assets, you can legally implement the design. Otherwise, there is a risk of a considerable tax burden. At least there are other ways to avoid inheritance tax in another way.