Reasons for a gift inter vivos
The deciding factors for an inter vivos gift to children or spouses are mostly one of the following three primary motives: multiple use of tax allowances, avoidance of attachment by creditors (e.g. children entitled to a compulsory portion) or safeguarding assets in case of long-term care (preventing social welfare benefits from being clawed back). The last two points are addressed in greater detail in the article entitled “Asset Protection”. When making gifts for tax reasons, but also in the context of compulsory inheritance law and social security legislation, ten-year periods often have to be observed.
The typical arrangements governing the transfer of property are explained in greater detail in the following.
What options for use can I reserve for myself?
Typical rights of use that can be reserved are usufruct and the right of residence.
In the case of usufruct, the donor continues to have all rights of use. Therefore, donors are entitled to use the property or lease it out. However, they must usually continue to cover all costs.
In the case of right of residence, the donor only reserves the right to live in the property (or parts of it). In this case, they usually only have to cover the costs that could be charged to a tenant.
Can the acquirer sell and borrow against the property?
Donation (i.e. gift) agreements often state that the acquirer is not entitled to sell or borrow against the property during the lifetime of the transferor. If they attempt to do so nonetheless, the seller can demand return of the property.
What happens if unforeseen events occur affecting the acquirer?
Donation (i.e. gift) agreements often specify that the donor may demand return of the donated property if certain incidents occur involving the acquirer. The list of incidents usually includes cases where the acquirer suffers financial difficulties or dies before the transferor. Additionally, there are often arrangements regarding what happens to the property if the purchaser gets divorced.
Can I transfer a property to multiple individuals?
A property can be transferred to multiple individuals. In this case, the size of each acquirer’s interest must be specified. In certain cases, corporate law structures may also be appropriate, for example establishing a family pool.
What happens to residual debt?
If there is still debt secured on the property, the agreement will determine what happens to the debt. In the case of a usufruct reservation, there is often an agreement that the usufructuary will continue to service the debt for the duration of the usufruct. This is also generally the best solution for tax reasons.
