Real estate gift - everything or just a bit?

Lifetime transfer or bequeath it after all?

A lifetime transfer as a gift by means of anticipated succession can be an alternative to bequeathing assets. A combination of both approaches is also conceivable. Besides avoiding inheritance tax, one motivation behind this can also be a pending recourse to social benefits. The right course of action will depend on many legal, but also taxation, aspects.

Safeguarding the transferor

If the benefactor would like to transfer ownership of real-estate property, but wants to continue to reside in the property or use it in any other way, legal provisions can be drawn up. Besides a contractual right to reclaim the assets, the benefactor can also reserve rights of use (e.g. a lifelong right of abode) as a safeguard.

If a right to reclaim assets has been agreed, the benefactor can reclaim the gift under certain circumstances. Such a clause usually governs situations such as the death of the beneficiary, insolvency, foreclosure or divorce. If the benefactor would like to keep the gift “on a tighter leash”, a right to reclaim is also agreed in case the beneficiary sells or mortgages the real-estate property without the agreement of the benefactor. Without such a clause, the benefactor would only have the rights to reclaim that are enshrined in law - in the event of the benefactor’s own impoverishment or “gross ingratitude” on the part of the beneficiary, for which the factual requirements are very strict. The contractually agreed right to reclaim is mostly secured in the land registry via a so-called priority notice.

The rights of use commonly reserved are usufruct and the right of abode . These are both entered in the land registry. Which rights are selected is a question of the individual case. While usufruct always includes the right to use the entire property, a right to abode can also be arranged for particular rooms. There are also differences when it comes to letting the property: A mere right of abode grants entitled parties permission to reside within the respective rooms themselves. A right of usufruct, by contrast, permits comprehensive usage of the rooms, including letting and obtaining rental income.

Reserved rights of use decrease the value of the gift and can therefore reduce the taxable transfer. Besides aspects of tax law, consequences for compulsory portion rights and social welfare benefits should also be borne in mind.

Conclusion: Transferring the ownership of real-estate property is a complex procedure in which not only legal and taxation aspects play a role. In every individual case, the correct method has to be developed together with the client and taking account of all personal particulars in the overall picture.