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The ten-year time limit for real-estate gifts

Every year, the ownership of thousands of properties is transferred by means of gifts. In all cases, the preliminary discussions with the notary quickly come around to the famous “ten years” because this time limit plays an important role in the gifting of real-estate property in many places.

Indeed, nobody is legally prevented from giving away even major portions of their assets. However, there are various rules in place to prevent gifts from damaging individual persons or the general public. This means that gifts are sometime corrected retrospectively or can bring other disadvantages. Then again, an impending disaster should not be hanging over a gift forever. For many rules, corrections are therefore no longer possible once a period of ten years has elapsed.

Recourse to social benefits

If a benefactor is suddenly reliant upon social welfare benefits, attention quickly turns to gifts made over the past ten years. This is because benefactors have a right to reclaim gifts by law if they are no longer able to maintain themselves or meet their maintenance obligations. If in these cases a social welfare agency provides services to the benefactor, this agency can transfer the right to reclaim to itself, as the gift and the subsequent poverty should not be to the detriment of the general public. Even if this goes against the wishes of the benefactor, the beneficiary must then fear recovery claims. In practice, however, this regularly does not mean handing over the real-estate property. Instead, a cash payment equivalent to the funding shortfall is often made on a monthly basis. If the impoverishment only occurs ten years after the gift was made, the right to reclaim is ruled out.

Claims for augmentation of compulsory heirship rights

As is known, in the event of disinheritance, spouses, children and under some circumstances even parents have a claim to cash payment with respect to the heirs - the so-called compulsory heirship rights. The level of payment depends on the value of the bequeathed assets and the share of the inheritance to which they would be entitled by law. Making a gift reduces the size of the estate and then logically the compulsory heirship right as well. The legislation therefore provides for an entitlement to augment the compulsory portion. The value of the item gifted is thereby fictitiously added to the estate. Of significance are all gifts made within the last ten years before the succession. However, the value of the gift is only considered in full in the first year after the death of the benefactor. Thereafter, this value decreases in principle by 10% per year. Nevertheless, according to case law, it should be noted that the time limit does not start at all if the benefactor still has reserved comprehensive rights to the real-estate property. In this case, the property was only formally handed over while the actual usage availability remains with the benefactor.

Gift tax

Incidentally, the ten-year time limit is also of significance for tax law. If there are more than ten years between the transfer of the property ownership and another gift or an inheritance, personal tax-exempt allowances can be utilized repeatedly.

Dr. Herbert Buschkühle is an attorney-at-law/tax advisor/notary public/ specialist attorney for tax law/ specialist attorney for inheritance law at PKF WMS Dr. Buschkühle PartG mbB Rechtsanwälte Steuerberater, a co-operation partner of PKF WMS Bruns-Coppenrath & Partner mbB Wirtschaftsprüfungsgesellschaft Steuerberater Rechtsanwälte (member company of the PKF network).

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