Many people who own valuable objects, such as real estate or securities, at some point have the idea of giving them away within the family or to friends. That thereby a tax, the so-called gift tax accrues, know thereby still some. That one can reduce this, if one arranges it skillfully, completely legally or also completely avoid, however no longer completely so many. The solution is the donation to the third party and simultaneous (re)granting of a comprehensive right of use for the donor: The so-called usufruct.
But what is this? What do you have to consider and what are the advantages? The following legal advice will deal with this.
What is usufruct?
The term usufruct is probably most frequently used in connection with real estate. It describes the (permanent) right to occupy or use a house or apartment and at the same time to be able to draw all income from the property. For this to be granted, it must have been entered in the land register. The usufructuary does not become however owner of the real estate; the power of disposal remains thus also with this, explains attorney Sascha C. Fürstenow.
However, what some people do not know: Such a usufruct can be created not only on real estate, but also on other rights and things. Thus, other valuable objects such as securities can also be encumbered with a lifelong right of use, i.e. usufruct.
What is the advantage of usufruct?
The first big advantage results directly from the way of such a usufruct right described above: One can be and remain owner or economic owner of an object for life without being the owner himself. Besides the usufructuary receives all yields from the acquired right of use and can also in limited way over it dispose, with securities thus for example further the investment strategy specify, so attorney Fürstenow.
Another advantage is however not so obvious, but should not be neglected in any case: The fiscal aspect.
Because with each donation of valuable objects one should have in Germany always also the so-called gift tax (or with heirs the inheritance tax, § 1 ErbStG) in the head. A gift up to a value of €20,000 is generally tax-free, after which the tax-free amount depends on the tax class and the degree of kinship of the donors. These tax-free amounts can quickly be exceeded, especially in the case of real estate and securities.
However, if there is a usufructuary right on an object, this counts as a value-reducing burden and is thus deducted (for tax purposes) from the value of the object to be given away. The longer the usufructuary right is expected to last (i.e. in other words, the younger the usufructuary), the more it reduces the value of the object and the less gift tax may be due.
Basically, it can be stated that it can therefore be advisable to establish the usufruct right as early as possible in order to make the value of this as high as possible.
What must be taken into account?
In any case, a gift contract should be concluded, even if it is a gift within the family. This is advisable for reasons of transparency vis-à-vis the tax office.
In this in each case also the usufruct right should be mentioned in favor of the donating and/or be registered, advises attorney Sascha C. Fürstenow. Besides one can take up by the valid principle of the party autonomy in the contract also further points requiring regulation or also omit, completely as it the respective individual case gives. According to § 518 Paragraph 1 BGB, the gift promise must be notarized, but the lack of such a notarization is remedied by the actual execution of the gift (§ 518 Paragraph 2 BGB).
If the item to be encumbered with the usufruct is securities, you must also find a bank that offers a so-called “usufruct deposit” so that the clear separation between the owner and the usufructuary is ensured and can be proven. Even just to open one, you will again need the gift contract. Note that for such, depending on the bank variable, sometimes high costs can arise! It is therefore worthwhile to inquire exactly and to be advised. If only because not all securities may be suitable for usufruct. In addition, the exact income and thus the value of the usufruct can be made transparent to the tax office.
In order to calculate this exactly, however, further factors are required, such as age and gender, as already mentioned above.
Conclusion: Granting a usufructuary right as a useful means of reducing gift tax.
If you plan to give away very valuable assets to family or friends, granting a usufructuary right can be a useful way to reduce or even completely avoid any gift tax that may be due. Note, however, that it always depends on the individual case and the value of the object to be given away in relation to the value of the usufructuary right. This legal guide is only intended to provide information about the possibility of usufruct on (movable) property, but can of course not provide a legal or tax assessment of whether it is also worthwhile in your specific case.
If you have further questions on this topic or would like to learn more about usufruct, attorney Sascha C Fürstenow will of course be happy to help you.