If grandparents want to transfer wealth to their grandchildren, they should consider giving a chain gift. The assets are first transferred to the grandchildren’s parents and then from them to the grandchildren. This legal trick can potentially save a lot of gift tax. But the balancing act between permissible tax-saving models and impermissible arrangements is narrow.
In the case of a chain gift, assets are first transferred to close relatives or spouses or registered partners. These serve as a middle person, because only then do the assets reach the desired target person. Spouses and registered partners can give each other up to 500,000 euros tax-free within ten years. Donations to children, stepchildren and adopted children are spared from the tax authorities up to 400,000 euros. For grandchildren and great-grandchildren, the tax exemption is 200,000 euros. Gift tax is only due when the gifts are of a higher value. This taxable portion depends on the tax class of the recipient.
Chain gifts are interesting, for example gifts from grandparents to their grandchildren. In the case of a direct transfer to the grandchildren, the tax exemption is only 200,000 euros. For this reason, the benefits are only transferred to your own child. The child then gives the property to the grandchild.
If the giver dies, the inheritance tax will be calculated on the inheritance for the recipient, taking the gift into account. The exemption is increased every year between the gift and death. So if there is only one year between the donation and the death of the wealthy, one hundred percent of the exemption is offset. After two years, ninety percent is taken into account, and so on. In this way, ten years after the donation, the recipient is again entitled to the full tax exemption.
You should be aware of this
There are strict conditions to be met when giving a chain. Because this is only legal if the tax office does not accept any direct donation from the first donor to the last recipient. If possible, there should be a reasonable period of time between the two gifts. These periods of shame are not precisely defined and always depend on the individual case. Usually periods of one to two years are given. In a judgment (file number: II R 37/11), the Federal Fiscal Court specified the requirements for chain donations. Two points are particularly important:
1. The intermediate purchaser must not be obliged to pass on the acquired object.
2. The first donation must have been made before the second donation is agreed.
The tax office is very interested in finding out how much the gift is worth. If the gift is accepted, it must be reported to the responsible tax office within three months. This obligation to notify applies to both the giver and the recipient. The notification is also mandatory if the value is below the above-mentioned tax exemption limit. It is best if the donation is officially certified by a notary.
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For this reason, every gift of a chain must be planned carefully. Because although there are attractive tax advantages, the further gift always leads to a double consumption of tax exemptions.
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