Arranging Your Inheritance During Your Lifetime – Tax Structuring for an Optimal Transfer of Wealth
This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.
Arranging your inheritance early, during your lifetime, is an essential step for wealthy private individuals and entrepreneurs to secure their wealth over the long term and optimise it for tax purposes. Those who address succession planning early can avoid heavy tax burdens, ensure that property or business assets are preserved and prevent heirs from getting into financial difficulties as a result of unexpected tax demands. Without a well-thought-out strategy, statutory succession (gesetzliche Erbfolge) may apply, which does not always reflect the wishes of the deceased and can lead to disputes among the heirs.
Inheritance tax (Erbschaftsteuer) in Germany can amount to considerable sums depending on the degree of kinship and the amount of wealth transferred. Particularly for large fortunes, targeted structuring measures are necessary in order to avoid an unnecessary tax burden. In cooperation with experienced tax advisers and notaries, Neo Capital GmbH supports its clients in developing individual concepts for a tax-optimised transfer of wealth.
Why should an inheritance be arranged early?
Planning an inheritance with foresight makes it possible to use tax allowances in a targeted way and to preserve family wealth across generations. The statutory allowances can be used again every ten years, so that through staggered transfers larger assets can be passed on to the next generation without inheritance tax. Those who wait too long or leave the arrangements to chance risk losing large parts of their wealth to taxes.
In addition to the tax component, the family situation also plays a decisive role. A clear inheritance arrangement prevents disputes among the heirs and ensures that assets are transferred in accordance with the wishes of the deceased. Particularly with complex asset structures, such as a combination of property, company shares and liquid investments, professional advice is required in order to develop a balanced and tax-efficient solution.
Together with its clients, Neo Capital GmbH analyses the individual financial situation and develops a tailor-made strategy that takes both tax and family aspects into account. Taking action early makes it possible to avoid heavy tax burdens and secure wealth over the long term.
What structuring options are there for a tax-optimised inheritance arrangement?
An inheritance can be arranged during your lifetime in various ways in order to reduce tax burdens and make the transfer of wealth efficient. One of the most effective methods is gifting while making use of the ten-year period. Parents can transfer up to €400,000 per parent to their children tax-free. If this allowance is used in full and used again after ten years have elapsed, large fortunes can be transferred tax-free over decades.
For property owners, a gift with reservation of usufruct (Nießbrauchvorbehalt) is a tax-advantageous solution. With this arrangement, the donor remains the economic beneficiary of the property and can either live in it themselves or earn rental income. As the usufruct (Nießbrauch) reduces the taxable value of the gift, this strategy can help to lower the tax burden considerably while retaining control over the property.
The transfer of business assets (Betriebsvermögen) is subject to special rules which in many cases allow an extensive tax exemption. Provided the business is continued for several years and certain conditions are met, such as compliance with the payroll rule (Lohnsummenregelung), a business succession can take place almost tax-free. This is highly relevant for entrepreneurs, as an unprepared inheritance arrangement can lead to financial burdens that jeopardise the continuation of the business.
Another option for securing family wealth over the long term is to set up a family foundation (Familienstiftung). This legal structure preserves the wealth across generations, as it is not inherited directly but managed within the foundation and paid out to the beneficiaries. Foundation models offer numerous tax advantages and are a sensible alternative, particularly for wealthy families with complex structures.
Neo Capital GmbH supports clients in selecting and implementing the optimal strategy in order to minimise the inheritance tax burden and pass on family wealth in a structured way.
Tax-free transfers of property and business assets
Gifting property is one of the most common forms of anticipated succession (vorweggenommene Erbfolge). In addition to using allowances, the family home (Familienwohnheim) offers a special opportunity for a tax-free transfer. If an owner-occupied property is given to the spouse or to children and continues to be used by the recipient, the transfer remains tax-free under certain conditions. However, for children a living space limit of 200 square metres applies; portions exceeding this may become taxable.
Special tax privileges apply to business assets. Depending on the continuation period and the payroll, a transfer can be up to 100% tax-free. If the business is continued for at least seven years, inheritance tax does not apply at all. This rule is intended to prevent businesses from getting into economic difficulties as a result of high tax payments.
Neo Capital GmbH advises entrepreneurs and property owners on the optimal transfer strategy in order to make full use of tax advantages and keep wealth within the family over the long term.
Possible legislative changes and future developments
Inheritance tax is regularly the subject of political debate, and it cannot be ruled out that future legislative changes could restrict existing structuring options. Adjusting the allowances in line with inflation is repeatedly debated, but could also be accompanied by an increase in inheritance tax rates.
Particularly with business assets, there is a possibility that the tax exemptions will be regulated more strictly in order to prevent abuse. The rules on gifts with usufruct could also be restricted further in order to make complete tax avoidance more difficult.
Anyone who wants to secure their wealth over the long term should familiarise themselves with the current rules early on and take action in good time. Neo Capital GmbH keeps its clients informed about legislative changes and develops estate strategies that will stand up even under new conditions.
Conclusion: structuring your inheritance during your lifetime in a tax-optimised way
Timely and strategic estate planning is essential in order to transfer assets to the next generation in a tax-optimised way. By using allowances, usufruct arrangements, tax privileges for businesses or foundation models, considerable tax savings can be achieved.
Neo Capital GmbH offers comprehensive advice for clients who want to arrange their estate in a targeted way and make full use of tax structuring options. In close cooperation with tax advisers and notaries, we develop tailor-made concepts for securing wealth over the long term.
Contact us for individual advice and find out how you can pass on your wealth tax-free and with legal certainty.