When is a gift agreement necessary?
A gift agreement is required in certain situations and is particularly advisable when large sums of money or assets are to change hands, in order to provide legal protection for both the donor and the recipient. Here are some examples of situations in which a gift agreement is typically used - When is a gift agreement necessary?:
- Anticipated succession: Parents often want to transfer parts of their assets to their children during their lifetime. A gift agreement allows them to do this in a legally sound manner and ensures that the gift cannot be contested later on.
- Gifts to spouses or partners: Particularly in the case of larger gifts, such as real estate or large sums of money, this should be regulated by contract.
- Gifts to third parties: If you wish to gift large sums of money to friends, relatives, or other individuals, it is advisable to draw up a gift agreement. This will help to avoid misunderstandings and disputes later on.
- Tax considerations: Gifts may be taxable, depending on the amount and the relationship between the donor and the recipient. A gift agreement can help you make the most of the legal allowances and thus potentially save on gift tax.
It is important to note that in Germany, notarization of the gift agreement is important to note when it comes to certain types of asset transfers, such as real estate. Although such notarization is not mandatory for monetary gifts, it may still be advisable in order to legally secure the gift.
What should be considered when donating money?
In many situations, donating money can be a good way to transfer assets. However, there are a few important things to keep in mind to avoid unexpected complications or financial consequences:
- Gift tax: In many countries, including Germany, gift tax is payable if the value of the gift exceeds certain allowances. The allowances and tax rates vary depending on the relationship between the donor and the recipient. It is therefore important to take these aspects into account and, if necessary, seek tax advice.
- Notarization: For certain types of gifts, such as real estate, notarization of the gift agreement is required by law in Germany. Although this is not mandatory for monetary gifts, it may still be advisable in order to ensure legal certainty.
- Rights of recovery: Under certain circumstances, the donor may reclaim the gift, for example if they themselves fall into financial hardship after making the gift. It may therefore be advisable to include appropriate provisions in the gift agreement.
- Promise of donation: A mere promise of donation is not legally binding unless it has been notarized. If you want to ensure that the donation actually takes place, you should record this in a formally valid donation agreement.
- Claims to a supplementary compulsory portion: If a testator makes gifts during their lifetime, these may be taken into account when calculating the compulsory portion under certain circumstances. This may be relevant if the testator has children who have a legal claim to a portion of the inheritance.
When is a money transfer considered a gift?
A money transfer is considered a gift if the money is transferred from one person to another free of charge and without expectation of anything in return. It does not matter whether the transfer is made by bank transfer, by issuing a check, in cash, or by any other means.
The key element of a gift is the intention to transfer ownership without any consideration or conditions. Unlike a purchase or a loan, where consideration or repayment is expected, a gift is a unilateral transfer of assets.
A gift can be made informally, i.e., it does not necessarily require a written contract. However, in certain situations, especially when large sums are involved or tax issues come into play, it is advisable to draw up a gift agreement. Such an agreement serves as legal proof of the gift and can help to avoid misunderstandings or disputes later on.
It should also be noted that in many countries, gifts may be subject to tax if they exceed certain allowances. In Germany, for example, gift tax depends on the degree of kinship between the donor and the recipient, as well as the value of the gift.
How much money can I give away to strangers?
In Germany, there are certain tax allowances that apply to gifts. These depend on the degree of kinship between the donor and the recipient. For gifts to persons who are not related or do not have a special status (such as spouses or registered partners), the allowance is €20,000 within 10 years.
This means that, as an individual, you can gift up to €20,000 to another person within a 10-year period without incurring gift tax. If the gift exceeds this amount, the excess amount will be subject to gift tax.
If you wish to gift larger amounts, you should consult a tax advisor. There are various strategies and options for minimizing your tax burden.
Please note that the rules for gift tax may vary in other countries. It is therefore important to seek advice in your specific case.
Legal basis of gift agreements?
The legal basis for gift agreements in Germany is laid down in the Civil Code (BGB). Here are the key aspects:
- Definition: According to Section 516 of the German Civil Code (BGB), a gift is "a contract whereby one person enriches another from their own assets and both parties agree that this enrichment is free of charge."
- Form: In principle, a gift can be made without any formal requirements. However, Section 518 of the German Civil Code (BGB) stipulates that a promise to make a gift—i.e., a promise to make a gift in the future—must be notarized in order to be legally valid.
- Rights of recovery: Under certain circumstances, the donor may revoke the gift. This is possible, for example, under Section 528 of the German Civil Code (BGB) if the donor finds themselves in financial distress after making the gift. In addition, the donor may revoke the gift under Section 530 BGB if the recipient is guilty of gross ingratitude.
- Gift tax: Gifts may be subject to gift tax under certain conditions. The exact regulations can be found in the Inheritance and Gift Tax Act (ErbStG).
What are the duties and rights of the donor?
The rights and obligations of the donor in the context of a gift are described in detail in the German Civil Code (BGB). Here is a summarized and supplemented overview of this topic:
Obligation to transfer ownership: It is the responsibility of the donor to transfer ownership of the gift or amount to the recipient. In the case of a monetary gift, this is usually done by methods such as bank transfer, check, or direct cash payment.
Freedom from third-party rights: It is imperative that the gift does not infringe on any third-party rights. This means that no third party may have a priority or equivalent claim to the gifted property that could in any way affect the rights or possession of the recipient.
Right of recovery: The law also grants the donor a right of recovery in certain cases:
- According to Section 528 of the German Civil Code (BGB), the donor may revoke the gift if he or she encounters serious financial difficulties after making the gift.
- According to Section 530 of the German Civil Code (BGB), it is also possible to reclaim a gift if the recipient behaves in a grossly ungrateful manner, for example by committing serious misconduct toward the donor.
When making gifts, it is important to always keep the legal framework in mind in order to avoid misunderstandings or conflicts later on.
What are the obligations and rights of the recipient?
In a gift agreement, the recipient generally has fewer obligations than the donor, but there are some important points to consider:
Rights of the recipient:
- Right to transfer: The recipient has the right to receive the gift as agreed in the gift agreement.
- Right of free disposal: Once the gift has been handed over, the recipient has the right to dispose of it freely, unless other arrangements have been made in the gift agreement.
Obligations of the recipient:
- Acceptance of the gift: The recipient must accept the gift. As a rule, it is assumed that the recipient accepts the gift unless they expressly refuse it.
- Gift tax: In Germany, gifts may be subject to gift tax. The recipient is usually responsible for paying this tax. The amount of tax depends on the value of the gift and the degree of kinship to the donor.
- Gross ingratitude: If the recipient behaves in a grossly ungrateful manner toward the donor, the donor has the right to revoke the gift (Section 530 BGB).
When is a gift agreement necessary?
A gift agreement is not required by law in all cases, but it can be useful and helpful for various reasons. In some situations, it is even mandatory. Here are a few points to consider:
- For real estate: In Germany, it is required by law that a gift agreement for real estate must be notarized (§ 311b BGB). This applies to land as well as apartments or houses.
- In the case of promises of gifts: If someone promises to make a gift in the future, this promise must be notarized in order to be legally valid (Section 518 BGB).
- To avoid misunderstandings: A written gift agreement can help to avoid misunderstandings and provide proof of the gift. This can be particularly important when large sums of money are involved or when several people are involved.
- In the case of rights of recovery: If the donor wishes to reserve the right to recover the gift under certain circumstances, this should be stipulated in a gift agreement.
- Tax issues: With regard to gift tax, a gift agreement can be useful for documenting the value of the gift and the date on which it was made.
What information must be included in the gift agreement?
A gift agreement should contain certain essential elements in order to be effective and to avoid subsequent disputes or misunderstandings. Here are some important points that should generally be included in a gift agreement:
- Parties to the contract: The full names and addresses of the donor and the recipient should be specified in the contract.
- Description of the gift: The object of the gift should be described clearly and unambiguously. In the case of a monetary gift, the exact amount should be specified.
- Intent of the gift: The contract should make it clear that the gift is being transferred without any expectation of consideration in return.
- Transfer: The contract should specify the date or conditions for the transfer of the gift.
- Any rights of reservation: If the donor wishes to reserve certain rights, such as a right of recovery under certain circumstances, this should be specified in the contract.
- Signatures: The contract should be signed by both parties. In some cases, such as real estate or gift promises, the contract must also be notarized.
Sample gift agreement for money
A monetary gift can be recorded in writing in the form of a gift agreement. Here is a basic template of what such an agreement might look like:
gift agreement
Between
Mr/Mrs [full name of the donor], residing at [address of the donor]
and -
Mr/Mrs [full name of the recipient], residing at [address of the recipient]
the following gift agreement is concluded:
§ 1 Subject matter of the donation
Mr/Mrs [name of donor] hereby transfers to Mr/Mrs [name of recipient] a sum of money in the amount of [amount in figures and words], free of charge and without right of recovery.
§ 2 Transfer
The money will be transferred by [method of transfer, e.g. bank transfer, cash payment] on [date of transfer].
§ 3 Gift tax
If gift tax is payable on this gift, it shall be borne by [name of donor/recipient].
§ 4 Final provisions
Amendments and additions to this contract must be made in writing. This also applies to amendments to this written form clause.
This contract is signed in [number of copies] copies, each of which shall be given to each contracting party.
[Place, date]
Signature of donor Signature of recipient
This is a simple form of gift agreement. Depending on the situation, additional conditions and clauses may be necessary. It is therefore always advisable to have such an agreement reviewed by a lawyer or notary.
Gift agreement for money – Notarization
Notarization of a gift agreement is required in certain cases in Germany and ensures that the agreement is legally binding and enforceable. Notarization is required by law in the following situations in particular:
- Donation of real estate: According to Section 311b (1) of the German Civil Code (BGB), the donation of real estate (land, houses, apartments) must be notarized.
- Promise of donation: According to Section 518 (1) of the German Civil Code (BGB), a promise of donation, i.e. a promise to make a donation in the future, must be notarized.
When notarizing a gift agreement, the notary verifies the identity of the parties and ensures that they understand the terms of the agreement and consent to them voluntarily. The notary will then certify the agreement, i.e., issue a document that records the content of the agreement and certifies the signatures of the parties.
Even if it is not required by law, it may be advisable for various reasons to have a gift agreement notarized, for example to avoid disputes later on or to have clear proof of the gift.
Gift agreement for money – advantages of notarization
Notarization offers a number of advantages that provide legal certainty, clarity, and trust. In the context of a gift agreement, these advantages include:
- Legal certainty: A notarized contract is a legally binding document. The signatures of the parties are officially certified, and the contract is legally binding.
- Authentication of the parties: The notary confirms the identity of the parties involved and ensures that they are acting voluntarily and with full understanding of the contract.
- Legal advice: Notaries are legal professionals and can advise the parties to the contract on the legal implications of their agreement. They can also ensure that the contract complies with all relevant laws.
- Avoiding disputes: A notarized contract can help avoid future disputes, as it contains clear and unambiguous terms that have been accepted by both parties.
- Evidential value: The notarized contract has full evidential value. This means that it is considered indisputable proof of the agreements contained therein.
- Storage: Notaries are required to archive a copy of the notarized contract. This ensures that an authentic copy of the contract will still be available in the future.
Although notarization incurs costs, it can often save money in the long term by preventing disputes and providing legal certainty.
Gift agreement for money – procedure for notarization
The process of notarization or certification, as it is called in a legal context, generally involves the following steps:
- Appointment: First, the parties involved arrange an appointment with the notary.
- Preparation of the contract: In many cases, the notary will prepare the contract or deed to be notarized in advance. In doing so, he or she will take into account the wishes and requirements of the parties and ensure that the contract complies with legal requirements.
- Identity verification: At the notary appointment, the notary verifies the identity of the parties, usually by requesting a valid ID document.
- Explanation and review of the contract: The notary explains the content of the contract and ensures that all parties fully understand the contract and its implications.
- Signature of the parties: Once all parties have agreed to the contract, they sign it in the presence of the notary.
- Notarization: The notary confirms the signatures of the parties and notarizes the contract. This can be done by affixing a seal and/or signature of the notary to the contract.
- Issuance and storage: The notary provides the parties with one or more copies of the notarized contract and keeps a copy in his or her records.
- Entries: For certain contracts, such as gift agreements for real estate, the notary can also arrange for the necessary entries to be made in the land register.
These steps may vary depending on the type of contract and the specific requirements of the parties.
Gift agreement for money – gift tax and allowances
In Germany, gifts are subject to gift tax. This tax is levied on the value of the gift and must normally be paid by the recipient.
However, there are certain allowances up to which a gift is tax-free. These allowances depend on the degree of kinship between the donor and the recipient. Here are the allowances that applied until September 2021:
- Spouses and civil partners: For spouses and registered civil partners, the allowance is €500,000.
- Children and stepchildren: For children and stepchildren, the allowance is €400,000. For grandchildren whose parents are still alive, the allowance is €200,000.
- Parents and grandparents: For gifts from parents and grandparents to their children or grandchildren that are not intended to finance education or a purchase, the allowance is €100,000.
- Other persons: For all other persons, including siblings, nephews, nieces, uncles, aunts, and friends, the allowance is €20,000.
It is important to note that these allowances apply within a period of 10 years. This means that all gifts received by a person from the same person within 10 years are added together to determine whether the allowance has been exceeded.
If the value of a gift exceeds the tax-free allowance, gift tax must be paid on the excess amount. The exact tax rate depends on the value of the gift and the degree of kinship between the donor and the recipient.
Tax optimization options for gift agreements
There are several strategies for tax optimization in gift agreements. These strategies can help minimize or even completely avoid gift tax:
- Utilization of tax allowances: As already mentioned, there are certain tax allowances for gift tax in Germany, which vary depending on the degree of kinship. These allowances can be used every ten years. One way to optimize your tax situation is therefore to plan your gift so that you make optimal use of the allowances.
- Gifts in installments: Another option is to spread the gift out over a longer period of time in several smaller installments instead of giving the entire amount at once. This ensures that the tax-free allowance is used over several ten-year periods.
- Use of special provisions: There are certain special provisions that can be applied under specific conditions. For example, parents or grandparents can give money to their children or grandchildren to finance their education or vocational training without paying gift tax.
- Gift with reservation: In some cases, it may be advisable to make a gift with reservation. This means that the donor reserves certain rights to the gift, for example, the right to reclaim the gift if he or she finds himself or herself in financial distress. Such reservations must be recorded in the gift agreement.
When considering a gift agreement, it is important to note that this is general information and that the exact provisions may vary depending on the situation and individual circumstances.
Common mistakes when drawing up a gift agreement
Drafting a gift agreement can be complex, and there are several common mistakes that should be avoided:
- Incomplete or inaccurate information: Every gift agreement should contain complete and accurate information about the parties involved and the gift itself. Incomplete or inaccurate information can lead to misunderstandings or legal problems.
- Lack of legal formal requirements: In certain cases, such as the donation of real estate or promises of gifts, the gift agreement must be notarized. If this requirement is not met, the agreement may be invalid.
- Failure to take gift tax into account: Gifts may be subject to gift tax, and it is important to take this into account when planning a gift. Attempting to circumvent gift tax by artificially dividing a gift may be considered tax evasion.
- Lack of reservation: In some cases, it may be advisable for the donor to reserve certain rights, such as the right to reclaim the gift in the event of financial hardship. If such reservations are desired, they should be specified in the contract.
- Overlooking personal or family consequences: Gifts can have personal or family consequences, especially if they affect the statutory share of heirs. It is important to consider these aspects and seek legal advice if necessary.
"To avoid mistakes in a gift agreement, it is advisable to carefully review all details and conditions before signing. Careful preparation and comprehensive advice from a notary are essential. A professional opinion helps to avoid both legal and tax pitfalls and to optimize the gift." - Notary Dr. Zeiler
Summary of key points
In this article, we have discussed a wide range of topics related to gift agreements for money. Here is a summary of the most important points:
- Necessity of a gift agreement: A gift agreement is necessary to record the details of the gift and to provide legal protection for both the donor and the recipient. It is particularly important if the gift is of high value or if certain conditions must be met.
- Contents of the gift agreement: A gift agreement should contain complete and accurate information, including the identity of the parties involved, a description of the gift, and the conditions under which the gift is made.
- Rights and obligations of the parties: The donor and the recipient each have certain rights and obligations. These include the donor's obligation to hand over the gift and the recipient's right to accept the gift.
- Notarization: Notarization of a gift agreement provides legal certainty and protects the interests of all parties involved. In certain cases, it is required by law, for example when gifting real estate.
- Gift tax and allowances: Gifts may be subject to gift tax. However, there are certain allowances that vary depending on the degree of kinship and can minimize or avoid gift tax.
- Tax optimization: Through careful planning and utilization of allowances, special regulations, and other strategies, gift tax can be optimized.
- Common mistakes: When drawing up a gift agreement, various mistakes can occur, such as inaccurate or incomplete information, failure to comply with legal formalities or tax implications, and overlooking personal or family consequences.
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