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Insight

Transferring GmbH shares and property during one’s lifetime

How usufruct reservations, clawback rights, tax valuation and forced-heirship strategies interact when structuring a lifetime transfer agreement.

| Reading time 6 min. | Author: Martin Neupert

In the case of anticipated succession, significant assets are transferred to the future heirs whilst the owner is still alive. This is typically done by way of a gift or a mixed gift under a notarised transfer agreement. Its strength lies in the combination of three effects: gift tax allowances can be utilised multiple times; the statutory inheritance claims of disinherited heirs diminish with each passing year following the transfer; and the transferor themselves determines who receives the assets and under what conditions. The price paid for this is a loss of control. A well-drafted agreement incorporating a reserved usufruct, rights of recovery and clear conditions transfers the assets whilst leaving the management and control in the hands of the transferor in the event of an emergency.

What does ‘anticipatory succession’ mean, and when is it worthwhile?

The term is not defined in law. It refers to gifts made during one’s lifetime with a view to future succession – ranging from the family home and a block of flats to shares in a company. An early transfer is particularly worthwhile in three scenarios. Firstly, where assets are growing in value: the gift is made at today’s tax value, whilst any future increase in value accrues to the successor from the outset and remains exempt from gift and inheritance tax. Secondly, in the case of large estates that can only be transferred tax-free over a period of several decades. We have explained in detail how the tax-free allowances and the 10-year period work in our article on gift tax. Thirdly, in the case of businesses whose continued operation requires an orderly handover, supported over a number of years, rather than an unplanned succession in the event of inheritance involving a divided community of heirs.

The flip side must be considered in any advice: once transferred, it is transferred. The transferor should only give away what they do not need for their own long-term maintenance, and should put contractual safeguards in place for everything else. Pension provision, the risk of needing long-term care and the possibility of future disputes are not peripheral issues, but the yardstick against which every transfer structure must be measured.

Reservation of usufruct: securing a livelihood and reducing the taxable value

The key instrument of the transfer agreement is the reserved usufruct. The transferor transfers ownership of the property or the shareholding, but reserves the right to use it for life. This includes rental income, profit distributions and, where applicable, voting rights at shareholders' meetings, insofar as this is permitted under company law. This ensures that the transferor’s financial security remains intact, whilst ownership of the asset has already been transferred. For tax purposes, the capital value of the usufruct – calculated on the basis of the annual value and the age of the beneficiary in accordance with Section 14 of the German Valuation Act (BewG) – reduces the basis of assessment for gift tax. For younger transferors, this often means that the taxable acquisition falls below the tax-free allowance.

A side effect relating to the right to a compulsory share is often overlooked. According to case law, the ten-year reduction period for claims to a supplementary compulsory portion does not commence as long as the donor continues to retain economic control over the gifted asset by virtue of a comprehensive usufruct, as they have not then relinquished the enjoyment of the asset. Anyone wishing to structure the transfer in such a way that it is also secure against claims to a compulsory share must therefore balance the need for maximum provision against the running of the limitation period. This can be achieved, for example, through a usufruct limited to specific areas or shares, or through maintenance payments instead of a reservation of use. In any case, a special rule applies to gifts between spouses, whereby the limitation period only begins to run upon the dissolution of the marriage.

Rights of recovery: the ‘emergency clause’ in the transfer agreement

Statutory rights of recovery exist only within narrow limits: in the event of gross ingratitude on the part of the donee (Section 530 of the German Civil Code (BGB)) and in the event of the donor’s impoverishment within ten years (Section 528 BGB). The latter serves primarily as a recourse mechanism for social security authorities. No transferor should rely on these circumstances. The transfer agreement therefore supplements these with contractual rights of recovery for defined events: the prior death of the transferee, the commencement of insolvency proceedings in respect of their assets, enforcement measures against the transferred asset, the divorce of the recipient without a valid marriage contract, the sale or encumbrance of the asset without the transferor’s consent, and, in the case of company shares, the cessation of duties as a managing director or a breach of voting commitments.

Legally, the right of recovery is structured as a claim for retransfer subject to a suspensive condition. In the case of immovable property, it is secured by a preliminary entry in the land register; in the case of GmbH shares, by a conditional reassignment. From a tax perspective, the reversal of the transaction is treated favourably. If the asset must be surrendered on the basis of a reserved right of recovery, the gift tax is retroactively waived (Section 29 of the German Inheritance Tax Act (ErbStG)). A transfer agreement without clawback clauses is therefore not a sign of trust, but rather a technical oversight. The clauses cost nothing as long as the worst-case scenario does not materialise, and can save the family’s assets should it occur.

Gifting GmbH shares: valuation, form and tax relief

When it comes to company shares, planning begins with valuation. The open market value applies for gift tax purposes. In the absence of recent sales to unrelated third parties, the simplified income-based valuation method set out in Sections 199 et seq. of the German Valuation Act (BewG) is applied. Under this method, the sustainable annual return is capitalised using the statutory factor of 13.75; however, the net asset value is used as the minimum basis. For highly profitable companies, this flat-rate factor can result in values that are significantly higher than the market value. In such cases, it may be worthwhile to commission an individual valuation report using recognised methods in order to demonstrate a lower fair market value to the tax authorities. Conversely, anyone who leaves the valuation to chance is effectively forfeiting the tax-free allowance.

The transfer of shares in a limited liability company (GmbH) formally requires notarisation (Section 15 of the German Limited Liability Companies Act (GmbHG)). Prior to the appointment, provisions in the articles of association regarding transfer restrictions, co-shareholders’ rights of first refusal and, where applicable, any necessary resolutions requiring approval must also be clarified. It is also necessary to update the list of shareholders. Subject to the conditions set out in Sections 13a and 13b of the Inheritance Tax Act (ErbStG), eligible business assets may be transferred with 85 or 100 per cent tax relief. However, holding periods and wage bill rules bind the successor for years to come. In the case of a transfer free of charge, the recipient assumes the donor’s acquisition costs for income tax purposes, meaning that hidden reserves are not realised but are transferred to the successor. If, instead of a child, an entire family line or a foundation model is to hold the shares, please refer to our article on family foundations.

Transferring property during one’s lifetime: procedure, land transfer tax and income tax

The transfer of real estate requires notarisation, followed by the transfer of title and entry in the land register. As a general rule, no land transfer tax is payable on gifts, as gifts of land between living persons are exempt from land transfer tax under Section 3(2) of the Land Transfer Tax Act (GrEStG). However, if the recipient assumes obligations in return – for example, by continuing to service a loan – land transfer tax may be payable in respect of those obligations. For the purposes of gift tax, the value of the property as determined under the Valuation Act is decisive. A lower market value may be demonstrated against this figure by means of an expert valuation report.

From an income tax perspective, a transfer made free of charge is neutral: the transferee continues the depreciation of the legal predecessor and adopts the latter’s date of acquisition. Consequently, the capital gains period continues to run for the recipient of the gift and does not start anew. Caution is advised in the case of arrangements involving partial consideration. If the transferee assumes liabilities or pays compensation to siblings to ensure equal treatment, this constitutes a transaction for consideration. This may give rise to a taxable capital gain for the transferor within the ten-year period specified in Section 23 of the Income Tax Act (EStG). 

Reducing claims to a compulsory share through early transfers

Transfers made during the testator’s lifetime alter the starting point for statutory share calculations. Gifts made in the ten years prior to the opening of the succession are fictitiously added to the estate for the purpose of calculating supplementary statutory share claims, albeit on a diminishing basis: In the first year prior to the opening of the succession, the gift counts in full; thereafter, the value is reduced by one-tenth per year. After ten years have elapsed, the gift is disregarded entirely (Section 2325(3) of the German Civil Code (BGB)). Every year that elapses between the transfer and the opening of the succession therefore directly reduces the heir’s liability, provided the time limit is running. However, this is not the case with a comprehensive reserved usufruct.

In addition to the time-limit solution, two further instruments are available. The set-off provision under Section 2315 of the German Civil Code (BGB) must be declared at the latest at the time of the gift and sets the gift against a future compulsory portion of the recipient. A notarised waiver of the compulsory portion by the siblings who are being passed over – usually in return for a settlement – provides definitive planning certainty. How these instruments can be combined in the context of business assets to ensure that statutory share claims do not become a liquidity trap for the business is the subject of our article ‘Statutory Share and Business Succession’.

Legal status: August 2026.

About the author

Martin Neupert
Martin Neupert
Partners · Property and Procurement
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Martin Neupert has been advising on asset and business succession for over three decades. His services range from drafting transfer agreements incorporating usufruct and clawback provisions to cross-border succession structures.

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Frequently asked questions about anticipated succession

The transfer of assets to future heirs usually takes place during the transferor’s lifetime by means of a notarised transfer agreement. This allows gift tax allowances to be utilised multiple times, reduces claims to a compulsory share, and facilitates an orderly succession in accordance with the transferor’s wishes.

The transferor retains the income from the transferred assets for the rest of their life and is thus still provided for, whilst ownership of the assets has already been transferred. At the same time, the net present value of the usufruct reduces the gift tax liability. It should be noted that, in the case of a comprehensive usufruct, the ten-year period for the gradual reduction of the compulsory share does not commence.

The decisive factor is the market value, which in practice is usually determined using the simplified income approach with a capitalisation rate of 13.75. However, the net asset value applies as a minimum. As this flat-rate approach often overvalues companies, an individual valuation report can demonstrate a lower value and thus preserve tax allowances.

Rights of recovery are customary in the event of the premature death of the recipient, the recipient’s insolvency or enforcement proceedings against the asset, in the event of divorce without a marriage contract, and in the event of dispositions made without the transferor’s consent. Where a right of recovery is contractually reserved, the gift tax paid is retroactively refunded in accordance with section 29 of the Inheritance Tax Act (ErbStG).

Gifts of land between living persons are exempt from land transfer tax in accordance with Section 3(2) of the Land Transfer Tax Act (GrEStG). However, if the recipient assumes consideration in return, such as loan liabilities, land transfer tax may be payable in respect of that consideration. Furthermore, the part of the transaction involving consideration may give rise to income tax consequences.

Yes, under the reduction rule set out in Section 2325(3) of the German Civil Code (BGB): for each year between the date of the gift and the date of death, the amount taken into account is reduced by one-tenth; after ten years, it is no longer taken into account at all. However, this presupposes that the time limit actually begins to run, which is not the case with a comprehensive reserved usufruct. In addition, the set-off provision and the waiver of the compulsory share may be taken into account.

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