Avoid inheritance disputes: What you should look out for when making a transfer of assets during your lifetime

Recently, more and more reports about the inheritance dispute between Reinhold Messner and his children have appeared in the press. Although he had already transferred the majority of his assets to them several years ago, massive conflicts and mutual accusations have now arisen.

This prominent example shows how important it is to carefully plan the transfer of assets and property during one’s lifetime. Focusing primarily on reducing inheritance tax is clearly not enough. But what should you bear in mind when taking this step?

Keeping an eye on retirement provision

One aspect that is often overlooked when transferring assets during one’s lifetime is one’s own retirement provision. How long will the parents live and what financial needs might they still have? Deciding on your own care is not always predictable and the cost of care is likely to rise in the future. It is therefore important to factor these potential expenses into your planning.

Usufruct – beware of hidden costs

Many parents believe that the reservation of usufruct when transferring a property during their lifetime secures their provision in old age. Unfortunately, usufruct is usually only half the truth. This is because it means that

• continues to receive the rental income,
• but also continues to bear all the costs for the property.

The new Building Energy Act in particular may necessitate high investments for old existing buildings, which usually significantly exceed the rental income. In such cases, it is advisable to retain the property assets.

Recommendation
Draw up a financial plan and calculate a possible maintenance expense of 5,000 euros per month up to an age of 100 years. If this cash flow analysis shows that your financial situation is sufficiently secure, you can consider transferring your assets during your lifetime.

Justice and family conflict

Another important aspect is the question of justice and the avoidance of family disputes.

Agree rights of cancellation

The transferors should protect themselves against unwanted interference by the new owners. In addition to the reservation of usufruct, this is possible by agreeing rights of cancellation. These should be triggered if decisions are made without your consent.

Recommendation
If there are already family tensions, you should actively approach the future heirs to find a solution together.

Resolving conflicts during your lifetime

Inheritance disputes after the death of parents are rarely actual conflicts between siblings, but rather unresolved problems that the parents have left behind. As long as the parents are still alive, they can act as mediators in such discussions. These conversations may be difficult, but they don’t get any easier after the parents’ death.

Justice from the perspective of the heirs is important

Parents are often faced with the problem of how to divide unequal assets fairly between their children. It is important to consider the children’s perspective and not your own.

Example
If the son wants to stay in Munich and should receive the detached house, while the daughter, who travels a lot, receives the condominiums, which are much cheaper in terms of value, this might seem unfair. But perhaps the daughter has a greater interest in the family home despite her travelling and would be prepared to pay off her brother. The big problem is that the estate and, above all, property assets often cannot be divided fairly. Even the flat on the dark ground floor and the flat of the same size on the sunny 5th floor can have completely different values.

Recommendation
Draw up a list of the properties to be distributed and let your children work out a fair distribution themselves. Our many years of experience in advising on lifetime property transfers show that this is a highly recommended way of minimising future disputes.

Conclusion: Plan early and seek dialogue

It is not always possible to combine the transfer of assets during one’s lifetime, fair distribution and tax optimisation. It is therefore all the more important to think about these issues at an early stage. Have a joint discussion with your children to address possible problems and find solutions.

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