Berlin Testament vs. Sylt Testament: Strategies for Tax-Free Wealth Transfer

When it comes to drawing up a will, married couples have various options to choose from that not only offer legal certainty but can also provide tax advantages. The well-known ‘Berlin Testament’ and the increasingly popular variant of the ‘Sylt Testament’ offer different approaches. In addition, the ‘property swing’ and the ‘Sylt model’ are two options for transferring real estate in a tax-optimised manner.

Berlin Testament vs. Sylt Testament: The differences briefly explained

The Berlin Testament is a common form of will in Germany among married couples and is included in the legal provisions of § 2269 BGB. It allows spouses to appoint each other as sole heirs and thus provide financial security for the surviving spouse. After the death of the first spouse, the children are usually appointed as ultimate heirs.

Important to know: However, a critical aspect of the Berlin Testament is its irrevocability after the death of the first spouse. This means that the surviving spouse then no longer has the option of amending or even cancelling the present will – unless the binding effect has been cancelled in this will.

By contrast, the so-called ‘Sylt Testament’ is a flexible inheritance plan and the appointment of heirs is the exact opposite. Not the surviving spouse, but the children become direct heirs of the first deceased. This formally means that the surviving spouse is disinherited.

It is essential to note: In order to nevertheless ensure the financial security of the surviving spouse, a supplemental legacy is often set up that guarantees the spouse assets or usufructuary rights, for example, to real estate income.

Tax advantages of the Sylt Testament

A major advantage of the Sylt Testament is the possibility of optimising inheritance tax. Since the children inherit directly, inheritance tax is only due once – in contrast to the double taxation that occurs with the Berlin Will. In addition, this design allows for the optimal utilisation of the tax-free allowances of all parties involved, which can lead to significant tax savings.

Tax-free transfer of assets: marital property swing vs. home swap (Sylt model)

The marital property swing is a well-known method for dividing property between spouses who are married under the property regime of the gain in community. If the spouses now change from the statutory property regime of the gain in community to the separation of property by means of a notarised marriage contract, the equalisation of gains is triggered, which is tax-free in accordance with §5 ErbStG. The entitled spouse is entitled to a sum of money or, alternatively, a corresponding share of the real estate assets in the amount of the calculated equalisation of accrued gains. The asset swap thus enables a tax-free transfer of assets to the spouse entitled to equalisation.

Particular attention should be paid here to the correct calculation of the equalisation of gains and the amount of the real estate assets to be transferred. In addition, the income tax consequences and costs for corresponding notarial certifications must be taken into account.

The Sylt model, also known as a home swap, is an alternative way of transferring assets to your spouse tax-free. One spouse owns the home they live in and gives it to the other spouse as a gift. This gift of the family home is completely exempt from gift tax in accordance with Section 13 (1) no. 4a ErbStG.

After a certain period of time (often referred to as the ‘grace period’), the spouse who received the gift sells the property back to the original owner at market value. In this way, the originally gifted partner receives the value of the property without incurring gift tax.

This model allows wealthy individuals to transfer significant sums of money to their spouses tax-free by taking advantage of the tax exemption for family homes.

A must: professional advice

In terms of tax optimisation and flexibility, choosing the right strategy for your inheritance and estate planning is crucial. Depending on your personal situation, the Sylt Testament and the Sylt Model can offer interesting advantages over the ‘classic’ options of the Berlin Will and the swinging of matrimonial property.

However, due to the complexity of the legal and tax aspects, professional advice is highly recommended.