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Claims by the German social welfare office for the return of gifts

19.09.2024 / article from PKF Nachrichten 09/2024
by RA/StB [German lawyer/tax consultant] Frank Moormann

In family groups, a question that more frequently arises is whether or not assets should already be transferred to children during one’s lifetime in order to protect them from the obligation to realise assets in the event that the need for nursing care arises or that residential care becomes necessary. The question usually concerns an owner-occupied property that is then transferred to the children under reservation of a right to reside or a usufructuary right. In the following section we give some key pointers as to the question of: when would a claim arise against the beneficiaries for the return of the gift so that the welfare authority could assert it?

Legal starting point

Those who require care are generally obliged to bear their own costs, for example, for residential care. They also have to use their own assets for this. A property will only be exempt for as long as there is self-usage, consequently this would no longer be the case wif there is a move into a care home. Where there are no (more) assets left and the pension is not sufficient then the next of kin, normally the spouse and the children, would be obliged to pay maintenance. However, the latter can only be called on to pay parental maintenance if they themselves have an annual income in excess of €100,000. This threshold was introduced with effect from 2020 via the German Relatives Relief Act.

If no relatives are obliged to pay maintenance, then the social welfare office would assume the costs of nursing care and residential care.   

Do gifts have to be returned?

If the giver of a gift (donor) is subsequently no longer able to reasonably provide for themselves then the law on gifting grants them the right to recall the gift (Section 528(1) of the German Civil Code). If, in this case, the welfare authority provides services to the donor or assumes costs then it is able to carry over to itself the right to have the gift returned and assert it against the beneficiary.

This however does not apply without any restrictions. 
The beneficiary may refuse to return the gift if

  • after the gifting 10 years had already elapsed before the need for care arose,
  • the donor’s situation of need was self-inflicted (e.g., through frivolous speculation or gambling),
  • the gift is no longer part of the assets of the beneficiary (e.g., because they used it up for their own purposes), or
  • returning the gift would threaten the ability of the beneficiary to reasonably provide for themselves.

Although, when it comes to the question of whether or not the maintenance for a child beneficiary would be threatened it would not be possible to use the €100k income threshold under the Relatives Relief Act as a basis. The Federal Court of Justice (Bundesgerichtshof, BGH) recently clarified this in its ruling from 16.4.2024 (case reference: X ZR 14/23). The threshold is a social welfare regulation that cannot be transferred to the gifting regulations in general. Therefore, an obligation to return the gift can even arise when the child’s income is considerably lower.

Please note: It is also possible to avoid having to surrender the property, for example, if the beneficiary reimburses to the social welfare office the amounts that were advanced.  

Conclusion 

It has once again become clear that the expiry of the 10-year period plays a significant role when assets are transferred to the next generation. In this way it is possible not only to avoid the recourse claims from the social welfare office, but also normally from beneficiaries of a compulsory portion. In addition, it is possible to use the tax allowances for gifting (€400k per child) once again after the respective 10-year period. Therefore, it is advisable to start planning asset transfers at an early stage in order to increase the possibility of the expiry of the prescribed period accordingly.

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