What do I need to watch out for when receiving a large sum of money as a gift in Germany?

Question

I live in Germany. If my father would want to give me a large sum of money - let's say 10,000€ - what would be the safest, least bureaucratic way to do this? I'm an apprentice and I still receive child allowance (I don't know how familiar people outside of Germany are with this), and I have no debts.

What I am afraid of:

• Missing out on the best way to store such an amount of money for a long time

• Losing money to bureaucracy (German authorities)

• Losing money on the transaction due to some taxes (I have no idea about this)

Another thing I'm afraid of is that my girlfriend, with whom I live and will be living with for a long time, has a mother who has a lot of debt.

I am NOT concerned about interpersonal issues (her or her mother wanting money), I am ONLY concerned about legal troubles I might have if a person I live with has a relative with a lot of debt, but that is not my main worry here (as even I with my limited knowledge can tell that the risk for me wouldn't be big as I'm not engaged to her).

Also, my ideal future scenario would be to use this money to finance a flat in another town, so that someday I can own said flat myself instead of living on rent forever, but I know that 10,000€ would not be enough for that - maybe there's something where you can start small.

Sorry if the text body goes a little out of scope. I'm just a little anxious about all of this, and I wouldn't want to start anything before at least getting some feedback here.

Thanks in advance!

Answer 1

I am Swiss but I will attempt to answer this as good as possible:

1 Storage

You get a bank account. Done. A bank account doesn't get you a lot of interest, but it is a safe way of storing the money and you'll have access to it at any time.

2 Bureaucracy

Germany is a little more bureaucratic than Switzerland but a simple bank transaction should be enough.

3 Taxes

The free sum "Freibetrag" which you can gift to your children is 400k EUR in Germany so you are good to go. This means no taxes for you or your dad.

4 Liability for parents in debt

If your girlfriend doesn't accept the inheritance she's fine. You are not liable for the debt of your parents. If she would accept the inheritance she would also inherit the debt. So don't accept it and everything is fine.

Even if you were married and she accepted the heritage, it's still not your debt, but then your wife's. You can't be hold accountable for debt of your wife/husband, at least not in Germany.

5 Getting a flat with 10K EUR

Not gonna happen, at least not in Germany. You will need to save more and get a mortgage, but 10k is a nice start. You may want to start investing your saved money because you have the 10k security cushion on the bank account.

Edit: Free sum "Freibetrag" is actually 400k not 20k. 20k is for grandchildren I suppose, therefore the mess up.

Answer 2

I will attempt to answer your questions from a German point of view.

Missing out on the best way to store such an amount of money for a long time

Your bank account is safe

You could "store" an amount of EUR 10,000 in your usual bank account. In Germany, a deposit insurance (Einlagensicherung) with up to EUR 100,000 coverage comes with your bank account automatically, so you won't lose your money in case the bank goes bankrupt.

Setting up an emergency fund

First, as you don't have any debt yourself, set aside some money for an emergency fund, if you don't have one already. Your bank account (or Tagesgeldkonto) is a good choice, because the money is available right away if needed. Ideally, you would then be able to pay your bills for at least 3 months without any income.

This makes sense, as in Germany, it can happen that you will receive unemployment benefits (Arbeitslosengeld I) no earlier than 12 weeks after you lost a job -- for example, if for some reason you were forced to quit a job instead of your employer terminating your contract (Sperrzeit, see § 159 SGB III).

Also, if the company you're working for would go bankrupt, you're entitled to receive Insolvenzgeld (insurance for employees by the Federal Employment Agency in case of employer bankruptcy). But again, this will happen only if your employer couldn't pay your salary for at least 3 months in a row.

Invest with long-term perspective

Depending on your living standard (your monthly expense budget), you will still have a good portion of the EUR 10,000 left after setting up your emergency fund. However, simply "storing" the money for a "long time" is probably not quite what you want: Due to inflation, the value of your money will decrease over time.

If you don't need the money for a long time (at least 10-15 years or more), your best bet would be to invest in a really widespread ETF (ideally worldwide). This way, you mitigate your risk if the economy in certain sectors or regions goes down.

Nowadays, many Germany direct banks (for example DKB, Comdirect or ING) offer a brokerage account basically for free, you would only pay for transaction fees. As ETFs are automated, the management fees are comparably low, also.

Losing money to bureaucracy (German authorities)

Situations to consider regarding authorities

Indeed, you should take German authorities into account. Should you ever get yourself into a financially difficult situation, the government will expect you to pay out of your pocket first, before they pay any money to you.

• If you are unemployed for a longer time (more than 12 months), you will no longer receive the usual unemployment benefits (Arbeitslosengeld I), but rather Arbeitslosengeld II ("Hartz IV"). If this happens, the government will expect you to use up your own savings before they give any money to you.
  You will be allowed to keep a certain amount depending on your age, called Schonvermögen. It is roughly EUR 150 multiplied by your age. There are various online tools to calculate the exact amount, and there is currently a maximum of EUR 9,750.

• A very similar situation happens if your girlfriend is unemployed for a longer time. If you're living in the same household together, the authorities will assume that you share a certain responsibility for each other, called Bedarfsgemeinschaft.
  In this case, your girlfriend's savings and your savings will both count together (see link above). This means, your girlfriend won't receive any benefits as long as you don't use up enough of your savings. So you might be forced to pay for your girlfriend's living expenses indirectly.

• Authorities might also force you to use up some of your savings if you do not earn enough money, for example if you will have a child and need to pay child support. If your regular income is low, but you have a lot of money in the bank, you might need to use that money.
  However, in such a case, regulations are rather vague. The exact outcome will depend on the individual situation. There is no simple calculator for such situations. Should you ever be in that situation, a family court would have the final say.

In any case, it is better to have some money in the bank and use it in case of a financial emergency -- rather than having no savings at all -- because you might not receive social benefits immediately.

As as side note, there is no way to simply transfer your money to another person (for example, back to your father) to "protect" it from the government. If you apply for social benefits, they will ask you specifically if you gave away large amounts of money in the past.

Losing money on the transaction due to some taxes (I have no idea about this)

Taxes that could play a role

This is called Schenkungssteuer ("gift tax") in Germany. It depends on the relationship between the donor and yourself. If your father is giving money to you (his child), there is a tax-free amount of EUR 400,000 (see § 16 ErbStG), so tax won't be an issue if this is a one-time transaction.

The EUR 400,000 tax-free amount is for a time span of 10 years - ten, instead the usual one year for tax-free amounts. And it is not about gifts from your father, but about the sum of gifts given to you, as you would pay tax for the money that exceeds the limit. So for EUR 500,000 in 10 years, you would pay tax on EUR 100,000 in the year it exceeds the limit.

If you choose to invest (part of) the money as suggested above, you would have to pay capital gains tax. But again, there is a tax-free amount per year called Sparer-Pauschbetrag. Make sure to set up a proper Freistellungsauftrag at your bank, so they won't accidentally deduct taxes.

Answer 3

Given the information you have provided, it seems that your biggest problem is storing your money. Taxes shouldn't be a concern for €10,000 as you will most likely be exempt under the laws for donation or gift tax. The taxation on gifts is usually for larger amounts. Bureaucracy should be nothing more than receiving €10 unless you are receiving cash, which might draw some unwanted attention. Your girlfriend's family's debt shouldn't be a problem as far as my legal knowledge of any country goes.

If it were €100,000, the situation would be a bit different. You would need to take taxes into consideration and your bank might pry a little bit further - nothing to worry about if the transaction is legitimate.

Back to the problem of storage, which is really your problem - you can choose to store your money safely in a bank account, or you can choose to invest it. On the safer side, you can look at a call deposit/certificate of deposit or fixed deposit account and choose the one that pays the highest interest. Alternatively, you can choose to invest in the stock market or whatever suits you, but accept that you are likely to lose some money.

Answer 4

To extend the (excellent) answer from Lucas. Your girlfriend's mother has no claim on your assets at the moment. Assuming your girlfriend lives longer than her mother, your girlfriend will by default inherit everything her mother has including the debts (possibly shared with any siblings of course). However your girlfriend can choose not to accept the inheritance, in which case she doesn't inherit the debts - but she also doesn't get to keep that favourite picture from when she was little. That is a decision your gf will have to make when the time comes.

(Taking the favourite picture anyway would be theft ... but it's very unlikely anybody would know.)

Answer 5

Adding to Lucas Raphael Pianegonda's excellent answer:

1. While a bank account is a secure way to store money, you might want to consider something that has a bit of interest. Assuming you have a little financial safety already, you could put it into a savings account that will yield some interest for a little less flexibility. You might not be able to access the money on a day's notice but unless you need that kind of access, it will save the value you lose to inflation otherwise.

With a fixed expectation about security, there are still varying trade-offs between interest and flexibility:

• Regular bank account: Provides zero interest and full flexibility.
• "Tagesgeldkonto": Provides a bit of interest, if you shop around: Up to 1%, often limited to 1 year and new customers. If you need your money "today", that's a problem, but "tomorrow" works out.
• "Festgeld": Provides better interest, usually. However you lose the interest for one year, when accessing the money.

Nowadays, every bank accountant will try to talk you into a managed fond (good ones might mention unmanaged or ETF). This goes as far as them claiming they don't offer "Festgeldkonto". Simply ask for the guaranteed effective interest after all costs are covered. Then ask for the risk associated to stock markets and the low-interest policy of EZB that lasted for about a decade now. Ask for the risk associated to a hard Brexit. Finally ask for the bank account you originally asked for. If they still don't offer what you want ask for the "Beratungsprotokoll" and how they arrived at that risk assessment. Leave. (Been there, done that, multiple times, multiple banks)

The above approach is about as risk-averse as Lucas Raphael Pianegonda's (which I've read as "Regular bank account") but may pay off in the long run. Don't worry too much about "missing the best way". Everyone misses that, because no one can predict, which penny stock will shoot up most. Stocks will pay off more in the long run but only if you don't invest "shortly" before a bubble blows. Wait at least until after it has blown. Take the rising flank after the falling has passed. There's a reason we had all time highs not long ago and that reason isn't because the financial sector has learnt its lesson.

4. While inheriting debt can easily be avoided, there are other mechanisms to mention:

   • If your girlfriend's mother (GsM) falls ill and needs on-going treatment, the social service will cover that (because your GsM can't, because she's in debt). However they are entitled to try and get the expense back from close relatives, i.e. your girlfriend. While your money should be safe, money in a shared account might be subject to this. It's safer to have separate accounts with verifiable sources of money.
   • If your girlfriend is registered at your GsM's address, the two can be considered a "Zugewinngemeinschaft", i.e. covering expenses for each other is expected in context of e.g. Hartz IV. In a fringe case of the social service becoming aware that you live with your girlfriend despite her being registered elsewhere, it's imaginable (maybe unlikely but still) that you'll be considered part of the same "Zugewinngemeinschaft". In this strange and constructed case, your GsM won't get Hartz IV and you'll be obliged to cover her expenses. However there are "Freibeträge" for this, too. I remember something like 1,000€ in savings per year of age, i.e. assuming you're 18 and have less than 8,000€ prior to getting the 10,000€ you're safe. However, it's more secure for your girlfriend to be registered at her correct address.
   • If your GsM has given your girlfriend any valuable gifts or money lately, she might be compelled to ask for it back in order to cover her own debts. This is in the context of private bankruptcy. It'd be mandatory for her and your girlfriend would have to give it back, if the conditions of certain laws are met.

Answer 6

Regarding inheritance of debt, that is not possible legally. At least not in Sweden and I assume that goes for the rest of the EU too (and the rest of the civilized world ;). The creditors will of course take their cut of the inheritance but if that does not cover the debts, the remaining debt will not never ever get passed on to siblings/relatives/children/...