What constitutes a Gift (Schenkung)
Under a gift contract, a donor uses his own assets to enrich a contractual partner without receiving money or any other kind of payment and/or consideration in exchange. See § 516 (1) BGB. Fundamental components of a gift contract are the following:
- There are at least two parties to the contract, the donor (Schenkender) and the donee (Beschenkter);
- The asset subject to the gift contract is specified; and
- The parties agree that the transfer is gratuitous.
Consideration is not required.
Formalities
The law distinguishes between the following:
- The hand gift (Handschenkung) and
- The promise to make a gift (Schenkungsversprechen).
Hand Gifts
A hand gift occurs when the donor (Schenkender) transfers something of value from his possession to the donee (Beschenkten), provided both agree that the donee does not need to compensate the donor for the gift. See § 516 (1) BGB. A hand gift of this kind does not have to comply with any formalities.
Promise to make a Gift
A promise to make a gift (Schenkungsversprechen) is legally enforceable only if it is made in writing and is notarized. See § 518 (1) BGB. However, a defect in form is cured by executing performance as promised. See § 518 (2) BGB.
Gift mortis causa (Schenkung auf den Todesfall)
A promise to make a gift made subject to the condition that the donee survives the donor is governed by the provisions concerning dispositions mortis causa. See § 2301(1) BGB. Therefore, it must generally comply with the form of a Will (Testament). However, If the donor executes the gift by delivery of the asset subject to the gift contract, the provisions concerning gifts inter vivos apply (§ 518 para 2 BGB). See § 2301 para 2 BGB. Such execution of the gift requires that the donor has done everything during his lifetime to complete the gift.
Terms of a Gift Contract
Generally, German gift contracts contain the following provisions:
- Description of the asset subject to the gift;
- Agreement that the transfer is gratuitous;
- Whether the donor/donee shall bear the German gift tax (Schenkungsteuer);
- If the donor retains a conditional or unconditional revocation right (Widerrufsrecht);
- If the donor retains a usufruct (Nießbrauch);
- If the gift shall be deducted from the forced share (Pflichtteil).
- If the gift shall be equalized upon the death of the donor if the donee is a child of the donor and the donor has more children.
- Choice of law clause (Rechtswahlklausel); and
- Jurisdiction.
Revocation of a Gift
A gift may be revoked should the donee engage in gross ingratitude by doing serious wrong to the donor or a close relative of the donor. See § 530 (1) BGB.
The heir (Erbe) of the donor only has the right of revocation if the donee intentionally and unlawfully kills the donor or prevents him from revoking. See § 530 (2) BGB.
Nevertheless, if a gift was made in compliance with a moral obligation or in accordance with notions of common decency, the donor is not entitled to revoke the gift. See § 534 BGB. If a gift is linked with a burden (e.g., the care of a grave, etc.), the donor is entitled to have the burden carried out if he has executed the gift. See § 525 BGB.
To the extent that the donor, after fulfilment of the condition, is not in a position to maintain himself reasonably and to meet the maintenance obligation incumbent upon him by law in relation to his relatives, his spouse, his civil partner or his previous spouse or civil partner, he may demand return of the gift from the donee. See § 528 BGB.
The donor and the donee may also agree on a revocation right. The revocation right may be unconditional or conditional.
Commonly, the donor retains the right to revoke the gift if any of the following conditions are satisfied:
- The donee dies before the donor;
- The donee sells or transfers the gift during the lifetime of the donor;
- The donee fails to ensure by marriage contract that the gift is not subject to his/her spouses equalization of accrued gains claim;
- The divorce of the marriage or the registered civil partnership of the donee is applied for both are legally separated for more than 12 months;
- The donee mortgages the gift during the donor's lifetime without the donor's prior written consent or otherwise disposes of gift;
- Insolvency proceedings are opened against the assets of the donee or are rejected for lack of assets or foreclosure in the gift is initiated; and/or
- The donor would be entitled to deprive the donee from the forced share (Pflichtteil).
While an unconditional revocation right is permissable in a gift contract governed by German law, it raises several tax issues and is therefore rather uncommon.
