The relationship between gifts of real estate, reserved usufruct, and the duties regarding parental maintenance is one of the complex issues in family and social law. In particular, when children receive a property from their parents long before the parents become dependent on maintenance, the question arises as to the extent to which gifts with a reserved usufruct must be reversed if the parents later require maintenance and the children are called upon by social welfare authorities to contribute to the financing of parental maintenance. A recent decision by the Federal Court of Justice (BGH, Decision of May 27, 2020 – XII ZB 364/18) clarifies how to handle such situations and brings clarity to the tension between the law of gifts and the state’s recourse to children obligated to provide maintenance.
Facts and Basis of the BGH Decision
In the underlying case, a mother had gifted her self-occupied property to her daughter as early as 2004, while reserving a lifelong, non-transferable right of residence and the corresponding obligation to bear ongoing costs. Years later, the mother became in need of care and relied on social assistance. The competent social authority sought recourse against the daughter for parental maintenance in accordance with § 1601 BGB. The question arose whether the daughter was obliged to reclaim the property for the purpose of funding parental maintenance under § 528 BGB (reclaiming a gift due to the impoverishment of the donor), in order to make funds available for parental maintenance.
Legal Background
Civil Law Reversal of Gifts
According to § 528(1) sentence 1 BGB, a donor may reclaim a gift if, after the execution of the gift, he or she is unable to provide for his or her reasonable maintenance. However, the right of reclaim is considerably restricted by existing rights of use—particularly a usufruct or a right of residence. In such cases, the recipient is only obliged to return the value that remains after deducting the value of the reserved rights.
Recourse under Social Assistance Law
According to § 94(1) sentence 1 SGB XII, any maintenance claims of the person in need of assistance are transferred to the social welfare provider. For a long time, it remained unclear whether this led to an obligation to liquidate gifted assets by way of reclaiming the gift to finance parental maintenance.
Reasons for the Federal Court of Justice’s Decision
The BGH clarifies that children who are called upon to pay parental maintenance can generally only be expected to use actually available, accessible assets to fulfill their maintenance obligations. If a property is owned by the child but encumbered with a lifelong right of residence or usufruct in favor of the parent entitled to maintenance, the child lacks economic control over the property. In such cases—the BGH states—there is no legal obligation for the child to reclaim the gift from the mother for the purpose of satisfying maintenance.
In particular, the BGH emphasizes that a reserved right of residence in practice leads to an economic devaluation of the property, and realization of the asset—such as by selling or renting it—is not possible while the usufruct or right of residence exists. Only after this right ceases (for example, after the beneficiary’s death), would the child, as owner, be able to fully dispose of the property. Before that time, the child cannot reclaim the gift, nor can he or she be required to initiate such steps.
No Duty to Reclaim
The BGH affirms that social maintenance obligations cannot be used to retrospectively circumvent family transfers that were made in consideration of legitimate self-interest—like the parents’ need to live in their own home for their lifetime. Moreover, the impoverishment required for a reclaim under § 528 BGB refers to the donor’s asset situation, taking the reserved rights into account. Thus, the daughter owes no maintenance from a fictitious asset that she cannot actually realize.
Significance for Practice
The decision strengthens planning certainty in intergenerational asset transfers, especially with regard to so-called anticipated succession, as long as the parents retain comprehensive rights of use. If property transfers are arranged with a reservation of usufruct or right of residence, this arrangement, in principle, offers protection against subsequent reclaim for the purpose of parental maintenance. As a result, properties gifted with reserved usufruct retain their status as non-usable assets—at least as long as the parents’ rights continue to exist.
Impact on Corporate and Tax Issues
In terms of optimizing entrepreneurial and private asset transfers for tax purposes, the ruling is significant beyond family law. Especially in the case of transferring residential properties or corporate shares, a careful arrangement of reserved rights of use is of major importance. For investors, family offices, or high-net-worth individuals, the planning of intergenerational transfers can now be carried out in a more calculable manner by factoring in future maintenance obligations.
Conclusion
With its decision, the Federal Court of Justice clearly delineates the possibilities of recourse against gifted properties with reserved usufruct for maintenance purposes and underlines the protection of actual life needs concepts within the family. The close connection between gift, maintenance, and social welfare law, however, requires a careful individual assessment of each case’s circumstances and legally sound structuring of contractual arrangements.
Should any legal questions arise in connection with asset transfers, reserved rights of use, or the enforcement or defense against maintenance claims, the experienced team of MTR Legal Rechtsanwalt is available as your point of contact for a comprehensive legal analysis.
