“Gifts of money to children, on the other hand, do not require approval,” says the experienced family lawyer. It does not matter whether it is 100 euros or 100,000 euros. The savings contracts that are widespread in practice, in which parents or grandparents regularly pay in 50 or 100 euros per month for their offspring via a savings plan, are therefore completely unproblematic.
If the savings account is in the child’s name, parents are not allowed to simply help themselves
With such monetary gifts, the savings account is in many cases in the child’s name. And that has consequences. “A gift is a gift and the money in the account belongs to the child,” explains lawyer Becker. Parents are therefore not allowed to dispose of the money as they please and certainly not spend it on their own wishes – that would be a criminal offense.
“The custodians are only allowed to exercise what is known as property management in the interests and wellbeing of the child,” explains Becker. That means: The legal guardians may invest the money for the child, but they have to “act like in their own affairs”, as lawyers call it. So proceed as you would with your own money.
Save safely: with fixed-term deposits, reputable stocks or funds
This principle also has consequences for the types of investment: secure products with fixed interest rates such as a savings account are perfectly fine. A portfolio with reputable stocks or funds is also fine. Windy investments and speculative transactions, on the other hand, are taboo. Where to draw the line naturally depends on the individual case.
In any case, parents should keep an eye on the child’s money so that they can counteract any losses in good time. This is especially important if the child has large sums in the account. “There have already been cases in which parents have been sentenced to compensation for having largely destroyed the children’s assets through high-risk transactions,” warns the lawyer.
In principle, the child determines how it is used
Because the money belongs to the child, they can basically determine what happens with it. How much say it actually gets is of course also a question of age. “As long as the child is still a minor, it goes without saying that the parents decide whether to give in to their wishes,” explains Becker. This means that if the child wants to buy a new cell phone with their money, the parents can forbid it. Instead, you are not allowed to buy a bike that the child does not want to have.
“Basically, the child’s assets are not there for their everyday needs, but the parents have to finance the maintenance of their children themselves,” says expert Becker. Whether it’s a school trip, winter coat or a computer for school – parents are not allowed to pay for such things from the child’s account. This applies even if the child agrees, because: “Minors have no or only limited legal capacity and are not allowed to decide something like this themselves,” says Becker.
Even if the parents are financially in a tight spot, they are not allowed to simply access the children’s money, not even on loan. It doesn’t matter whether the offspring agrees to the loan or whether they have even offered it themselves. “Anyone who wants to borrow money from underage children has to have this approved by the family court and needs a proper loan agreement,” explains the lawyer.
Always invest money separately
Even if this all sounds pretty complicated, Becker recommends that you keep the child’s money and that of the parent’s money neatly separate and, ideally, open a separate account in the child’s name. “Parents are obliged to properly manage their money in the context of asset management, and in most cases this also includes separate accounts,” explains the expert.
Interest and other income: Most of them are tax-free
If the child’s money is invested by the parents, it will of course receive interest or other income. “In principle, every child has their own savings allowance of 801 euros,” says lawyer and tax advisor Markus Deutsch. Aktiv-online.de provides information on how other tax-deductible allowances can be used: What does tax allowance mean? Tips and tricks for employees.
In the case of a classic savings book, however, this sum is hardly ever reached at present due to the low interest rates: If the bank pays 1 percent interest per year, for example, more than 80,000 euros would have to be in the account in order to achieve the saver tax credit. The usual investments for children are therefore completely tax-free in the vast majority of cases due to the saver tax credit.
For larger investments: Around 10,000 euros are tax-free
The situation is different, however, if the child’s assets regularly yield larger payments, which in practice is particularly the case with rental income from real estate. As with every citizen, the subsistence level is tax-free for every child. “In total, the child can have around 10,000 euros tax-free income per year through various exemptions,” explains Fach Deutsch.
High income: This can have an impact on social benefits
For tax reasons alone, it can be worthwhile to transfer real estate or other profitable assets to your children or grandchildren at an early stage. “This also allows you to make optimal use of the tax exemptions for gift and inheritance tax, which can save a lot of money, especially with larger assets,” explains the tax expert. You can find an overview of how high the tax can ultimately be at aktiv-online.de: Inheritance tax: Which heirs have to pay how much.
The best way to go about this, however, is quite complicated, especially as inheritance regulations may also have to be taken into account for large assets. If the child has significant income of their own or a lot of assets, this may also endanger the non-contributory insurance in the health insurance or the right to certain social benefits such as student loans. “Before children receive larger assets, you should definitely seek advice beforehand so that the transfer can be optimally designed from a tax and legal perspective,” recommends Deutsch.
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