Technical article

Germany: Gift Tax When the Trust Is Set Up, and Why Class Three Matters

For the foreign trust, German practitioners say the entry gift falls into class three.

By Neil Solomon · 4 min read

Imagine a German resident who wants to give EUR 1 million to a trust under the law of another country, for the benefit of her family. She has read that Germany taxes gifts to children at modest rates. She wonders whether the trust gets the same treatment.

The sources suggest it may not, and the reason is the tax class.

The setup is a gift in the statute

German inheritance and gift tax law names a transfer into an asset pool under foreign law, whose purpose is to bind assets, as equal to a transfer into a foundation. A trust fits that description. When the trust is set up while the settlor is alive, it is a gift. When it is set up by will, it is an inheritance.

The pool itself is the receiver and owes the tax. The person who formed or funded it is named as a second taxpayer. The tax arises when the pool is formed or endowed.

One exception matters. If the settlor keeps free power over the assets, such as the right to revoke them or take them back, the trust is see-through. There is then no gift at setup, and the assets stay in the settlor's estate.

Why the tax class matters

Germany sorts receivers into three classes by their relationship to the giver. Class one includes a spouse, children, grandchildren and parents on a death. Class two covers siblings, nieces and nephews, in-laws and a few more. Class three is everyone else.

Each class has its own allowance and rates, from the statute's table.

For the foreign trust, German practitioners say the entry gift falls into class three. That is the view in a law firm article, which is tier C. The statute's rule that looks through to the family member furthest from the settlor is written for family foundations "in Germany," and how it reads for a foreign trust rests on practitioner commentary.

What that means in numbers

These are examples, in euros, before any relief or credit.

The gap is large. It rests on a single reading of one clause, and a German tax office may see it differently.

Other things to know

Gifts and inheritances from the same person within 10 years are added together, with earlier tax credited. Every taxable acquisition is reported to the inheritance tax office within three months, and the donor reports lifetime gifts too. The tax applies when the giver or the receiver is a German resident, or a German citizen within five years of leaving. For anyone else, only German assets are taxed.

You might say: "A trust is just a way of giving to my own family. Germany ought to treat it like a gift to them." That is how many people see it, and a tax lawyer in Germany might agree for the see-through case. For a sealed trust, the sources describe the pool as the receiver, not the family.

You could look at how a German tax office might read the class. You could also look at whether keeping some power over the assets, and so a see-through trust, suits what the family wants.

The people this touches are the settlor, who is the second taxpayer, the trustees who handle the filing, and the children and grandchildren, who see the trust's share shrink before it reaches them.

If you have set up a gift from Germany to a trust abroad, what class did the office give? Share it here, because someone may need to hear it.

Figures are estimates for planning, based on public data. Date read: October 2026.