Technical article

Germany: Does Germany Tax a Trust I Set Up Abroad for My Grandchildren?

Germany asks about control and about where the trust is run.

By Neil Solomon · 4 min read

Imagine a grandfather who has lived in Germany for decades. He plans to set up a trust under the law of another country for his grandchildren, who live in Spain and Portugal. He asks a simple question: does Germany still reach it, since none of the children or grandchildren live there?

The sources point to a plain answer. Germany asks about control and about where the trust is run. It asks much less about where the heirs live.

Germany sees a pool of assets, not a trust

Germany is not listed among the countries that signed the Hague Trusts Convention, and its civil law does not recognise a trust. Its tax law handles the idea in two ways. A trust is either see-through (transparent) or sealed (opaque).

A foreign-law trust whose purpose is to bind assets counts in the statute as a foundation transfer. The trust itself is the one that owes the tax, and the person who set it up is also named as a taxpayer.

The test is control and place of management

A trust whose place of management and whose seat are both outside Germany is called a foreign family foundation. A family foundation is one where the settlor, relatives and descendants hold more than half of the benefit. Its income is attributed each year, even with no payout, to a settlor who lives in Germany. If the settlor does not, the income goes to German-resident beneficiaries in proportion.

So for the grandfather in this example, the grandchildren in Spain and Portugal are not the reason Germany looks. His own residence is. The heirs' residence decides who is taxed only when the settlor does not live in Germany.

The same rule means a trust moved into Germany, in management or in seat, becomes a German body and leaves the foreign category. A beneficiary who moves to Germany after the settlor has died has been taxed on distributions in a federal court case.

A way out of the yearly attribution

The attribution has an escape. It applies where the assets have legally and in fact been removed from the control of the settlor and the beneficiaries, and information is exchanged with the other country. In December 2024 Germany's federal tax court ruled that the escape cannot be limited to trusts in the EU and the European Economic Area, so it now applies to a trust in any country. The ruling opened old assessments to this argument. A draft of 18 November 2025 from the finance ministry would narrow the rule again to low-taxed income. It is a draft only.

What is taxed at the start

The entry gift is where the sources split. The statute names the tax class of the most remote beneficiary only for family foundations "in Germany." German practitioners, in a tier C law firm article, say a gift into an opaque foreign trust falls in class three. Class three carries an allowance of EUR 20,000, then 30% up to EUR 6 million and 50% above. A grandchild in class one would have an allowance of EUR 200,000 and rates of 7% to 30%. That is a large gap, and it rests on one view.

You might say: "My grandchildren are not German, and neither is the trust. This is none of Germany's business." Many families expect that, and for heirs alone it can be true. The reach comes from the settlor's residence, and for five years after a German citizen leaves, from citizenship as well. The next article in this set covers those five years.

You could ask a short list of questions before setting anything up. Who keeps control, and could that make the trust see-through? Where will it be managed? Where does the settlor live in each of the next five years?

The people this touches are the settlor, the trustee, and each grandchild, whose own country may add a second tax on a payout.

If you have set up a trust from Germany, what did your adviser ask first? Share it here, because it may help another family.

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