Reversion clauses serve to protect donors from undesirable developments, for instance if the property would be jeopardised by the recipient's divorce or indebtedness.
Purely suspensively conditional reversion rights generally do not reduce the tax value of the gift, since the recipient initially becomes the unrestricted owner.
If the reversion event actually occurs later, the gift tax can be retroactively corrected under certain conditions, making careful contractual drafting essential.
Common grounds for reversion include the recipient predeceasing the donor, the recipient's insolvency or foreclosure against the property, and a sale without the donor's consent.
For in-rem security, a priority notice of reconveyance (Rückauflassungsvormerkung) is often entered in the land register, protecting the donor against the property having already been encumbered or sold elsewhere in the event of reversion.
Please note: the content of this article is provided for general information only and does not constitute legal, tax, financial or investment advice. It is not a substitute for individual advice from a licensed lawyer, tax adviser or financial adviser. Despite careful research, we accept no liability for the accuracy, completeness or currency of the information provided. For specific legal or tax questions, please consult a qualified professional adviser.