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Inherit or give as a gift 7 rules for transferring real estate.

Wise gifting can save on taxes. © Unsplash Are you thinking about giving away your house or apartment to relatives or friends? Or would you rather bequeath your property? Both ways have advantages and disadvantages

Rule 1

The decision whether to give away or bequeath your property should not be made on a gut feeling. For example, the amount of your assets plays an important role. If you have a large estate, it is usually better to pass on your property to the next generation during your lifetime, i.e. to give it away. In this way, you can save a considerable amount of tax – especially if you skip a generation in the process.

Rule 2

Is it about your family home, in which you live together with your husband or wife? And your spouse is to get it? Then the rule of thumb is: give it away instead of bequeathing it! Because in the case of owner-occupied real estate, the gift to the spouse is completely tax-free, no matter how much the house is worth and no matter whether one gives the other the joint house in whole or in part.

Rule 3

When it comes to real estate in which you do not live together with your loved ones, things get more difficult. You can gift your unmarried partner, your foster children or other relatives or friends, piece by piece. Depending on the degree of relationship to the donee, a new individual tax allowance is available every ten years. Gifts to spouses are tax-free up to 500,000 euros, to biological children up to 400,000 euros, to grandchildren up to 200,000 euros, to parents and grandparents up to 100,000 euros each, and to all others 20,000 euros. In other words, the more distantly related you are, the more likely it is to be worthwhile to make a gift of part of your estate every ten years.

Rule 4

If the house or condominium has not yet been paid off, it is better to wait. Whoever inherits or receives a property as a gift also assumes the debts. If in doubt, bequeath – because the heir still has the chance to disclaim the inheritance. If the inheritance or gift goes to a minor, the family court has a say in deciding if the house or apartment is to be sold after the inheritance has been accepted, or if a mortgage is to be taken out on it.

Rule 5

Do you need the home for retirement? Then prefer inheritance to gifting. After all, your own four walls are important in the event of occupational disability or to provide for your old age. Tip: If you still want to make a gift during your lifetime, register a so-called usufruct. Then the house already belongs to the donee, but you can continue to live there for as long as you live and even rent out the house.

Rule 6

Either way, if you decide to leave an inheritance during your lifetime, you should include the following in a will or a contract of inheritance stating who is to inherit your house or apartment.

Rule 7

Do you own a property in abroad and would like to bequeath or give it away, you should in any case seek legal advice from a specialist in inheritance law, a tax advisor or a notary public. or a notary.

These 15 rules should be followed by real estate buyers


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I. When does a gift make more sense than an inheritance?

When you have something to give away

Those who have assets usually consider whether to give them away during their lifetime with warm hands or only after his death to his heirs. This is because everything that is your property can also be given away, i.e. transferred by way of anticipated inheritance, for example

  • Sums of money,
  • valuables such as jewelry, paintings, stamp collections,
  • securities,
  • houses and condominiums,
  • undeveloped land (building plot),
  • apartment buildings or parts thereof (for example 1/2, 1/3 or 1/4)
  • agricultural holdings,
  • handicraft businesses,
  • free-lance practices (medical practice or lawyer’s office),
  • other businesses as well as participations in a business (for example, a limited liability company share or a limited partnership share), etc.

You can retain all or part of the income, such as rental income (usufruct) or, in the case of real estate, a housing right. However, please note that in the case of real estate in particular, but also in the case of capital assets, the spouse often has co-ownership. Without his or her consent, you may not dispose of it on your own. Even if what you want to give to another person belongs to you alone, you may only be able to dispose of it effectively with the consent of your spouse. This is always the case if practically all of your assets are involved.

It all depends on the motives

The main reasons for what is known as anticipated succession are the desire to

  • to support one’s own children on the occasion of their marriage or the founding of a family, for example, in the purchase or construction of a house. Or it is a question of the child becoming economically independent, for example by providing the start-up capital for a business. This is probably the most common case;
  • providing for relatives, for example a child in need or ill, but also a brother or sister, with their own living space, rental income or investment income;
  • to provide for the non-marital partner before death and thus avoid future disputes with relatives;
  • Gift and inheritance taxInheritance tax Gift mixed – to save by exhausting the allowances in 10-year intervals, or to save income tax by distributing the assets and thus the taxable income;
  • but also rewarding the contributing relative for services rendered and providing for his or her retirement.
  • Sometimes it is also a matter of making early to give poorif, for example, you want to avoid claims to a compulsory portion that could be asserted by illegitimate children or children from another marriage. Here, too, there is a 10-year time limit.
  • However, it can also make sense to distribute the estate during the lifetime of the deceased if the aim is to avoid disputes between the future heirs.
  • It is also conceivable in the event that, for example, a homeowner can no longer bear the burdens or finance a required major repair because his or her income is insufficient. Here, too, a gift, for example combined with a lifelong right of residence, can be the solution.

But: Depending on the motive, different types of donation come into question. For one thing, not everything is a gift that you would describe as such. This is because a gift in the legal sense presupposes that no consideration is given for the transferred object and that both parties are aware of this. In practice, therefore, pure gifts without any consideration tend to be the exception. In contrast, the so-called mixed gift is widespread, when the value of the donated object is higher than the consideration.

A father transfers to his son a residential house at a price of 50% of the real value because the father needs the amount of money to pay into a life insurance policy (for his own retirement provision). This transfer is partly a gift and partly a purchase, a mixed gift.

In this case, only half of the house is a gift. On the other hand, not every free gift of assets is a gift in the legal sense, so that quite different legal consequences are triggered when you transfer assets. You should therefore obtain precise information in advance – regardless of what you intend to do. Otherwise, you will trigger consequences that you probably did not want.

You transfer your house to your daughter and tacitly assume that she will take care of you in your old age. Then you have given away your house and must reverse the gift if the social welfare office has to pay nursing home costs for you within 10 years of the gift. You transferred a house property to your son because you thought he would have to compensate for this gift in any case in relation to his siblings. However, this is not readily the case without a specific agreement.

It therefore depends very much on your individual situation if you want to transfer assets during your lifetime. For example, it plays a major role whether the children you are considering have siblings or whether you would perhaps like to consider only your biological children but keep the child-in-law out of the equation. Tip When it comes to larger assets, don’t do without expert advice, especially since you will have to consult a notary in any case when transferring real estate. Make it absolutely clear what your personal motives are. Then, when drafting the contract, for example, things such as an equalization obligation may or may not be taken into account in the subsequent division of the estate.

II. What types of gifts are there?

2.1 The normal gift

When does this type of gift make sense?

Do you simply want to do something good for someone or do you simply want to give certain assets that are particularly close to your heart to a certain person during your lifetime in order to keep them out of the inheritance distribution. This is the normal case of a gift. In other words, the donor and the donee agree that a certain asset will change hands free of charge.

A widow who is going into a nursing home and has to dissolve her household wants to give her friend a collection of Meissen porcelain figurines. She knows that her heirs have no use for it. A mother wants to give her daughter various valuable pieces of jewelry during her lifetime so that there will be no trouble later with her daughter-in-law after her death.

How does the donation work?

In everyday life, the donation is carried out by handing over the item from the owner to the recipient – always provided that the recipient also wants the item. This is a so-called gift by handwhich takes place informally through actual execution. If, on the other hand, the widow has promised her friend or the mother of her daughter, for example, only in a letter to give her the jewelry for her next birthday, no effective gift has yet been made. The written commitment in the letter is not sufficient. The mother would theoretically have to have this promise notarized (§ 518 Paragraph 1 Sentence 1 BGB). The potential donor can now change his mind, he was not yet obliged to do anything. Important: If there is a risk that the donor will die before the transfer takes place, you should therefore choose a different type of gift. Read about the options available here below.

If you want to transfer real estate:

Here the way to the notary is essential. So if a condominium, a house or a plot of land is to be given away, a notary must in any case certify the gift contract. This applies to all land transactions. You can also give something away and still reserve certain rights. For example, you can have the usufruct registered in the land register for a rented house that has been given away, either with regard to all the income or only part of it (so-called quota usufruct). This means that during your lifetime, for example, you can continue to have the rental income transferred to your account even though someone else is entered as the owner in the land register.

What are the effects of the gift under inheritance law?

If heirs are disadvantaged by the gift

An equalization obligation among descendants of the donor, i.e. in particular among siblings, exists by way of exception. A settlement must only take place if the donor stipulated this at the time of the gift. In this case, the gift must later be offset against the inheritance share of the donee after the death of the donor. Depending on what is intended, you should make a corresponding declaration – preferably in writing for reasons of evidence. However, notarization is not required unless real estate is being given away. The same applies to offsetting against the compulsory portion (§ 2315 BGB): Only if an imputation is wanted by the donor, it comes to it. However, the offsetting against the compulsory portion then takes place not only among the descendants, but also among other beneficiaries of the compulsory portion (e.g. parents, spouses). If the donor dies within 10 years of the gift, those who now have a claim to a compulsory portion can file a so-called supplementary compulsory portion claim in addition. This means that the compulsory portion is calculated not only from the estate left behind, but from the estate plus the value of the item given away (§ 2325 BGB). But: the value of the given away object is reduced by 1/10 per year that has passed since the gift. After 10 years the gift is not taken into account at all. If the person asserting such a claim to a supplement to the compulsory portion has himself received a gift from the donor, this gift will be offset against the claim (§ 2327 BGB): e.g. the father, who has died, has not only given a house to his wife, who became sole heir, but also a larger sum of money to his daughter. In this case, the 10-year time limit and the depreciation rule, according to which the value of the gift decreases per year, do not apply. This means that this gift must always be offset against the claim to a supplement to the compulsory portion. In the case of gifts between spouses, the 10-year period does not begin to run until the dissolution of the marriage, usually the death of the spouse (Section 2325 (3) of the Civil Code). Therefore, such gifts will almost always have to be taken into account at their full value. However, even if nothing is to be compensated, the gift could still be considered for reasons of misuse under certain circumstances.

If spouses make a gift to each other

If, for example, the husband, as the sole breadwinner, pays the annuities for the joint house, he does not make a gift to his homemaking wife. In most cases, this is a so-called marriage-related benefit that helps to improve the wife’s economic situation. The same applies to all other gifts of property that serve to compensate the economically weaker spouse (see OLG Munich, judgment of July 20, 2001, NJW-RR 2002 p. 3). Legally, the typical consequences of a gift do not occur here. For example, there is no claim for restitution on grounds of ingratitude. Exception: If the gifted If the spouse who receives the gift is later exposed to claims to a compulsory portion, the marriage-related gift will still be legally assessed as a gift. This can be avoided by means of an agreement.

When the transfer of assets is a kind of start-up aid

Anyone who transfers assets to their children must be clear about their intentions. If you want to provide your daughter with such an endowment on the occasion of her marriage (e.g. a larger sum of money for the purchase of a property), there is in principle an equalization obligation among the descendants under section 2050 (1) of the Civil Code. Exception: You have expressly excluded the obligation to equalize. Tip It is best to find out what distinguishes a normal gift from an endowment and consider carefully, based on your individual situation, whether it is better or worse for you to declare the gift this way or that. Also, keep in mind that with furnishings, there is no obligation to return the item even if the donor has an emergency need. If you are concerned that you may one day be forced by the social security office to reclaim your gifted assets, you should declare the gift in writing to an Equipment declare. If necessary, such a declaration could also be combined with an exclusion of the obligation to compensate. .

2.2 Gift on death

When does this type of gift make sense?

If you want to give something away, i.e. take it out of the estate, but keep it in your possession until your death, you can choose the so-called gift on death. For example, if you want to give a valuable painting or jewelry to a specific person outside of your estate, you have several options.

How does this type of donation work?

Either you make a gift promise, which must be drafted just as formally as a will. It is therefore essential to observe the formal requirements for a private will. Or you can make the gift during your lifetime by agreeing with the beneficiary on the transfer of ownership – preferably in writing for reasons of evidence.

A testator wants to bequeath a certain painting to a good friend, but wants it to hang in her apartment until her death. She gives the friend a written declaration of donation stating that he has become the owner of the painting.

Since in the second variant it is now the property of another person, the donor may even be liable for damages if, for example, the thing is damaged through his fault. However, this could be prevented by excluding any liability – ideally in writing. In the case of land, the donation must be notarized and entered in the land register.

What are the inheritance law consequences of the gift on death?

In this case, the gift is not included in the estate. The donee has a direct claim to surrender against the heirs. He can dispose of it immediately and has nothing to do with the division of the estate.

If the recipient should die before the donor:

In this case, his heirs would be able to demand surrender of the gifted object upon the death of the donor. However, the donor can exclude this. To do this, he must also agree with the donee on the condition that the donee survives the donor. Then the gift falls back into the assets of the donor and thus also into his estate. However, a gift on death is also subject to the restrictions of the right to a compulsory portion. This means that the beneficiary of the compulsory portion also has a claim to a supplement to the compulsory portion.

2.3 Gift by Contract in Favor of Third Parties

When does this type of gift make sense?

If you want to retain the possibility of disposal until the end, this further possibility of transferring assets outside the estate comes into question. Lawyers refer to this as a contract in favor of third parties (Section 328 (1) of the German Civil Code).

How does this type of gift work?

In this case, the offer made by the donor to conclude a gift contract only becomes effective upon receipt by the donee. The offer can also be received by the donee after the death of the donor. If the donor has granted power of attorney to another person, this person can still make the declaration after the death. The power of attorney does not necessarily expire with the death of the donor (§ 672 sentence 1, § 168 sentence 1 BGB). The authorized representative can therefore still accept the donee’s declaration of acceptance now. In this way, the gift contract comes into effect after the death of the donor.

Create your individual gift contract now

This procedure by means of a contract in favor of third parties is recommended if you, as the donor, wish to reserve the right to reverse the intended donation until the end without great effort. This is because powers of attorney can be revoked at any time. If you are interested in this option, it is best to go to your bank or savings bank. Credit institutions have forms on hand that you can use to prepare such contracts relating to savings accounts or securities accounts. Typical cases are the life insurance contract Life insurance as an estate settlement with the designation of a beneficiary, but also the agreement with your own bank to have a savings account balance paid out to a specific person after his death. The same applies to current accounts or securities accounts. Building society contracts can also be provided with the clause that the credit balance is to go to a specific person upon the death of the building society customer. Formal requirements do not have to be observed. They can also be made verbally. Banks or building societies, however, require the written form. And insurance companies are obliged to issue an insurance certificate for the concluded contract and to hand it over to the policyholder.

If your personal circumstances have changed

After concluding such a contract, do not forget to change it again if your personal circumstances have changed, for example due to divorce! Without a written revocation of the beneficiary it remains so. The once named beneficiary will receive the benefit (see OLG Hamm, judgment dated March 13, 2002, VersR 2002 p. 1409).

Inheritance law implications of the gift in favor of third parties

This gift is also not included in the estate, but it does involve a risk for the donee. The heir can revoke the gift as long as it has not been accepted by the donee. This case is conceivable if the donee does not know about his good fortune or only learns about it later after the revocation. Tip If you want to prevent the revocation of the gift by the heirs, it is best to instruct your insurance company or credit institution to pay the amount directly to the donee and at the same time waive the right to revoke this instruction. Credit institutions have forms for this purpose that allow you to dispose of your account for the time of death without a revocation reservation. Of course, this does not prevent you from disposing of the balance during your lifetime, as far as you wish. If you have used it all up, the gift is no longer necessary. You do not need to tell the donee about your original good intentions.

III. When can a transfer of assets during life be reversed?

In the event of an emergency need on the part of the donor

A reclaim is always possible if the donor can no longer provide for his own maintenance or cannot fulfill legal maintenance claims against relatives or his spouse (§ 528 BGB). This reclaiming often takes place via the social welfare office. Elderly people in particular, whose old-age pensions are often insufficient to cover the high costs of a nursing home stay, must indirectly reclaim the assets given away. Reclaiming takes place even if the donor has died in the meantime (BGH, ruling dated April 25, 2001, FamRZ 2001 p. 1037). However, if 10 years have elapsed between the gift and the occurrence of indigence, there is no longer a claim for restitution under § 529 (1) BGB. This applies even if the donor was already in the home earlier and it was clear that social welfare would have to step in one day (BGH, judgment of 26.10.1999, NJW 2000 p. 728). In the case of gifts of real estate, the question of when the 10-year period begins if the donor has reserved a lifelong right to use the property has long been disputed. This case constellation is relatively common in practice, especially when it involves owner-occupied real estate that is already given away to children during their lifetime for tax reasons. However, in a ruling dated July 19, 2011 (Ref. X ZR 140/10, ZErb 2011, p. 338), the Federal Court of Justice clarified that the time limit of Section 529 (1) of the German Civil Code (BGB) already begins with the conclusion of the formally effective gift agreement and the application for transfer in the land register. Tip If you want to prevent your children, for example, from unexpectedly one day taking possession of the donated assets because the social welfare office wants it that way, you should prevent this as follows. Make an agreement – ideally in writing – according to which the transfer of assets will not be free of charge free of charge. For example, agree on a care obligation in return. Then you have not given anything away. After all, the recipient has to do something. The same applies to other consideration, such as a granted right of residence or a pension payment. However, if the case has already arisen that the assets given away are reclaimed on account of need, the donees do not necessarily have to return the asset as such, as is required by law per se. This may in fact be uneconomical in the case of house properties in which the donees have invested in the meantime. Here it is sufficient if the maintenance need of the donor is covered for example by means of an appropriate maintenance annuity (BGH, judgement of 17.9.2002, NJW-RR 2003 P. 53) – naturally only up to the value of the donation.

If the donee proves ungrateful

You can revoke a gift if the donee proves to be grossly ungrateful to you or a close relative. grossly ungrateful (§ 530 BGB).

Threat to life, physical abuse, serious insult or stubborn refusal of the donee to fulfill a right reserved by the donor, such as a pension payment (BGH, judgment of 5.2.1993, NJW 1993 p. 1577). In the case of a gift between spouses, conduct contrary to marriage is also included.

Tip If you want to save yourself the trouble of having to pay the gross ingratitude of having to prove gross ingratitude, minimize this risk. Agree contractually on a right of reclaim for certain cases. An example of an agreed right of reclaim might be:

  • The acquirer sells the donated item without the prior consent of the donor,
  • the acquirer becomes insolvent (foreclosure, insolvency),
  • in the case of a gift to a spouse: The marriage is divorced,
  • in case of death of the acquirer before the transferor.

In the case of real estate, the right of reclaim can even be secured in the land register by way of a priority notice (BGH, judgment dated June 13, 2002, FamRZ 2002 p. 1399).

Due to misuse of the gift to the disadvantage of a (contractual) heir

Anyone who has already made a commitment about their assets in the event of death by means of a contract of inheritance or a joint will can still dispose of their assets. However, they may only give away parts of their assets within limits. This is because anyone who, as a future testator abusive intent must expect that the donee will have to return the gift to the (contractual) heir after death (Section 2287 of the German Civil Code). Tip If you, as the donor, want to prevent the gift from being misuse from being claimed by the heirs due to misuse, you should formulate the gift agreement accordingly. It is best to agree in writing with the donee that you had a personal interest in the gift. For example, you could agree that the gift should be a thank-you for the care and support services – and of course put the whole thing in writing for reasons of proof, even if it is otherwise a so-called gift by hand. Something like this can also be done later. In the case of real estate, however, notarization is always required.

Because of creditor disadvantage

However, creditors of the donor may also have rights of recovery. If the donor wants to disadvantage his creditors, they have a right of rescission under the Rescission Act. However, this right is generally limited to a period of four years since the gift was made.

IV. What applies if the recipient is still a minor?

Frequently, gifts do not bring any purely legal advantage. Then, according to § 107 BGB and § 1909 BGB, a guardian must be appointed for the conclusion of a gift contract. In the case of property transfers, you even need guardianship court approval (§ 1629 Para. 2 Sentence 1, § 1795, § 181 BGB). Unfortunately, it is not always easy to tell when a purely legal benefit exists. The principle applies that nothing may be given up from the minor’s assets that he or she had prior to the conclusion and no new encumbrance may be assumed.

Create your individual gift contract now

In order to save income taxes, a father gives his minor children a rental house that is still encumbered with mortgages. Although the mortgages can be serviced from the rental income, the children nevertheless enter into an obligation to the lending bank and have not only gained a legal advantage with the gift, but also the obligation arising from the mortgage. In such a case, not only a guardian is sufficient, but a guardian must be appointed by the guardianship court for each minor child. The guardianship court is the local court, in Württemberg the state notary’s office.

V. What applies in terms of gift tax and inheritance tax?

Everything you give away or bequeath to someone else is generally subject to gift tax or inheritance tax. The former applies to transfers of assets during lifetime, the latter to transfers of assets due to the death of a testator. However, the tax rules are largely the same.

5.1 Who has to pay gift tax or inheritance tax and if so – how much?

The person who has received something, i.e. the person receiving the gift, is always obliged to pay the gift tax. In order to determine how much a possible taxation will be, two rules have to be considered:

  1. The donee may be entitled to different personal allowances. If the gifted assets are within the individual tax-free amount, no gift tax has to be paid for the gifted assets.
  2. The donees are classified in different tax brackets, according to which the tax rate to be paid on gifted assets is determined.

5.2 Personal allowances

An allowance determines the value up to which a gift remains tax-free. Amounts exceeding the allowance, on the other hand, must be taxed. The personal allowance depends on the relationship between the donor and the donee. The closer the donee is related to the donor, the higher the tax-free amount. The table shows the tax-free amounts and tax classes for a gift:

Tax class Relationship of the donee to the donor Personal allowance
I Spouse, civil partner 500,000 EUR
Children, grandchildren (whose parents are deceased), stepchildren, adopted children 400.000 EUR
Grandchildren (whose parents are still alive) 200.000 EUR
II Parents, grandparents, nieces/nephews, siblings 20.000 EUR
III All other donees (e.g. aunts, uncles, friends, life partners) 20,000 EUR

The aunt gives her nephew a car with a value of 10,000 EUR. In the case of gifts from an aunt, the nephew has an allowance of 20,000 EUR. Thus, the gift remains within the tax-free amount and no gift tax is due.

The husband transfers a house with a value of EUR 700,000 to his wife. The wife is entitled to an allowance of EUR 500,000 for gifts from the spouse. Since the value of the house exceeds the tax-free amount by EUR 200,000, she must pay gift tax on the EUR 200,000.

Tip The gift tax allowances can be claimed anew every 10 years. It may therefore be worthwhile to make gifts very proactively at ten-year intervals if the assets involved are larger than the allowances cover.

The parents have already transferred condominiums worth EUR 400,000 tax-free to their child in 2007. In 2018, they gift securities worth EUR 380,000 to the child. Since the child is entitled to his tax-free allowance of EUR 400,000 again every 10 years, the gift remains tax-free in 2018.

5.3 Tax classes

If the value of the gift exceeds the tax-free amount to which the donee is entitled, the tax rate depends on the tax class of the donee. These tax classes have nothing to do with the wage tax classes for income tax! In the following table you will find the tax classes for gift tax and the corresponding tax rates:

Value of the gift Tax class
Up to 75.000 EUR 7 % 15 % 30 %
Up to 300.000 EUR 11 % 20 % 30 %
Up to 600.000 EUR 15 % 25 % 30 %
Up to 6.000.000 EUR 19 % 30 % 30 %
Up to 13.000.000 EUR 23 % 35 % 50 %
Up to 26.000.000 EUR 27 % 40 % 50 %
More than 26.000.000 EUR 30 % 43 % 50 %

The husband transfers a house with a value of 700,000 EUR to his wife. The wife is entitled to an allowance of EUR 500,000 for gifts from the husband. At the same time, she belongs to tax class 1 as a wife. She must therefore pay 11% gift tax, i.e. EUR 22,000, on the EUR 200,000 exceeding the tax-free amount.

Out of personal attachment, the wealthy widow would like to give her best friend an apartment worth EUR 350,000. The friend can claim an allowance of EUR 20,000 and must pay tax on the remaining EUR 330,000. Since she is classified in tax class III, she has to pay 30 % gift tax, i.e. 99,000 EUR gift tax.

5.4 Gift tax declaration

The tax office normally only learns about gifts on its own when a property is transferred and the new owner is then also entered in the land register. Nevertheless, the donee and the donor are also obligated in all other cases to report to the tax office and, if necessary, file a gift tax return or informally report the gift. This also applies if you already know that the gift will remain tax-free because the transferred assets do not exceed the tax-free amount of the donee. If the tax office learns of a gift by another means (e.g. because the daughter cannot explain why she has recently been receiving dividends from a share deposit account worth EUR 100,000), it will then check whether gift tax is due and, if applicable, whether there has been an attempt at tax evasion. The assessment period for inheritance tax is four years after the tax office becomes aware of a gift. How To Start An Online Radio Station For Free.

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