Does this donation bring advantages or disadvantages?

The right of residence will always be subordinate to the loan. Which house has a total value of 60K €?! Your girlfriend has few advantages from the deal; she only gets the obligations transferred, for example, if the street needs to be renewed... If [Wohnrecht] and the loan burden the house, you can't even use it as security for your house construction...

As I understand it, my girlfriend will then remain debt-free, or did I misunderstand that?

Debt-free yes, but the obligations of a landlord (maintenance, etc.) actually transfer to the group of three.
I would also be cautious, especially since the house with right of residence probably has a negative value. (depending on the local customary rent and the age of the parents)

As written by DaGoodness, when inheriting to children there are high exemptions because children are classified in tax declaration class 1. That means the house would have to be worth over 1.2 million with 3 children for any tax to be due. And then it is 7% - max. 30%.

When inheriting and the fear of paying taxes, there is a lot of half-knowledge circulating and many people who are not even affected worry and act impulsively.

A house worth 60,000 sounds like an old settlement house from the 50s in a rural area with a backlog of repairs. After deducting the right of residence, the value would probably be zero.

Hello!

In my opinion, your girlfriend should definitely refuse the gift, because it is not a gift but a burden. Securing the house from the State’s claim no longer works anyway, because there is no (residual) value to secure. A house with a market value of 60,000€ and encumbered with 70,000€ has a value of -10,000€, meaning in case of emergency, the State and the bank can argue over who incurs less loss.

On top of that comes the right of residence, which would also have to be deducted from the 60,000€, meaning there is even less value that could be transferred to the children. In addition, the loans are tied to the house, which means if the loans are to be paid off without collateral from the parents’ current salary, the link between the loan and the house would have to be lifted, which a) costs additional money and b) leads to a higher interest rate on the remaining 70,000€.

Then the house would be worth about 60,000€ minus the right of residence, which, depending on the parents’ age (Google "usufruct" and "mortality table"!) as already described, can also approach €0. If the house is also lived in for 20 more years without anything being done to it, the value decreases as well, so roughly about 20,000€ would have to be spent on demolition to "reveal" the value of the freely tradable land again. However, the land value cannot be high if the property including the house is currently valued at 60,000€, ergo: with three heirs, there are - if the data is as stated here - more costs than benefits/value left, no matter how you look at it.

Best regards Dirk Grafe

As DaGoodness wrote, when inheriting to children there are high tax exemptions since children are classified in tax declaration class 1. This means the house would have to be worth over 1.2 million with 3 children for any tax to be due at all. And then it is 7% - max. 30%.

If both parents are still alive and each owns a 50% share of the house, the inheritance will probably be divided quite differently anyway, since the surviving parent inherits a larger share according to the will (he already owns 50% and the other 50% is to be divided). The children may even inherit a share twice and would have to be able to use the tax exemption twice as well, since there are 2 separate inheritance cases. A disadvantage for the children could perhaps be a Berliner Testament, where the surviving parent initially inherits everything except the compulsory shares for the children. Then the second inheritance for the children is a larger share than in the first inheritance.
In the case described here, none of this matters as long as the stated value of the house is not actually assessed to be significantly higher. I would not accept the gift either, at least not if the figures discussed here should be correct. Then it is rather a cost trap.
Then the parents should spend their retirement there, and when the time comes, those remaining can still decide what should happen with the inheritance. Since the inheritance is probably not too large, the likelihood of a later inheritance dispute among the children should perhaps be rather low, but often the reason of those involved is also lost on one or the other.

It is a terraced house with a garden that is 3x4m, so really not big, and that in the rural area.

The street issue is a good argument, since then the 3 new owners have to pay for it.