Siegwart German American Law - Inheritance and Probate in Germany, Estate Tax in Germany

Settlement of Estates in Germany

Probate in Germany: German inheritance law is governed by the doctrine of universal succession. The heir(s) acquire(s) title to the decedent’s property and become liable for his debts at the time of death. Generally, no executor or administrator will be appointed, and there will be no substantial probate proceedings.
Living Trusts in Germany: German law does not provide for the creation of trusts.
Intestate succession occurs frequently in Germany. While the details are very complicated, the decedent’s surviving spouse and issue generally have priority. In the absence of court supervised probate proceedings, potential heirs and beneficiaries are required to act quickly. We are able to determine your eligibility under German law. SIEGWART GERMAN AMERICAN LAW will take all necessary steps to protect your rights as an heir or beneficiary in Germany.
Children born out of wedlock have equal rights to inherit from their natural parents under German law of intestate succession. However, quick action is recommended. As a matter of fact, surviving spouses and issue frequently attempt to bypass the decedent’s “illegitimate” children and rather distribute the estate among them.
Inheritance contract: Inheritance contracts between a testator and a third party are enforceable under German law.
Joint and reciprocal testament: German law permits spouses to dispose of their property by means of a joint and reciprocal testament. The surviving spouse is generally bound by its dispositions.
Effect of separation and divorce: Under German law the surviving spouse may already lose the right to inherit at the time the testator files for divorce and process is properly served. The same is true if the testator consents to the surviving spouse’s petition for divorce in a judicial proceeding.
Information, account, and inventory: Heirs may have an enforceable right to a verified account and inventory, and supporting information and documentation. Swift action is recommended, in particular if you live abroad and co-heirs in Germany have already taken possession of the estate.
Appraisals: SIEGWART GERMAN AMERICAN LAW is able to locate and select competent experts who will be able to appraise the entire estate or particular items such as real property or business interests.
Acceptance and rejection: Under German law heirs are deemed to have accepted an inheritance unless they reject it. Rejection is subject to strict deadlines and formal requirements. Failure to reject timely and properly may leave an heir responsible for the testator’s debts and obligations even if the estate provides insufficient funds to cover them. Under certain circumstances the acceptance may be avoided.
Debts: The decedent’s estate does not go through probate. The heirs acquire title to all assets and become liable for all debts immediately, even if the debtor’s assets are not sufficient to cover all his debts. Moreover, the heirs’ own property may become subject to creditors’ rights even if the heirs never received any benefit in connection with the particular obligation. There are tools available to limit or even avoid liability. However swift action is required.
Costs and fees: Since there is no probate, costs and fees are relatively low. However, tax liability under German law is significant, even for smaller estates and bequests.
Injunctive relief is available to heirs and beneficiaries. Absent court supervised probate proceedings injunctive relief is often the only available tool to avoid irreversible damages and good faith acquisitions by third parties.
Bank accounts: Generally, heir(s) become owner(s) of bank accounts held by the decedent at the time of death. We can help you to prevent banks from liquidating amounts and making payments to co-heirs and assist clients in locating the decedent’s bank accounts and other property in Germany and other European countries. German law provides for POD accounts which are not part of the decedent’s estate. The proceeds are generally passed on directly to the named beneficiary but may affect forced shares and credits for lifetime gifts.
Life insurance proceeds are not part of the estate and pass on to the named beneficiary under German law
Elective shares / forced shares and disinheritance: Under German law a testator has absolute discretion in naming heirs and beneficiaries and is free to disregard his spouse and children. However, spouses and children are protected against complete disinheritance by way of a forced share which is equal to one half of the statutory share of the spouse or child. Certain transactions before death, such as gifts made by the testator, may enhance the forced share which must be claimed within strict time limits. Under certain circumstances a statutory heir may completely lose both, his right to inherit and his forced share.
Will contest: Heirs and beneficiaries whose rights are disregarded have standing to contest a will under German law based on a number of statutory grounds. Will contests are often combined with injunctive relief and alternative claims for payment of forced shares.
Gifts made by the testator within ten years from death enhance the value of the forced share of a disregarded or omitted heir. Gifts received by a disregarded or omitted heir may diminish his forced share.
Asset search in Germany: Frequently, heirs and beneficiaries abroad are not aware of the testator’s assets and property in Germany. We can help you to locate real property, bank accounts, and other assets in Germany and assist you with the identification of heirs and beneficiaries under German law and locating them in Germany.
Death certificates: We obtain death certificates and other public records for you in Germany.
Letters of inheritance: Testamentary and statutory heirs need letters of inheritance (so called Erbschein), which are issued by the probate court, in order to transfer real property to their name and liquidate assets such as bank accounts. Swift action is required since co-heirs may have applied for letters of inheritance without disclosing the existence of heirs residing in a foreign country.
Legal opinions are available on all aspects of German inheritance and probate law. Upon request, comparative and bilingual legal opinions are available.

ESTATE PLANNING UNDER GERMAN LAW

Real property located in Germany: German courts and government agencies generally apply German law to real property located in Germany. If you or your client own real property in Germany your estate planning must consider German law in order to avoid costly surprises and difficulties (and, of course, liability) in the future. Please note that German law does not provide for trusts, in particular living trusts.
Personal Property located in Germany: If you or your client own personal property in Germany, including bank accounts and corporate shares, your estate planning should pay attention to German law in order to avoid a myriad of practical problems and costly delays. If you are a German citizen you must comply with German law which will be applied to all property in Germany regardless of where you actually live.
German citizens abroad: Germany applies its inheritance laws to all its citizens no matter where they are actually domiciled. If you are a German citizen and have property in Germany compliance is mandatory. Since practical considerations may require a different approach to property located outside Germany estate planning for German citizens abroad is multi-faceted and usually requires sophisticated consideration of the laws of more than one country.
Mixed marriages: If you are a German citizen married to a foreign national estate planning becomes extremely complicated, especially if property in more than one country is involved.
Wills, reciprocal wills, contracts: Wills are subject to different formal requirements under German law. A will valid in Germany may be invalid in the US and vice versa, even if they have identical material provisions. Reciprocal wills for spouses and inheritance contracts offer additional options and estate planning tools whenever German law is applicable.
Cross-border estate planning: SIEGWART GERMAN AMERICAN LAW offers comprehensive estate planning solutions and drafts all necessary documents for German citizens with or without property in the US, mixed couples, and clients with property located in Germany.

ESTATE TAX / INHERITANCE TAX IN GERMANY

Exemptions and tax brackets: Be prepared to pay substantial inheritance tax even on relatively small estates. It is important to know that Germany has an inheritance tax; the estate is not subject to taxation upon death. Each heir and beneficiary is taxed individually according to the value of his share or bequest. Significant exemptions are available for spouses, issue, and parents only. In most cases taxation is substantial and significantly higher than in the US. Taxation in Germany should be avoided if possible.
German Estate Tax Reform 2009: Exemptions for spouses, issue, and parents have been increased and range from 100,000 – 500,000 Euros. Minor exemptions of 20,000 Euros are available to other heirs and beneficiaries, who are also taxed at a higher rate. Same sex marital partners are now entitled to the exemptions as traditional spouses. With conditions attached, a family occupied residential home may also be exempted. New provisions for family owned businesses were added. In most cases, however, taxation is still significantly higher than in the US. It is generally not advisable to subject the recipients of assets to German inheritance tax.
Deductions and credits are available depending on the circumstances of each case. The details are complicated and professional advice should be sought if you think you may be eligible.
Inheritance tax returns: We handle the preparation and timely filing of inheritance tax returns in Germany for you. Under German tax law, each heir and beneficiary is taxed individually and, generally, there is no requirement to file additional estate tax returns.
German TIN: Our office will obtain a German tax identification number for you.
Disputes with the German IRS: If you believe the IRS is a pain, you are lucky and have never dealt with its German counterpart, the Finanzamt. Most employees have life tenure and have never worked in a competitive, private economy (in addition to Germany’s extremely generous vacation and paid sick leave laws). Expect to be treated and serviced accordingly and, thoroughly, consider representation at an early stage.
Gift Tax: German gift tax is structured similar to inheritance tax. Gifts may be a valuable estate planning tool since they may affect both, taxation and elective /forced shares.
Tax planning: Even recipients of relatively small amounts may be subject to significant, taxation. This is why tax planning should be an essential part of estate planning under German law even for average families, not only for larger estates and family businesses.
Legal opinions: SIEGWART GERMAN AMERICAN LAW provides legal opinions on German inheritance and gift tax and related issues. Comparative and bilingual opinions are available.
Tax professionals in Germany: German tax laws and regulations are extremely complicated and subject to constant change. If mandated by the circumstances of your case, we will associate with competent and experienced CPAs and tax attorneys in Germany in order to ensure the standard of quality you expect at the most favorable rates.