Administration of a U.S. Domiciled Decedent’s German Assets by a U.S. Personal Representative

Administration of a U.S. Domiciled Decedent’s German Assets by a U.S. Personal Representative

As lawyers specializing in German-American probate matters, we routinely provide legal analysis and represent U.S. fiduciaries and trustees with regard to the administration of the decedent`s German assets. This article examines the hypothetical example of an U.S. domiciled decedent who dies leaving assets in Germany. In doing so, this article describes the process of administrating German estate assets of a U.S. domiciled decedent by a U.S. personal representative.

Applicable Law from a German Perspective

A German probate court (Nachlassgericht) will determine the applicable law for deaths occurring on or after August 17, 2015 by applying the European Succession Regulation (‘the Regulation’).

The fundamental principal underlying the Regulation is that  the law applicable to "succession as a whole" is governed by the law of the state in which the decedent had his habitual residence (gewöhnlicher Aufenthalt) at the time of death.  See art. 21(1) of the Regulation. 

However, when a matter is analyzed pursuant to art. 21(1) of the Regulation and such analysis results in the application of the laws of a non-member State of the Regulation (e.g. the U.S.), art. 34(1) of the Regulation holds that such State’s rules of choice of laws are included in so far as those rules refer back to the law of a Member State. 

Example: A U.S. citizen has his last habitual abode in the U.S. and was domiciled in California. The US citizen dies without leaving a will. His estate includes an apartment in Berlin, Germany. Applying art. 21(1) of the Succession Regulation results in a reference to the laws of California including the choice of law rules of California. As Californian law calls for the application of the law of the situs of immovables, German courts would apply German law with regard to the apartment in Germany by way of referral from Californian law. 

If the foreign choice of law rules only refer back to German law solely with respect to specific issues, e.g. forced heirship (Pflichteil) but not to others, e.g. the powers of a fiduciary, German courts would recognize this application and partially apply German law. 

Example: If in the above example, the testator had elected that a trustee shall administer his worldwide estate for the benefit of his niece until she attains the age of 25, the laws of California would govern the trustee’s duties and obligations whereas other questions, e.g. forced heirship, would be governed by German law. 

However, if the testator has effectively elected "U.S. law" to govern the “succession as a whole”, "local law" applies and there is no back reference to German law. 

Example: In the above example, the testator had stated in his Will, that "U.S. law" shall govern "succession as a whole". Consequently,  the laws of California would govern all matters of succession including most aspects of the administration of the estate and trust administration. 

Regardless of whether “U.S. law” is chosen, German procedural law (Verfahrensrecht) is applicable, e.g. on the question how the powers of an executor are proven. Furthermore, German property law (Sachenrecht) will be applicable with respect to assets situated in Germany. 

Basic Principles of German Law pertaining to the Administration of the Estate

Under German law, the estate (Nachlass) passes in its entirety directly to one or more individuals who are referred to as "heirs" (Erbe) upon the decedent`s death. See § 1922  German Civil Code (BGB). The heir (Erbe) or the community of co-heirs (Erbengemeinschaft) administers the estate and there is generally no other person (e.g. executor, administrator) involved in the administration of the estate. However, the testator may appoint an executor (Testamentsvollstrecker) or allow somebody else (e.g. the probate court) to appoint such executor who shall execute the testamentary dispositions of the deceased. See § 2203 BGB. The executor generally has the exclusive right to administer the estate. 

Requirement of a German Certificate of Executorship and/or Certificate of Inheritance

There is no specific law that requires that a German certificate of inheritance (Erbschein) or German certificate of executorship (Testamentsvollstreckerzeugnis) be obtained and/or presented to administer an estate in Germany. Pramaticallly, heirs or executors will need to obtain a German certificate of inheritance or executorship (or both) to access and marshall assets in Germany.

Whether these documents are required will depend on the language used in the Will and the assets in the (German) estate.  

Bank Accounts in Germany

In many situations, German banks, savings banks (Sparkasse) or cooperative banks (Genossenschaftsbanken) will not allow an heir or German executor to liquidate investments unless a German certificate of inheritance or a German certificate of executorship is provided. Nevertheless, such requirements are generally internal to the financial institutions as there is no specific law which prevents the heir or executor from proving his rights in a manner that differs from the certificate of inheritance (Erbschein). For example, an heir may prove his right by presenting an original copy of the will or contract of inheritance (Erbvertrag) with an opening protocol, if the will clearly shows that he/she is entitled to access the funds (either as an heir or as an executor). U.S. letters testamentary or U.S. letters of administration are generally not recognized. 

Furthermore, there may be other reasons why no German certificate of inheritance or executorship is required. Such reasons can include situations where there is

Real Estate in Germany

A German land registry (Grundbuch) will only register the new owner if his rights are either proven by way of a German certificate of inheritance or a notarized will which clearly confirms the heir or, if there is more than one heir, the co-heirs. See § 35 GBO. However, in some situations the new owner may also be registered on the basis of a notarized power of attorney which remains effective after the decedent`s death. If the property was given to an individual by means of legacy (Vermächtnis), the heir or executor may have to transfer the property to such legatee by way of a notarized contractual agreement (Vermächtniserfüllungsvertrag).

Commercial Register

The German Commercial Register (Handelsregister) generally require a German certificate of inheritance and, if there is a German executor, German certificate of executorship, to register an heir as new partner of a German parternship (e.g. KG, GmbH & Co KG) or shareholder of a German corporation (GmbH, AG).

Can a U.S. Personal Representative or Trustee Obtain a German Certificate of Inheritance or Executorship?

If a German certificate of inheritance and/or a German certificate of executorship is required, the U.S. personal representative must first determine if he is entitled to a German certificate of executorship. 

A U.S. executor is entitled to receive a German certificate of executorship if it can be established that it was the testator`s intention that he should settle the German estate and he was not simply named as executor because a personal representative is required under U.S. laws.

A U.S. administrator generally cannot obtain a German certificate of executorship and cannot effectively administer the estate unless the heirs provide him with power of attorney.

A U.S. trustee generally is entitled to receive a German certificate of executorship with regard to the trust assets in Germany as German courts generally characterize a trustee as a durable executor (Dauertestamentsvollstrecker). In some situations, e.g. because he was a also a beneficiary of the trust, he may also qualify for a German certificate of inheritance.

Please note: If the trust document does not comply with the formalities of a will, it may be ineffective from a German perspective with regard to the testamentary aspects.

Application for a German Certificate of Inheritance and/or Executorship

An application for a German certificate of executorship or German certificate of inheritance can be made via a German notary (Notar) in Germany or a German Consulate in the U.S. In simple matters, the German notary or German Consulate drafts the application document. However, in more complex matters (e.g. because there is a trust with regard to German assets or because it is unclear if the U.S. executor qualifies as German executor), a German lawyer specializing in international probate law should prepare the document. 

The application can be signed by an attorney-in-fact (e.g. German lawyer) or other representative, e.g. a (German) guardian (Vormund) or custodian (Betreuer). However, unless the German probate court has waived this requirement, at least one heir or the (designated) German executor (Testamentsvollstrecker) must personally affirm in lieu of an oath that he/she is not aware of anything that contradicts his statements and certain fact are true. See 352 FamFG. Such affirmation in lieu of an oath (eidesstattliche Versicherung) must be made in front of a German probate court (Nachlassgericht), a German notary (Notar) or a German Consul. 

If the applicant does not have sufficient command of German, the the German Notary (Notar) or German Consul will verbally translate the full contents of the application document to English or, if the Notary or the Consul is not willing to do so, a sworn translator must be present when the Notary or Consul reads out loud the application document and translate it into English. 

After the signing of the application, the German notary or the German Consulate generally hands over the notarized application document to the applicant or his representative, who then has to file it with the competent German probate court (Nachlassgericht). The probate court then sends a copy of the application document and all supporting documents to all interested persons (e.g. intestate heirs).

Issuance of the Certificate of Inheritance or Certificate of Executorship 

If no interested parties objects within the prescribed period and the court is convinced that the applicant has the right to receive the requested certificate, the court issues the certificate after payment of the court fees.

Settling the Estate in Germany 

The German certificate of executorship will enable the personal representative to marshal the assets and settle the German estate. These powers include

  • revoke a power of attorney that is still effective,
  • seize estate assets,
  • (after obtaining tax clearance) transfer funds to the U.S.,
  • pay rightful debts and costs,
  • file the German inheritance tax return and pay the tax out of the estate,
  • distribute the balance to the residuary beneficiaries. 

Involvement of German Courts

There is no further supervision by the German probate court (Nachlassgericht) or other German court. However, interested parties can seek the Court’s involvement by filing a formal application for:

  • dismissal of the executor,
  • determination of the share of an heir or legatee in the estate, or
  • interpretation of the Will. 

Compliance with Tax Reporting Obligations

Within 3 months after gaining knowledge of acquisition, the beneficiaries must inform the proper German inheritance tax office of certain facts (e.g. names of heirs and their residence, value of the estate). See § 30 ErbStG. Failure to comply can lead to prosecution.

Please note: While the German executor is not obliged to notify the tax office (unless he is for other reasons obliged to do so), in practice, the executor often notifies the tax office. 

The inheritance tax office (Erbschaftsteuerfinanzamt) will receive additional information (Account positions, balances) from German banks, insurance companies, German notaries and the probate court. 

Filing of a German Inheritance Tax Return

The tax office will, on the basis of the information received, determine whether the executor or the heirs will be required to file an inheritance tax return (Erbschaftsteuererklärung). If the tax office does not require that an inheritance tax return be filed, there is no obligation to do so.

German Transfer Certificate 

Even if the beneficiary or personal representative has not been asked to file an inheritance tax return and if no tax is due, it may become necessary to obtain a transfer certificate (Unbedenklichkeitsbescheinigung). German banks generally refuse to make any payments to an heir or executor residing outside of Germany before obtaining confirmation that no German inheritance tax (Erbschaftsteuer) is outstanding. The Unbedenklichkeitsbescheinigung is directly sent to the bank and the executor and/or heirs are not typically informed directly.

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