Applicable Law from a German Perspective
A German probate court (Nachlassgericht) determines 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 the Court analyzes a matter 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., the UK or Canada), art. 34(1) of the Regulation holds that such State’s choice of law rules shall be considered in so far as those rules refer back to the law of a Member State.
If the testator effectively elects the law of his citizenship to govern the “succession as a whole”, "local law" applies and there is no referal to German law. See Art. 22 of the Regulation.
The law determined pursuant to Article 21 or Article 22 results in application to the succession as a whole. This includes the powers of the heirs, the executors of a will and other administrators/fiduciaries of the estate. Further, such laws shall apply to the administration of the estate including the sale of property and creditor’s claims. See Art. 23 of the Regulation. If the balance of an account is part of the estate or passes to the designated beneficiary by a payable on death account (Vertrag zu Gunsten Dritter), the applicable law is not determined by the European succession regulation but by the laws determined by Rome II.
Recognition of Foreign Wills as Regards to Form
As most Wills in common-law jurisdictions are typed and include two witnesses, Wills from common-law jurisdictions often do not comply with the formalities of a German notarial will (notarielles Testament) or holographic Will (eigenhändiges Testament). However, as Germany has ratified the Hague Convention on the Form of Testamentary Dispositions, a witnessed will shall generally be deemed valid if its form is consistent with the laws of the country/state it was executed.
Administration of German Estate Assets by a foreign Administrator or Executor
Generally, 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 (Erbschein) or a German certificate of executorship (Testamentsvollstreckerzeugnis) is provided. Nevertheless, such requirements are generally internal to the financial institution 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 confirm his authority and heirship by presenting an original copy of the will or contract of inheritance (Erbvertrag) with an Opening Protocol (Eröffnungsprotokoll), if the will clearly shows that he/she is entitled to access the funds (either as an heir or as an executor). A foreign grant of probate or foreign letters testamentary/letters of administration are generally not recognized.
Furthermore, there may be other justified reasons why no German certificate of inheritance or executorship is required. Such reasons can include situations where there is
- a trans-mortem Power of Attorney (transmortale Vollmacht);
- a joint bank account (Gemeinschaftskonto) and each co-owner of the joint account had the right to dispose of the total balance of the account (ODER Konto); and
- a payable on death account (Vertrag zu Gunsten Dritter).
If a German certificate of inheritance and/or a German certificate of executorship is requested, a foreign executor or administrator must first determine if he/she is entitled to a German certificate of executorship.
Under the laws applicable prior to the implementation of the European Succession Regulation, a German certificate of executorship was never issued to a foreign administrator or administrator with the Will annexed. Application of the European Succession Regulation, can result in foreign law governing the administration of the estate. Accordingly a foreign administrator, in specific situations, may be entitled to a German certificate of executorship. However, this law is in flux and still subject to interpretation and German courts currently are reluctant to follow this argument. Further, as probate proceedings may take month or years in Germany, it is generally not advisable to rely on such an argument as it may result in additional delays and/or complications.
A foreign executor is entitled to receive a German certificate of executorship if it can be established that it was the testator`s intention that he/she should settle the German estate and he was not simply named as executor because a personal representative is required under the applicable foreign laws. If the foreign executor does not qualify for a German certificate of executorship, such individual cannot effectively administer the estate. However, it may be possible to administer the estate if the heir (Erbe) or co-heirs (Miterben), who in absence of a German executor administer the estate, provide/s the foreign administrator/executor with a power of attorney.
A foreign trustee is generally 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/she was also a beneficiary of the trust), he/she may also qualify for a German certificate of inheritance.
Compliance with the German Money Laundering Act
Pursuant to § 11 GwG (German Money Laundering Act), banks and other financial institutions are obliged to identify contracting parties and, if applicable, persons acting on their behalf and beneficial owners, before establishing a business relationship or executing a transaction. Consequently, German financial institutions will ask any beneficiary or executor to complete a form ("Identifikation") and be identified personally on the basis of a passport or identity card by an authorized person. Authorized persons generally include a representative of a German bank. Outside of Germany, it may be difficult to find an authorized person who is willing to assist. While representatives of banks in many countries are authorized, most banks do not offer such service due to liability concerns.
Obtaining a German Tax Clearance Certificate
If all or one of the beneficiaries of an estate is not a German tax resident (Inländer), German banks, savings banks, life insurances and other financial institutions may be held liable for the payment of German Inheritance Tax (Erbschaftsteuer) if they distribute assets and/or authorize control to such foreign beneficiaries. In light of this potential liability, German financial institutions generally request a German tax clearance certificate (Unbedenklichkeitsbescheinigung) before they make any payment to a non-resident beneficiary or non-resident executor. The tax clearance certificate is issued by the local inheritance tax authority once it has determined that no inheritance tax is due or the tax assessed has been paid. Consequently, in many situations a foreign beneficiary or executor must communicate with the local fiscal authority in order to ensure that it makes such determination. Pursuant to § 30 ErbStG, the beneficiaries are generally obliged to report a taxable acquisition within 3 months after gaining knowledge of such acquisition. Such reporting is often completed in the early stages of the administration of the estate. If the beneficiary or the executor is requested to file an Inheritance Tax Return (Erbschaftsteuererklärung), the inheritance tax return should be filed and the tax paid as soon as practical in order to ensure that the tax clearance certificate is issued as promptly as possible.
