International Estate Planning

When does German inheritance law apply?

For all persons dying after August 16th, 2015 German courts will apply with regard to all questions pertaining to the estate of a person the European Succession Regulation (Europäische Erbrechtsverordnung), also known as "Brussels IV". The applicable law under the European Succession Regulation is that of the country of the deceased's habitual residence (gewöhnlicher Aufenthalt) at the time of death.

Are there any exceptions from this rule?

If the deceased was manifestly more closely connected with another state or had chosen to apply the law of his or her nationality or if the law of his habitual residence refers back to German law (renvoi). 

Does the European Succession Regulation also govern the applicable tax laws?

No. Other rules apply to the German inheritance tax (Erbschaftsteuer).

Does German inheritance law apply to the estate of a foreigner?

If the foreigner`s last habitual residence (gewöhnlicher Aufenthalt) was in Germany and he had not chosen the law of his nationality, German law governs succession of his worldwide estate.

How does German inheritance law work?

Under German inheritance law the estate (Nachlass) passes directly to the heir (Erbe) at the time of death. Typically, the heir administers the estate himself. However, if the testator has appointed an executor (Testamentsvollstrecker), the executor will administer the estate. 

How is a will executed under German inheritance law?

Pursuant to § 2231 BGB, the testator can choose between the notarial will (Notarielles Testament) and  the holographic will (eigenhändiges Testament).

Does Germany recognize foreign Wills?

Germany has ratified the Hague Convention on the Form of Testamentary Dispositions. Thus, in most cases, there are no issues with respect to the formal validity of a foreign Will.

Should a nonresident of Germany make a separate Will for his/her German assets?

While most foreign wills are recognized in Germany as valid as regards to form, it is often advisable to make a Will for the assets situated in Germany (situs will). 

Are joint wills permissable in Germany?

Pursuant to §§ 2265-2273 BGB, spouses or registered same-sex partner (eingetragener Lebenspartner) can make a joint will (gemeinschaftliches Testament). A joint holographic will may be handwritten by only one spouse. However, both spouses have to sign the will in accordance with § 2247 BGB. A joint notarial Will may be made in accordance with §§ 2231(1), 2232 BGB.

Are mutual wills permissable in Germany?

Pursuant to §§ 2265-2273 BGB, spouses or registered same-sex partner (eingetragener Lebenspartner) can make a joint and mutual Will .

Does Germany recognize trusts?

Trusts are virtually unknown in German Civil law and it is settled law that assets located in Germany cannot be (directly) held in a trust ("as such"). In particular, it is impossible to transfer assets (during the lifetime of the grantor) to a living trust. Instead, German trust-equivalents must be used, e.g. a usufruct (Nießbrauch) or a family foundation (Familienstiftung). If assets in Gemany shall pass to a trust created under a (foreign) Will (testamentary trust) or a Will calls for the transfer to an existing living trust (pour-over Will) it is typically necessary to determine a German trust-equivalent, e.g. durable execution of the estate (Dauertestamentsvollstreckung), subsequent heirship (Vor- und Nacherbschaft), life estate / usufruct (Nießbrauch) or a combination thereof. As far as foreign assets are concerned, Germany may recognize a trust. However, as Germany has enacted special tax laws for trusts, trusts are often not advisable if there is a nexus to Germany. 

Is an inheritance contract permissable in Germany?

A contract of inheritance (Erbvertrag) is permissable in German law. However, in order to be effective, it must be signed in front of a German Notary (Notar). 

Does German law provide for a forced share?

Yes, German law provides for a forced share (Pflichtteil), also referred to as compulsory share (Pflichtteil), for certain privileged individuals. It is a claim in money which does not invalidate the Will. 

Does Germany have an inheritance tax?

Yes, Germany levies inheritance tax (Erbschaftsteuer) based on the German Inheritance and Gift Tax Act (Erbschafts- und Schenkungssteuergesetz, ErbStG)

How does German inheritance tax work?

Germany taxes each heir and beneficiary individually, not the estate itself. Tax rates and exemptions vary depending on the relationship to the decedent and the amount inherited. 

When does Germany tax the worldwide estate?

Germany taxes the worldwide estate, if either the beneficiary or the deceased is a German tax resident (Inländer) at the relevant time.

Does Germany have Double Taxation Agreements covering inheritance and estate taxes?

Germany has tax treaties with the USA (Germany-U.S. Estate and Gift Tax Treaty), Greece, France, Sweden, Denmark and Switzerland, that may override German domestic law.

May Germany tax an inheritance if there is a Double Taxation Agreement?

With some exceptions, the Treaties allow Germany to tax the inheritance if the benefciary or the decedent has a fiscal domicile in Germany and, under Treaty law, double taxation is avoided by offsetting the foreign tax against the German tax or vice versa. 

Is there a German inheritance tax on assets in Germany if the beneficiaries and the decedent were foreigners?

If neither the decedent nor the beneficiary was a German tax residents, Germany taxes the German domestic property (Inlandsvermögen), e.g. real estate in Germany. 

What are the German inheritance tax rules for foreigners in Germany?

With some exceptions (e.g. extended unlimited tax liability for German citizen) the taxation does not depend on the citizenship of the decedent or the beneficiary and foreigners are taxed under the same rules as German citizen. 

What are the Inheritance tax rates in Germany?

German inheritance tax rates range from 7 % to 50 %, depending on the relationship to the decedent and the value of your share in the net inheritance. Further information is available here. 

What are the inheritance tax thresholds in Germany?

German inheritance tax thresholds range from EUR 20,000 to EUR 500,000, depending on the relationship between the decedent and the beneficiary and the value of the net inheritance. Further information is available here. 

Are spouses subject to German inheritance tax in Germany?

Yes. The transfer on death to a spouse of the deceedent is generally excluded from taxation. However, certain benefits are available. See below. 

Do gifts decrease the available inheritance tax threshold?

A gift and an inheritance from the same person within 10 years are aggregated and the tax is (re-) calculated based on the aggregated taxable acquisition. Thus, if the decedent made a gift prior to his death to a future beneficiary under his/her will and dies no later than 10 years thereafter, the full inheritance tax threshold may not be available. 

Are transfers to trusts subject to German inheritance tax?

Germany taxes the transfer to a foreign pool of assets (Vermögensmasse ausländischen Rechts) if the aim of such foreign pool of assets is to bind assets.Thus, Germany taxes the transfer to many trusts if there is a nexus to Germany (e.g. because the settlor resides in Germany). Does Germany have a gift tax? Yes, Germany has a gift tax (Schenkungsteuer).

How to avoid German inheritance tax on property in Germany?

Gifts are often used to avoid or minimize German inheritance tax on property in Germany as the tax-free exemption may be available any 10 years. Furthermore, the transfer of the ownership right in the family home (Familienheim) to a spouse is completely exempt from gift; unlike in case of acquisition upon the death of the spouse, there is no 10-year-holding period in case of a lifetime transfer. A retained life estate / usufruct (Nießbrauch) reduces the value of the gift, which may result in further savings.