Before outlining strategies, some basic questions regarding the community of heirs must be clarified. In this way, the more complicated procedures of the estate administration and the later settlement of the estate are easier to plan. Also, to become clear about the rights and obligations of the co-heirs, it is advantageous to first shed light on the creation of the community of heirs, its function, and legal form. Subsequently, we would like to offer some tips on proceeding once a person is aware of their inheritance.
The community of heirs is formed automatically by a succession involving several heirs and by law according to § 2038 German Civil Code – BGB. It is formed without the heirs being able to influence it, which is also its peculiar difficulty. This is because the estate automatically becomes the joint property of the community of heirs according to § 2032 para. 1 BGB and must be administered jointly by all heirs. It is often the result of a statutory succession, i.e. when the testator has not settled the inheritance. Similarly, this is still possible if in the will or inheritance contract – the voluntary succession – the estate is not already divided among the heirs individually but is allocated to all of them jointly.
The community of heirs only ends when the estate has been completely divided utilizing a settlement – in a settlement contract. Whether they wish to or not, the co-heirs must agree in principle within the community of heirs and deal with the inheritance jointly. It is not uncommon for the estate division to end in a legal dispute lasting for years.
As a co-heir, it should be noted that the “community of heirs” is one of joint owners. This is important, for example, in cases where a certain asset is owed to the community of joint owners as a special fund. In general, this means that none of the co-heirs owns anything from the estate alone, but all of them share everything in the community of heirs. Each heir is, so to speak, part of a collective whole when dealing with the entire estate, and thus parts of the assets cannot be dealt with individually. According to § 2033 (2) BGB, this can and may only be done jointly by the decision of all heirs in the community of heirs.
What do you have to Consider as a Co-Heir? – Step by Step Procedure
- First of all, as a co-heir, one should get an overview of who the other heirs are and, if necessary, how they can be identified if they are unknown. No co-heirs are entitled to a compulsory portion of the inheritance.
- Secondly, it is necessary to determine what is available in the testator’s estate and whether the testator has left debts.
- Furthermore, the tax office must be informed of the inheritance within three months.
- Each co-heir should ask himself the question of whether they will participate in the dispute within the community of heirs and thus receive their share of the inheritance, or whether it is the better solution for them to leave the community of heirs early and, under certain conditions, to be paid out by the other co-heirs. For this purpose, we will show various possibilities of terminating the community of heirs.
- Protective measures for the personal liability of estate liabilities can be determined and, if necessary, already initiated.
- Furthermore, it is advantageous to think about which administrative measures might be necessary for the estate in the near future and, if necessary, to prepare a list of costs. For this purpose, it is a good idea to locate the necessary documents, e.g. rental agreements of a rented building in the estate.
- You can also find out whether you need a certificate of inheritance for the estate administration and what form you want to apply for it.
Skipping acts to secure an estate object and ill-considered early-stage administrative measures can lead to a dispute between the co-heirs even before the actual dispute has arisen. Ultimately, it should be a priority for co-heirs to remain calm and exchange information with the other co-heirs. In this way, the future inheritance dispute can be prepared for and settled as quickly as possible, and thus they can avoid lengthy disputes.
The aim of the community of heirs is the settlement and division of the estate among the co-heirs. This requires determining the total estate assets and establishing the estate liabilities that need to be paid but, in particular, that all co-heirs have been identified and known. If the estate has not been settled by the testator or has not been settled in full and the legal succession takes effect, it is not uncommon for individual heirs to be unknown and, thus, they must first be determined.
It is possible to find the unknown co-heirs independently. To not prolong the search (and therefore the length of time until the inheritance is settled), it nevertheless often makes sense to appoint an investigator. To avoid disputes, it is advisable to discuss the matter with the known co-heirs in the community of heirs and appoint the investigator together. It is thus determined from the outset that all co-heirs jointly bear the costs of the investigator.
Certificate of Inheritance for Joint Heirs: Joint Certificate of Inheritance and Partial Certificate of Inheritance
A certificate of inheritance is an official document that identifies the heir as such and determines the size of the inheritance. It is therefore attributed an evidential function. Consequently, it is often required or requested for inheritance administration purposes. With the application, the co-heir automatically accepts the inheritance, so that a disclaimer according to § 1942 BGB is no longer possible and they are generally liable for the estate’s liabilities.
Different types of certificate of inheritance are to be differentiated for the community of heirs. The co-heirs can apply for a joint certificate of inheritance under § 352a FamFG. The application can also be made individually by each of the heirs and does not require the consent of the remaining co-heirs. It must include the heirs and their inheritance shares and, if the application is not submitted by all heirs, the statement that the remaining heirs have accepted the inheritance. In addition, an affidavit pursuant to § 352a (4) FamFG, must be submitted by all co-heirs stating that they are not aware of anything that could conflict with the information in the application for a certificate of inheritance. In addition, it is possible for the individual co-heirs to apply for a partial certificate of inheritance, which only refers to their position as heirs.
However, the application for a certificate of inheritance is also associated with costs. Therefore, if it is possible to prove the inheritance by other means for transactions of the estate administration, it may not be necessary to apply for a certificate of inheritance.
Rights and Responsibilities of the Community of Heirs
As part of a community of heirs, the law opens up a number of rights and obligations to the co-heirs. Here is a brief overview of what is entailed.
|Rights of the Co-Heir
||Duties of the Co-Heir
- Receipt or sale of the inheritance
- Pre-emptive sale right of the co-heirs of the community of heirs, if a co-heir wishes to sell their share of the inheritance to a third party, or to sell the share of the inheritance
- Compensation claims of the joint heirs: The co-heir has the right to claim compensation from the other heirs if a creditor has made a claim against them alone for a debt of the deceased or if co-heirs have received benefits from the deceased before the succession
- Rejection of the inheritance: Co-heir has the right to reject the inheritance in order to leave the community of heirs early
- Right to partition according to § 2042 paragraph 1 BGB: each co-heir can request the partition in the community of heirs.
- Right to defer the settlement according to § 2045 BGB
- Participation in the administration of the estate: the co-heirs are obliged to jointly administer the estate according to § 2038 BGB
- Obligation to compensate the co-heirs who received benefits from the deceased during their lifetime
- Duty to provide information according to § 2057 BGB: Each co-heir is obliged to provide the other heirs with information about the testator’s contributions
- Continuation of contracts of the testator within the framework of the administration of the estate
- Liability for debts of the estate
- Payment of inheritance tax
Administration of the Estate and Bearing of Costs by Co-Heirs
Before the estate can be divided, it must be definitively determined how much of the assets – (and in what form: objects, securities, etc.) – are contained in the estate. This preparation can take some time. In the meantime, the estate must be administered jointly by the co-heirs of the community of heirs per § 2038 BGB. Each co-heir is obliged to cooperate with the others for proper administration.
Measures of proper administration must therefore be decided by a vote within the community of heirs. They are intended to ensure the preservation of the assets and maintenance of the estate. Exactly which measures fall under proper administration depends on the individual case. These measures include those to maintain the estate in its original condition and objects in their original state.
In contrast, each co-heir can take the measures necessary to preserve the estate without the participation of the others. This necessity must be assumed if a short-term measure can remove an immediate threat to the value of the estate. For example, if a leaking house roof urgently needs to be repaired to prevent damage from flooding. Actions that significantly change the estate as a whole – e.g. the sale of estate objects – are part of the estate distribution and cannot be carried out within the framework of the administration of the estate.
The costs of measures for the administration of the estate are to be borne jointly by the co-heirs. A quick consultation and agreement within the community of heirs are therefore also desirable for necessary acts. In this way, unexpected compensation claims by co-heirs can be avoided, and disputes can be avoided at an early stage.
Liability for Estate Obligations & Protective Measures for Co-Heirs
The administration of the estate also includes the fulfilment of the estate’s obligations. According to § 2058 BGB, the heirs are jointly liable for the obligations of the estate. This means that the testator’s creditors can turn to each heir with the entire claim. If the latter has paid off the debts, they claim compensation payment against the other co-heirs. However, as co-heir, you are only liable if you have accepted the inheritance and have not rejected it.
If the estate is unclear or over-indebted, you can apply to the probate court to administer the estate or insolvency of the estate. As a result, the co-heirs are no longer liable for their private assets, but their liability for estate liabilities is limited to the estate. Any co-heir can make this application. However, the right of the heirs to access the estate and to administer it independently is also lost.
To protect against personal liability, there is also the option of the so-called three-month plea to § 2014 BGB. This allows you as the heir to refuse payment for liabilities of the estate for the first three months after acceptance of the inheritance. This allows you to inform yourself about the estate’s extent and take further preparatory steps. If you need more time to determine the estate, you can apply to the probate court for a bankruptcy petition. Thus, the heirs’ liability is also limited to the estate after the deadline for the creditors to file claims has expired.
If the heirs have not yet divided up the estate, the individual co-heirs also have the possibility of a “plea of the undivided estate” – regulated in § 2059 I BGB. The creditor still has the option to take action against the community of heirs as a whole. If he wishes to claim against a co-heir individually, which is permissible due to the structuring of the liability of the co-heirs as joint and several debtors under § 2058 BGB, the creditor can, however, refuse performance with the “plea of the undivided estate”. Consequently, the co-heir no longer has to settle the debt individually and can protect his private assets.
If the inheritance is heavily indebted, it is advisable to reject the inheritance and avoid liability for the estate’s liabilities. In addition to the testator’s assets, their debts are also transferred to the community of heirs. Even in the special constellation of the community of heirs, the disclaimer is in principle possible under § 1942.1 BGB.
It should be noted that under § 1943 BGB, the heir can no longer disclaim the inheritance once they have received it – which can also be determined by their conduct, e.g. applying for a certificate of inheritance – or once the rejection period has expired. According to § 1944.1 BGB, the deadline for disclaiming/rejecting the inheritance is six weeks after the heir has become aware of the inheritance and must be declared in writing to the probate court – the competent local court. The expiry of the disclaimer period automatically results in the inheritance being deemed accepted.
After the rejection of the inheritance, it falls to the rejecting party’s respective heir per § 1953.2 BGB. They must be informed of this by the probate court. Also, they automatically become part of the community of heirs as co-heir.
Also, § 1950 BGB provides that the disclaimer cannot be limited to a part of the inheritance. An exception to this is the case where there are several grounds for appeal by the heir. Reasons for appeal refer to the causes for the heir’s inheritance, which can arise from the heir’s voluntary and legal success. If, for example, the spouse’s heir status results from the will as an arbitrary succession on the one hand and the legal succession on the other, there are consequently several grounds for appeal. To reject the inheritance, the heir then has the right under § 1948 BGB to accept the inheritance on one ground of appeal and to reject it on the other. Depending on the case and distribution of the inheritance by the testator, it may, for example, be preferable for the heir from an economic point of view to reject the declared inheritance and accept the statutory inheritance.
Disposal / Transfer of Inherited Property – Conditions and Consequences
One of the most important rights of the heir in a community of heirs is the right to his share of the inheritance in the event of a division of the estate. This is calculated according to the inheritance quota and the composition of the estate. Before the settlement, the inheritance share is initially a share in the entire estate. As an option to leave the community of heirs, this portion of the estate can also be sold or otherwise disposed of. Per § 2033 (1) BGB, the disposal of the inheritance portion requires notarization.
If a co-heir wishes to sell his share to a third party, the remaining co-heirs are entitled to pre-emptive sale per § 2034(1) BGB. This right to pre-emptive sale can be exercised for two months. If the share has already been transferred to a third buyer, the co-heirs can also exercise the right to pre-emptive sale, which they were entitled to vis-à-vis the seller, vis-à-vis the buyer § 2035(1) BGB. According to § 2035(2) BGB, the seller is obliged to notify the co-heirs of the transfer of his share of the inheritance as soon as possible. After the transfer of the inheritance, the purchaser becomes part of the community of heirs and is thus also liable for the estate’s liabilities.
In addition to selling the inheritance to a co-heir or a third party, the heir also has the possibility to waive his inheritance and, in return, demand compensation from the remaining co-heirs of the community of heirs. This procedure is also known as “stratification and accumulation” and offers a further possibility to withdraw from the community of heirs.
Inheritance tax – What Must be Considered?
In principle, everyone who has financially benefitted from the inheritance needs to pay inheritance tax. This applies both to sole heirs and to co-heirs in the community of heirs. Since different tax classes and allowances may apply to each co-heir, each heir is liable to pay tax individually and not the community of heirs as a whole. However, the community of heirs can submit a uniform declaration to the tax office regarding the content of the joint estate.
The division of the estate among the joint-heirs is not subject to tax. Nor is the compensation paid by a co-heir for the receipt of an item from the estate which does not correspond in value to his inheritance quota taxable.
This information is only intended to provide a rough overview of the basic understanding of inheritance tax regarding the community of heirs. For a more detailed understanding, it is definitely advisable to seek tax advice. This may be necessary when dealing with more complicated issues, such as when business assets and real estate are part of the estate.
Settlement of an Estate and Dissolution of a Community of Heirs
The community of heirs is designed for an eventual dissolution as can be determined by its composition as a community of joint owners and the resulting complicated, joint administration of the estate. With the successful completion of the estate settlement, the goal of the community of heirs has been achieved. In the settlement, the estate must be divided among the co-heirs in its entirety according to the respective inheritance quotas. The community of heirs then dissolves automatically. We will show you how the community of heirs can come together to settle the estate, what a settlement agreement is and what needs to be taken into account when dividing up the estate and real estate.
The contract of settlement contains the agreement of the co-heirs on the estate division and conclusively regulates the distribution of the estate within the community of heirs. Within the contract, all assets must be divided according to the inheritance quotas of the individual co-heirs.
In the distribution of the estate, a particular difficulty arises in the division of assets and property of the estate among the co-heirs. When comparing individual estate assets and property, the value can fluctuate considerably so that the division does not correspond to the inheritance quotas. Utilizing division auctions, these values can be converted into money and divided accordingly. However, this procedure often does not do justice to the heirs’ interests or the testator. It is, therefore, more preferable if the co-heirs in the settlement contract assign estate assets and property for each heir by agreement and compensate for the lack of correspondence with the inheritance quotas through compensation claims.
All compensation claims and obligations, which, for example, also arose due to the testator’s gifts during his or her lifetime, are finally calculated and set off against each other so that in the end, it is clear for each co-heir which objects and properties are allocated to them, which compensation contributions they should receive from the respective co-heirs and which they must pay. Also, the settlement agreement can conclusively regulate the – already discussed – “stratification and accumulation” of inheritances. Furthermore, in the course of the distribution of the estate, the claims to the compulsory portion and bequests must also be fulfilled.
There are no special formal requirements for such a settlement agreement. This means that the co-heirs are theoretically only permitted to agree orally. To prevent later misunderstandings and disputes, it is nevertheless recommended in practice that the results of the dispute be recorded in writing and secured by the signatures of all co-heirs. An exception to the freedom of form of the settlement agreement exists if a certain formal requirement intervenes in the transfer of assets in regular legal transactions. This is then also to be applied to the contract of dispute, which must be observed in particular for transfers by notarial recordings, such as in the case of real estate or shares in a company.
All in all, the settlement must be kept in mind in the distribution of the estate. If a co-heir refuses to participate in the settlement or blocks it, no settlement agreement can be concluded so that consequently, no dissolution of the community of heirs can take place. An inheritance settlement action is not a quick and inexpensive solution to this problem. To be successful, the distribution of the estate among the co-heirs must already be determined, which may require a declaratory action. Therefore, it is strategic to focus on consideration and compromise during the negotiations for the settlement.
With the execution of the settlement agreement, i.e. the actual transfer of the assets to the co-heirs, the so-called “division of the estate” according to §§ 2059f BGB, can take place. Once this occurs, the community of heirs is terminated.
As seen, the community of heirs offers much potential for dispute. When it comes to the settlement of an estate, when it comes to which co-heir receives which object of the estate or which property and in which amount compensation claims are to be paid, discrepancies are inevitable. Consequently, the dissolution of the community of heirs is protracted. The estate administration must continue, and none of the heirs receives his share of the inheritance until the entire estate has been distributed in the settlement agreement.
The testator can already take preventive action against potential disputes during the preparation of the will by issuing a “division order”. In it, the testator determines exactly which heir is to receive which estate. In this way, they can prevent the co-heirs from selling the estate assets and property to preserve the inheritance. This is because the testator cannot assume with certainty that the co-heirs will unanimously allocate the assets among themselves, if necessary, against compensation claims. Through the division order, they can ensure the allocation and counteract a sale of the assets.
When the testator assigns the assets to the heirs, the value equalisation with the inheritance quotas must be considered. However, the testator has the option of excluding this equalization obligation. Also, they can order the execution of the will to ensure that their division order is enforced.