Estate Planning in Germany
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Estate Planning in Germany

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Planning your estate can be an unpleasant business. It is often delayed or completely neglected. The reason for this is not only the inevitable preoccupation with one’s demise but also the effort and complexity of estate planning. Legal questions and, if necessary, problems often arise that can also go beyond inheritance law. Tax and corporate law, for example, are often of great relevance.

Careful estate planning ensures that your wishes for the succession of your assets are implemented. It also serves to avoid losses in value. Moreover, by creating clarity, inheritance disputes can be prevented. For those and other reasons, timely and forward-looking estate planning is recommended.

In the following article, you will come to know some structuring options for estate planning. If you have any questions or would like individual legal advice, please do not hesitate to contact the legal team at Schlun & Elseven Rechtsanwälte.

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Disposition due to Death

The most important tool for settling the estate is the disposition of property upon death, which can be drawn up in the form of a will or a contract of inheritance. In addition to the desired appointments of heirs and disinheritances, it may also be possible to impose conditions, e.g., about the burial or care of a relative. In addition, the testator can use a division order to determine how particular objects of the estate are to be distributed among the heirs when the estate is divided. Furthermore, pre- and post-heirs can be designated, or the appointment of a substitute heir can be considered if the heir predeceases the testator.

Joint will and prenuptial agreement

A special form of will is the joint will. This is a testamentary disposition made jointly by spouses or registered partners. In principle, a distinction can be made between three types of joint will:

  • Simultaneous joint will,
  • Mutual will,
  • Alternating will,
  • Berlin will (special form).

A mutual will is a document in which the spouses record joint dispositions. These are always dependent on each other. It is essential to consider that the inheritance of one of the partners creates an inheritance obligation from which the other cannot easily withdraw.

It may be advisable to conclude an inheritance contract instead of a will. This applies particularly if inheritance provisions, legacies or conditions are binding, i.e., no longer unilaterally modifiable.

Form of the disposition of property upon death

Regardless of the form chosen for the disposition of property upon death, care must always be taken to ensure that the wording is unambiguous. There is no ambiguity about the last will and testament in the event of inheritance. In addition, the respective formal requirements must be observed. To avoid later discrepancies, the testamentary disposition should also be regularly checked to see whether it still corresponds to the current situation in life. If this is not the case, appropriate adjustments must be made, e.g., to reflect changes in family relationships.

Our experienced lawyer for inheritance law, Dr Thomas Bichat, will be happy to provide you with legal advice and discuss how you can best implement your wishes in your will or inheritance contract.

Consideration of Claims to a Compulsory Portion

Within the framework of careful estate planning, claims to a compulsory portion (“Pflichtteil”) should also be considered. The compulsory portion claim is a purely monetary claim amounting to half of the statutory share of the inheritance that arises in the event of succession. Those entitled to a compulsory portion include:

  • Spouses or registered civil partners,
  • Children and children’s children,
  • Parents of the deceased.

It is a prerequisite that they are excluded from the succession by the testamentary disposition (cf. § 2303 BGB).

Suppose a beneficiary of the compulsory portion receives a portion of the inheritance that is less than the claim to the compulsory portion due to the testator’s testamentary disposition. In that case, they have a claim to the compulsory portion (cf. § 2305 BGB). This means that in addition to their share of the inheritance, they can claim the difference between their and the compulsory portion from the co-heirs.

In addition, a so-called claim to supplementary compulsory portion may arise, which considers gifts made by the deceased within the last ten years before the inheritance (cf. § 2325 BGB).

The right to a compulsory portion can cause considerable problems. For example, it can lead to the heirs having to sell a property from the estate to fulfil the claim to the compulsory portion. To prevent this, a waiver of the compulsory portion, which is contractually agreed on between the testator and the beneficiary of the compulsory amount, may be an option. In return, the renouncing party usually receives a settlement. The contract waiving the compulsory portion thus stipulates that the waiving party is not entitled to any payments in the event of inheritance. However, it is problematic that the renouncer’s cooperation is required. As an alternative, a restriction of compulsory portion using lifetime gifts by the testator may be considered, although there are several things to bear in mind.

Moreover, deprivation of the compulsory portion is only possible in the case of severe misconduct on the part of the beneficiary of the compulsory portion, which are listed exhaustively in § 2333 BGB. If one of these are grounds for deprivation exists, the deprivation can be ordered by testamentary disposition.

Anticipated Succession

Anticipated succession is the transfer of assets to an heir during their lifetime. These usually take the form of gits. In the event of inheritance, such gifts are considered in the settlement between the heirs by being offset against the respective share of the estate.

Transfers during a lifetime can be attractive for tax reasons, for example. This is because only that part of the assets that remain after deduction of the allowances is subject to inheritance tax or gift tax. If the assets of the future testator exceed the allowances in the case of inheritance, they can be effectively used through early gifts. After several years, the corresponding allowances come back to life and can be fully utilised again.

The testator has the option of reserving rights of use to the assets transferred during their lifetime. For example, in the case of real estate, they can secure a lifelong right of residence or usufruct. As a usufructuary, the future testator can continue to rent out the property themselves. It should be noted that the agreement on the usufruct of a property requires notarization and entry in the land register.

However, if a promise to make a gift made during one’s lifetime is subject to the condition that they survive the deceased, the statutory provisions on dispositions on account of death apply. Since there are several things to consider about anticipated succession, it is advisable to seek advice from an experienced lawyer for inheritance law.

Organising and Arranging the Legacy

Another possible form of estate planning is legacy. In this way, the testator can give a person individual items from the estate or even a certain sum of money without appointing them as heir (§ 1939 BGB). The testator must order the legacy in the will or the contract of inheritance. To avoid misunderstandings, the arrangement should clearly state that it is a legacy, and that the respective person is not appointed as an heir.

One difference to inheritance is that ownership of the bequeathed estate does not pass to the legatee immediately upon legacy. Instead, they receive a claim for restitution against the heirs.

However, it is possible to order a bequest to an heir (“advance bequest”: § 2150 BGB). In this case, the heir already receives the corresponding estate object and their inheritance share before the inheritance is divided. This is to be distinguished from the related asset’s division order and considered in the estate division. Whereas the partition order determines the division of the estate, an advance bequest regulates the donation of an object independent of the rest of the estate and therefore does not count towards the inheritance. Particularly about the division order and the advanced legacy, it becomes clear how important it is to clearly formulate all instructions for the estate.

The Execution of a Will

The execution of a will serves to ensure that the wishes and instructions of the testator are observed. The executor´s task is to administer the estate accordingly and, if necessary, distribute it among the heirs (cf. § 2203 BGB). The execution of a will is particularly suitable for several heirs to avoid conflicts in the community of heirs over the administration and distribution of the estate. Another advantage can be to protect the heirs from being overburdened in settlement of the estate. The execution of a will makes sense, especially in minor heirs who cannot take administration into their own hands.

The execution of a will is also ordered by a testamentary disposition, whereby it can be adapted to the individual needs of the testator. Care must be taken to ensure that the instructions are unambiguous. In addition, it is essential to choose the executor carefully and prudently for proper and reliable execution of the will. It is also advisable to determine the executor’s remuneration to avoid later disputes with the heirs.

Business Succession and Digital Estate

Company succession should also be planned in good time and with foresight. It is advisable to consider the event of death when drafting partnership agreements in the form of succession arrangements. In our article on business succession by inheritance, you can read more about the entrepreneur’s will and the arrangement of the execution of the will on the company. Our lawyers for corporate law and inheritance law will be happy to advise you individually on your estate planning about your business.

The digital estate often goes unnoticed. However, regulations in this regard are also part of comprehensive estate planning. The digital estate includes all your digital assets such as the contents of internet accounts, domains or assets in cryptocurrencies such as Bitcoin. Our team of lawyers will be happy to provide you with legal advice in this area.

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Practice Group: German Inheritance Law

Practice Group:
German Inheritance Law

Dr. Thomas Bichat