The Inheritance Contract in Germany (der Erbvertrag)

The inheritance contract (Erbvertrag) is a binding agreement between at least two parties, including the testator. It is a means of disposition of property and assets following the testator’s passing. An inheritance contract is less flexible and subject to more robust legal requirements than a will. Changing or cancelling an inheritance contract involves agreeing with the other parties involved in the agreement, and it must be notarized.

An inheritance contract allows the testator to place particular demands on the part of the prospective heir. An inheritance contract may consist of the testator leaving their property to the heir; however, the heir may face obligations to take care of the testator in their old age. An inheritance contract can be preferable to a will in some instances. An example of a situation where an inheritance contract is preferable is where the testator is not married to their partner. Generally, spousal wills are primarily for married couples or registered partners, but the inheritance contract does not face such limitations. It provides solid legal protection to the individuals party to the agreement and can help prevent legal disputes from arising, such as those that may result in the event of leaving a will.

Another case where an inheritance contract may be preferable is business succession planning. Entrepreneurs who have built a successful business may face challenging questions concerning inheriting the business. Whether they want to keep the company in the family, hand their share over to their business partners or look for another option, an inheritance contract is advisable in such scenarios. Early planning and comprehensive documentation of the process are advisable.

At Schlun & Elseven Rechtsanwälte, our full-service approach means that our lawyers provide advice on business succession planning requirements from German inheritance law and German corporate law perspectives.

There are stricter legal requirements for the inheritance contract than for a will. Under § 2276 German Civil Code (BGB), an inheritance contract can only be deemed valid if a notary notarizes it. Therefore, parties can’t draw up their own agreements without professionals involved. The contract must also be in writing and signed by all parties involved. The parties to the inheritance contract must have the full legal capacity to make such agreements.

Other requirements for the inheritance contract include the need to comply with German inheritance law, cannot violate public policy and must clearly state the distribution of assets and the legal rights and obligations involved. There will be variations within the inheritance contracts with the contents of the individual agreements. The contract should outline who is entitled to the testator’s estate. A prerequisite of the inheritance contract is that at least one binding disposition is made.

Such dispositions will vary between different cases as they can consist of a condition, decision or appointment made by the testator. An example of a condition would be that the heir will receive the property and assets of the testator, but in return, they will look after the testator in their old age. To determine what conditions are possible within inheritance contracts, it is advisable to consult with an expert in inheritance law.

One contract element that can be agreed upon is a rescission clause whereby the testator can exit from the inheritance contract. Alternatively, there can be a clause allowing the testator to render the inheritance contract ineffective by a future will. However, both sides need to be aware of what they are signing, and an agreement from both sides is required.

Compared to a will, an inheritance contract is more difficult to amend.

Parties involved cannot make spontaneous unilateral changes and must usually agree with the other contracting party. After all, it is a legally binding contract. Furthermore, the inheritance contract is generally kept in the possession of the notary, and therefore they must also be contacted regarding making such changes. It is always advisable to consult with a specialist in the field of German inheritance law before agreeing to sign an inheritance contract.

Similarly, annulling or cancelling an inheritance contract is possible; however, it can only be achieved in limited circumstances. Testators can include a clause allowing them to withdraw from the agreement, but they should consider legal advice in such matters before drawing up the contract.

Other methods to cancel an inheritance contract can happen in the following situations:

• Mutual agreement: If all parties in the contract agree to cancel it, mutual consent can revoke the contract. However, this change must be done in writing and before a notary.
• Revocation by one party: If one party wishes to revoke the contract, they must do so in writing and before a notary public. However, the other parties can object to the revocation within six weeks.
• Voidable: If the contract is voidable due to a legal defect, such as fraud, coercion or mistake, the contract can be cancelled by a court decision.
• Rescission: If the contract was entered into under a mistake of fact or a misrepresentation of fact, the contract can be rescinded within a reasonable time after discovering the mistake or misrepresentation.

Testators should also be aware that future wills cannot be used to change the inheritance contract unilaterally unless specific clauses within the Erbvertrag allow for it. Provisions within their will that contradict the inheritance contract will be deemed invalid.

It’s important to note that parties can only revoke an inheritance contract if it is still in the process of being executed, meaning that all assets have not been distributed yet. Once the assets have been distributed, revoking the contract is no longer possible.

The Erbvertrag provides degrees of security and certainty with a person’s inheritance plans; however, it does not prevent claims for the Pflichtteil (the compulsory share of inheritance).

The “Plichtteil” is a certain amount a testator is obliged (according to law) to leave to certain people. The certificate of inheritance allows certain people to be excluded from the will and for others to be prioritised; however, direct family members such as children (including adopted children), parents, spouses and grandchildren cannot be ignored in the will or inheritance contract.

The Pflichtteil is a minimum share of the estate to which these family members are entitled. It does not apply to more distant family members such as uncles, aunts, cousins and other relatives. The Pflichtteil can be avoided in certain restricted cases as listed by § 2333 BGB (German Civil Code):

A testator may deprive a descendant of his compulsory share if the descendant

1. Makes an attempt on the life of the testator, of the spouse of the testator, or of another descendant or of a person similarly close to the testator,
2. is guilty of a major offence or of a serious intentional minor offence against one of the persons designated in no. 1,
3. wilfully violates the statutory obligation to the testator incumbent upon him to maintain the testator, or
4. is finally sentenced to at least one year’s imprisonment without probation because of an intentional criminal offence, and participation of the descendant in the estate is hence unreasonable for the testator. The same applies if the accommodation of the descendant in a psychiatric hospital or in a withdrawal clinic is finally ordered because of a similarly serious intentional offence.

As can be seen, the requirements are pretty strict. A problematic family relationship is insufficient to exclude a close family member from their Pflichtteil entitlements.

Alternatively, family members can sign a contract of renunciation of inheritance to waive their right to the Pflichtteil. Parties should consider consulting with legal advice before taking this action. Gifts made by the testator during their lifetime are also a means by which they can get around the necessities outlined by the Pflichtteil.