Property Inheritance in Germany

Accepting inheritance is not always recommendable. Sometimes property inheritance can arrive with significant debts, and thus the property may end up costing more money and resources to run than it is worth. When it comes to deciding whether to accept or reject a property, the heir has six weeks in which to settle. This is not a considerable amount of time, and it is essential to use this time carefully. Accepting entire inheritance for a property with significant debts or one in which other parties have extensive access rights may not be the best action one can take. Remember, when deciding to accept or reject a property, the acceptance involves receiving the inheritance entirely, including the good and the bad.

If the testator was in debt at the time of their passing, or if they were weighed down with significant loan repayments, accepting the inheritance will result in you inheriting these debts. Similarly, if you are in debt or have serious issues concerning insolvency, your creditors may be able to get access to the property. In such a scenario, it may be better for your next of kin to receive property to ensure that it does not go into the hands of these creditors.

Other than these scenarios, there are other reasons why inheriting property may not be of benefit to you:

• The property cannot be used for a purpose you have in mind,
• Personal reasons,
• Restoring the property may cost too much,
• The land is not of significant value or is unsuitable for development plans,

There are many good reasons for not accepting a property. However, it is advisable to contact a legal professional or another advisor to discuss the ramifications of such a decision. Properties can, of course, be sold following the inheritance if need be.

Inheritance tax also needs to be considered when dealing with the field of inheritance law and inheriting properties. The amount of inheritance tax that will need to be paid is based on the following factors:

• The value of the property,
• Value of the estate,
• Relationship between the testator and the heir,
• The number of heirs.

Inheritance tax applies to houses, apartments and land which the heirs inherit. However, as stated, the relationship between the testator and the heir plays a prominent role in determining the allowances. When the heir is the testator’s spouse, a tax-free allowance exists for up to €500,000. For children, this is in place for up to €400,000.

The tax-free allowance decreases as the person gets further away from the testator regarding the relationship. For example: if the heir is unrelated to the testator, they will only receive a tax-free allowance of €20,000. This means that where a testator leaves an estate consisting of a property valued at €250,000, and their spouse is the single heir, they will receive it tax-free (as would a single child inheriting it as sole heir). However, if the property is valued at €700,000 and left solely to the spouse, then the inheritance tax will apply to the €200,000 remaining following the €500,000 tax-free allowance.

Upon becoming aware of your status as an heir and inheriting the property, the heir must inform the tax authorities of their inheritance to be assessed. Once they are aware of the estate and have made the required valuations, they will calculate the inheritance tax due on the property. However, it may be worth availing of a professional’s services with price evaluations to ensure that the property is valued accurately. There will be a cost involved with hiring a professional property evaluator, but it could end up saving money in the context of inheritance tax.

In many cases, the testator does not leave their property in the hands of one sole heir; instead, it is left to what is called “the community of heirs“. The community of heirs creates difficulties for individuals regarding property inheritance in Germany, as the community must act as a group. Thus, in this situation, the property itself is not divided amongst the individual heirs, so they must make collective decisions. Depending on the circumstances, this can be difficult to achieve, especially when there are many community members of heirs.

If the parties cannot agree, solutions are available to individuals in such a group.

• Firstly, the division of the property. One possible solution may be to divide the property into different units physically. Should the parties be able to make this property division and then register the new land plots, they will have control over their plots of land. Once this control has been established, individual heirs will make important decisions concerning their property. These decisions boil down to whether to sell the property or build on it.
• Secondly, a divisional auction of the property. Seeking to auction off the property may enable third parties to purchase the land and end the complications with the community of heirs, but it has drawbacks. If it comes across that the community of heirs desire to dispose of the property, it may lead to the land being sold for below market value. Auctions are not reliable when it comes to this issue, and selling below value is not rare.
• Thirdly, the sale of shares. Being involved in a community of heirs can be tedious, and thus it should be no surprise that many heirs seek to exit the arrangement by selling their share. Once again, there is the risk of selling below the share value, so it is worth consulting with advisors before making the sale official. The share can be sold to others within the community and third parties. This option can also lead to disputes, and once again, we recommend contacting legal advisors before deciding on this path.

The community of heirs scenario is not an efficient way of resolving property inheritance and should be avoided where possible. If, as a testator, you require advice on how to prevent this situation from arising, we can advise you on writing a will in Germany.

If, as a testator, you wish to avoid establishing a community of heirs, several actions can be taken. One obvious step which can be taken is to leave individual properties to different individuals. Of course, the Pflichtteil (compulsory share of inheritance) must also be considered when making this division, so leaving it to individuals may be difficult. It may also cause problems around a deemed injustice. It may not be ideal, but it is worth considering.

Another option available is to gift the land to the heir, as this can reduce the value of the estate for the Pflichtteil. But this value does not reduce entirely overnight. The value of the property/gift (as part of the whole estate) reduces by 10% per year for the Pflichtteil. If the donation was made in the final year of the testator’s life, then the total value of the gift is included in the value of the estate. In contrast, if the gift was made five years before the testator’s passing, then 50% of the value of the gift is included in the value of the estate. If ten years elapse, the gifted property is no longer included in the estate regarding the Pflichtteil. However, the gifted property must be in the possession and power of the person receiving the gift. The former owner cannot be a de-facto owner behind the scenes.

Finally, gifting the property to several family members or close friends may also be worth considering. Doing it this way may ensure that no one loses out and has to reach for the Pflichtteil while also making clear plans for how the property should be disposed of reasonably. Of course, there is no guarantee that everything will go according to the testator’s plan but entrusting loved ones to carry out their final will is a safer method than most. Make sure to consult with our inheritance lawyers before making a final decision. Our expertise will ensure that the will is designed in the manner sought after by the testator.