Property Inheritance in Germany: Without a Will
Under German law, it is not necessary to draw up a will. Wills provide the testator with more control over how their property and assets are divided following their passing, but there is no requirement for this to be done. However, should they not draw up a will, then the statutory succession will take place (which may be deemed suitable). Under statutory succession, the testator’s closest relatives will find themselves in line to inheritance. In this case, spouses and children will be at the forefront with parents coming into the picture should they not have children to pass their assets onto. Should there be children and partners/spouses in the picture, the property (or properties) the testator personally owns may go into a community of heirs‘ scenario.
It should be noted that although drawing up a will does provide the testator with a certain control over how the assets are dealt with, they do not have complete control to do as they please. German law provides for the compulsory share of the inheritance (der Pflichtteil). This applies to the deceased’s children and spouse/partner, and some other family members, depending on the situation. The most important aspect of the Pflichtteil to remember is that the children and some other family members (statutory heirs) cannot be left without inheriting something. There are some exceptions to this rule, and the statutory heirs do have the power to waive their inheritance rights, but it needs to be considered when designing the will.
Property Inheritance: Owners and One Heir
This is (generally) the most straightforward form of property inheritance. In this scenario, the testator owns the property directly without others having shares in the ownership, and they leave it to a single heir. The sole heir, in this case, has the ownership of the property transferred to them following the passing of the testator. From there, the heir needs to register the property as being under their control. Following this action, the heir is the new owner of the property. However, it is not advisable to rush into accepting an inheritance, as we will explain in greater detail.
If the property is co-owned and there is another owner of the property, the testator can leave their share to their heir. This happens quite often with married couples or business partners. The co-owner does not lose their share of the property to the heir in this scenario. Should parties wish to end the co-ownership, they can seek a cancellation claim under § 749 BGB and look to sell the property to a new owner.
Risks involved with 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 decide. This is not a huge amount of time, and it is important to use this time carefully. Accepting full inheritance for a property with significant debts or one in which other parties have extensive rights of access may not be the best action one can take. Remember, when deciding to accept or reject a property, the inheritance must be accepted in full, so this includes 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 large role in determining the allowances. When the heir is the testator’s spouse, a tax-free allowance exists of up to the amount of €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 in terms of the relationship. For example: if the heir is not related 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 is obliged to inform the tax authorities of their inheritance to be assessed. Once they are aware of the inheritance 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 in the field of price evaluation 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, and 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 up amongst the individual heirs, so they must make collective decisions regarding the property. Depending on the circumstances, this can be not easy to achieve, especially when there are many community members of heirs.
If agreement cannot be reached between the community of heirs, there are solutions available to individuals amongst such a group.
- Firstly, division of the property. If possible, one solution may be to divide the property into different units physically. Should the parties be able to make this division of the property 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 to build on it.
- Secondly, divisional auction of the property. Seeking to auction off the property may enable third parties to purchase the land and end the complications to do 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, sale of share. Being involved in a community of heirs can be tedious, and thus it should come as 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 as well as to third parties. This option can also lead to disputes, and once again, we would recommend contacting legal advisors before deciding on this path.
As can be seen here, the community of heirs scenario is not an efficient way of resolving property inheritance, and it 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, and 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. This can reduce the value of the estate for the Pflichtteil, but this value does not reduce completely overnight. The value of the property/gift (as part of the whole estate) reduces by 10% per year when it comes to the Pflichtteil. If the gift was made in the final year of the testator’s life, then the whole 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, then the gifted property is no longer included in the estate when it comes to 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 an option worth considering. Doing it in this manner 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 fairly. 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 on this matter. Our expertise will ensure that the will is designed in the manner sought after by the testator.
Legal Representation in Inheritance Law Issues
When it comes to inheritance law and property inheritance in Germany, look no further than Schlun & Elseven Rechtsanwälte. Our legal professionals will provide you with the peace of mind you need when planning for the future and aim to ensure that your plans are carried out according to your wishes. Our lawyers will assist with designing wills and will discuss vital elements relating to the law behind them. We also provide counsel and support to heirs and testators, and our services extend to both inside and outside of the courtroom.
Schlun & Elseven Rechtsanwälte is a German legal firm with its main offices in Cologne, Düsseldorf and Aachen. We also have conference rooms in Berlin, Munich, Stuttgart, Hamburg and Frankfurt and are available nationwide in Germany. Furthermore, we advise a diverse range of international clients on a wide variety of German inheritance law issues. If you require further advice and more specialised assistance when it comes to property and inheritance law, please contact us directly using the contact information below. Our inheritance law specialists look forward to working with you.