Property Inheritance: Without a Will
Under German law it is not a necessity 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 the statutory succession it is the testator’s closest relatives who 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 it is likely that the property (or properties) which the testator personally owns may go into a community of heirs’ scenario. We will outline what this involves later on this page.
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 Pflichtteil / compulsory share of the inheritance. This applies for the children and spouse / partner of the deceased along with some other family members depending on the situation. You can find more information about the legal requirements of the Pflichtteil on our page about the topic but the most important aspect 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, nut it needs to be borne in mind 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 simply 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
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 then 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 towards may not be the best action one can take. Remember, when making the decision to accept or reject a property that 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 to property to ensure that it does not go into the hands of these creditors. Other than these scenarios there are other reasons why inheriting a 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 provided for. 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 amount for the tax-free allowance decreases as the person gets further away from the testator in terms of relationship. For example: if the heir is not related to the testator, they will only receive a tax-free allowance of €20,000.
What this means is 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 left over following the application of the €500,000 tax-free allowance.
Upon becoming aware of your status of heir, and inheriting the property, the heir is obliged to inform the tax authorities of their inheritance so that is can be assessed. Once they are aware of the inheritance and have made the required valuations, they will be able to calculate the inheritance tax due on the property. However, it may be worthwhile availing of the services of a professional 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”. On our page “Community of Heirs” you will find more information about how to act in this situation generally. The community of heirs creates difficulties for individuals when it comes to property inheritance as the community must act as a group. Thus, in this situation, the property itself is not divided up amongst the individual heirs and so they must make collective decisions when it comes to the property. Depending on the circumstances, this can be difficult to achieve and especially when there are many members of the community 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 physically divide the property into different units. Should the parties be able to make this division of the property and then register the new plots of land then they will have control over their plots of land. Once this control has been established; individual heirs will be able to 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 a rare event.
- 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 value of the share and 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 arising, we can advise you on writing a will in Germany. We will also provide some guidance on this page.
If as a testator, you wish to avoid establishing a community of heirs there are several actions which can be taken. Avoiding the community of heirs scenario may help to prevent disputes and divisions around the handling of the property in question. 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 purpose of 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. So, if the gift was made in the final year of the testator’s life than the whole value of the gift is included in the value of the estate, whereas if the gift was made five years prior to the testator’s passing then 50% of the value of the gift is included in the value of the estate. If ten years elapses than 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 in a fair manner. 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 look no further than Schlun & Elseven Attorneys. Our legal professionals will provide you with the peace of mind you need when it comes to planning for the future and aim to ensure that your plans are carried out in according to your wishes. Our lawyers will assist with the designing of wills and will discuss vital elements relating to the law behind it. We also provide counsel and support to heirs as well as testators and our services extend to both inside and outside of the courtroom.
Schlun & Elseven Attorneys 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 thus are available nationwide in Germany. Furthermore, we advise a diverse range of international clients on a wide variety of German inheritance law. If you require further advice and more specialised assistance when it comes to property and inheritance law, then please make sure to contact us directly using the contact information below. Our inheritance law specialists look forward to working with you.