Inheritance Law and Tax
A careful look at German inheritance law for foreigners with assets inside and outside of Germany...
The Probate court or Surrogate's court (Nachlassgericht), a division of the local municipal court (Amtsgericht), holds jurisdiction over wills and inheritance in Germany. In the event of an estate involving assets in two or more countries, German "conflict of law" rules stipulate that jurisdiction of an international estate is established by the laws of the country of citizenship of the deceased at the moment of death.
German estate, inheritance, and succession law falls under federal law and thus is applied uniformly across the country. State to state differences do not exist when it comes to the application of estate and probate law in Germany.
The EU civil law governs German estate, inheritance, and succession law. Inheritance laws in Germany distinguish between the rightful heirs (Erben) and any other beneficiary to the decedent (Erblasser), with concern to the estate (Nachlass).
Under German law, the rightful heir claims all the rights and responsibilities of the decedent immediately upon the decedent's death; there can be no interposition of a fiduciary or trustee. In order to win these rights and responsibilities, any other potential beneficiary would have to make a claim against the German heir or other bodies such as a joint "Tenancy in Common" of heirs (Gesamthandsgemeinschaft or Erbengemeinschaft). Claims can only be made against persons or groups of persons. They cannot be made against the inheritance itself because an estate is not a legal entity. This contrasts with US common law in which an estate is a legal entity (Juristische Person).
German forced heirship rules (Pflichtteilsrecht) limit the freedom governing testaments (Testierfreiheit) to a German decedent's surviving spouse and to the decedent's surviving children. Thus, this "Testatorship" is limited to the decedent's descendants of the first degree, as opposed the decedent's grandchildren or great grandchildren or any more remote kinship.
In effect this means that only a surviving spouse and surviving children qualify under the German forced heirship rules (Pflichtteilsrecht). This is especially important, should open debts be left as part of a testament.
There is no estate tax in Germany. Instead inheritance tax (Erbschaftssteuer) will be raised for each individual heir or beneficiary and not on the entirety of a German estate. Allowances, exemptions, tax tables and inheritance tax rates will also not apply to the estate, but to each heir or beneficiary. Maximum tax rates for the inheritance tax may range from 17 to 50 percent, depending on the degree of kinship with the decedent of each heir or beneficiary.
- For more information on inheritance tax from the Chamber of Federal Notaries: Click here (in German)
The effect on non-German citizens?
Germany and the EU, along with most other countries, have various transnational and international legal treaties which ensure that inheritances are not taxed twice.
The deciding factor in establishing the jurisdiction of the inheritance and the applicable tax code is the citizenship of the decedent (in the case of movable property) or the location of the inheritance (in the case of the immovable property or real estate). The status of the beneficiary should not determine or affect how the inheritance is taxed, depending on the existence of international inheritance treaties.
A foreigner (whether a resident or a non-resident) who owns immovable property in Germany can create a will based on German law. If a foreigner owns only movable property, then inheritance is governed by the laws of the country where the foreigner has citizenship.
The status of the decedent is the main factor in determining which country has jurisdiction over an estate, and which country's taxes will apply. If the decedent was an EU citizen, the EU law will apply regardless of the nationality of the beneficiaries.
Other issues for foreign residents (EU and non EU)
It is important to note the difference between EU law and American inheritance law. For example, the American "Putnam scrutiny principle", which prevents the making of testamentary bequests to people who are in a confidential relationship with the one making the will, does not exist in Germany or the rest of the EU member states.
If the decedent possesses more than one citizenship at the time of death, any non-German citizenship is disregarded by German law in determining the laws applicable to the estate.
In the event of immovable assets or real estate, German conflict of law rules defer to the laws of the country of location (Belegenheit) of the real estate or immovable assets.
- German Chamber of Notary Publics
- German Foreign Office - guide to having German documents like wills certified while away from Germany
- European Judicial Network - European Union site explaining EU and German law concerning wills and succession