The inheritance – will, inheritance tax and the compulsory portion

Without a will, the estate is distributed according to the rules of intestate succession. However, this is not always in the best interests of the testator. If a will exists, the assets can be distributed in a different way than the law provides for and persons not related by blood can also inherit. The creation of a will is therefore not only important to regulate the last will exactly, but also to avoid disputes in the family. Find out everything about wills and inheritance from the experts at IHV.

Bequeathing correctly during your lifetime – wills and the legal consequences

Without a will, the estate is distributed according to the rules of intestate succession. However, this is not always in the best interests of the testator. If a will exists, the assets can be distributed in a different way than the law provides for and persons not related by blood can also inherit. The creation of a will is therefore not only important to regulate the last will exactly, but also to avoid disputes in the family.

A will overrides intestate succession and can thus establish a new succession. Who is to inherit is determined by the testator. If more than one person is named, the assets are usually divided according to quotas. Writing a will also gives the testator the option of leaving individual things to certain people, for example a car, jewellery or property. However, these are not legally considered an inheritance, but a legacy. In order to avoid disputes about the estate, the estate can be distributed in a will in such a way that no disputes can arise.

If there is no will and a property is part of the estate, it becomes the property of the heirs. In most cases, a community of heirs is formed in which no one can dispose of the inheritance alone. When selling such a property, all heirs must agree. This fact can often lead to disputes within the community of heirs. In addition, the costs incurred for a notarial will are usually only half as low as the costs for a certificate of inheritance procedure that the heirs face if no will exists. In the will, the last will over the property can be regulated exactly and disputes and superfluous costs are saved for all involved.

Pre-heir and post-heir – tasks, duties and rights

The testator is free to determine the heirs and can therefore transfer his property to several persons in a temporal displacement. Accordingly, the subsequent heir receives his inheritance only after another person, in this case the previous heir, has inherited. The testator can, for example, choose an occasion or a time for the succession to occur, such as coming of age or passing the master’s examination.
The previous and subsequent heirs are both legal successors of the deceased, but do not form a community of heirs in which they would inherit at the same time, but rather inherit at staggered times due to the deceased’s instigation. The subsequent heir has an expectant right to the succession, and therefore, when the succession occurs, the inheritance of the previous heir is forfeited, the latter ceases to be an heir, and the inheritance accrues to the subsequent heir. In the event that the subsequent heir is already deceased at the time of the succession, the testator should take precautions and name further subsequent heirs.

The pre-heirs are also referred to as ‘temporary heirs’. Depending on the interpretation of the will, the pre-heirs only have certain powers of disposal over the estate and are therefore quite limited in what they can do. In addition, inheritance tax always falls on the pre-heirs at the beginning, as only they are legally named as heirs and thus bear the tax consequences.

Inheritance allowances – Inheritance taxes and gifts

In order to protect the heirs from a large financial burden, different tax rates and allowances apply depending on the degree of relationship. These allowances include various things that do not have to be taxed, so that the heirs do not have to pay the most as taxes, especially in the case of a large estate.
Pension allowances are payable if the partner or children were dependent on the financial support of the deceased. For spouses, the pension allowance is €256,000 provided the surviving spouse does not have a widow’s pension or occupational pension that is not subject to inheritance tax. For children, pension allowances apply which are staggered according to the age of the child at the time of death. Infants up to the age of 5 are entitled to a pension allowance of 52,000 euros. Starting from this point, the pension allowance decreases by approximately 10,000 euros every five years. Children aged 20 to 27 can therefore claim a pension allowance of 10,300 euros, but these allowances are only relevant if the children do not have their own pension payments, such as an orphan’s pension.

The other allowances, in addition to the pension allowances, are regulated according to the degree of relationship and are independent of existing survivors’ pensions or own assets. Accordingly, spouses and registered partners inherit an allowance of 500,000 euros. Children of the deceased or grandchildren of the deceased, if their parents die before the inheritance, can claim an allowance of 400,000 euros. Grandchildren whose parents are still alive can claim an allowance of 200,000 euros. Great-grandchildren or the deceased’s own parents are entitled to an allowance of 100,000 euros. All other heirs can claim tax allowances of 20,000 euros. To ensure that as little tax as possible has to be paid on inheritance, the testator can make important decisions long before death and specify them in the will.

Inheritance tax and gifts – all important information

Inheritance tax and gift tax are closely linked. Almost the same allowances apply as in the case of inheritance, however, the gift allowances may only be left tax-free once in ten years. Testators who wish to reduce the inheritance tax for their heirs must therefore start gifting their assets ten years before their death. In the case of patchwork families, this rule means that it can make sense to adopt the spouse’s children in order to bring the tax-free amounts into line with those of the biological children. The adoption does not affect the succession to the other biological parent.

In addition to tax-free allowances, there are also goods that are tax-free. For close relatives in tax class I, movable assets such as household effects or similar objects of daily use are tax-exempt if they do not exceed a value of 42,000 euros. For all other heirs, a value of 12,000 euros applies here. If works of art, archives or libraries are part of the estate, they are generally exempt from tax at a rate of 60 percent. If the estate includes a building in which one of the heirs lives, this can also be exempt from tax.

The compulsory part of the inheritance – disinheritance, will and inheritance contract

In principle, everyone is free to decide whom to appoint as heir and whom to disinherit. The testator does not have to justify in his will why he excludes a relative from the succession. However, an exclusion does not mean that the heir receives nothing, because every heir has a claim to a compulsory portion. This claim must be requested by the heir himself, because the certificate of inheritance does not record these compulsory portion claims. If a testator designates a person as sole heir, this means on the one hand that this person alone inherits the entire estate, but also that no one else should inherit who would actually be entitled to inherit.

Married couples can jointly disinherit close relatives in an inheritance contract or a Berlin will. In a classic form of the Berlin will, the spouses stipulate that the longer-living partner will be the sole heir and that the children will only inherit when both spouses have died. Thus, the parents disinherit their children until both are deceased. If someone is disinherited, the part of the inheritance that would have gone to this heir goes to the person who would have become the heir if the disinherited person had already died at the time of the inheritance.

Settling the inheritance – communities of heirs and intestate succession

Ideally, the heirs of a community of heirs would pay any debts swiftly from the estate and then dissolve the community of heirs by distributing the surplus according to shares. However, this is often not the reality. Disputes within the community of heirs often ensure that they remain unresolved for years after the inheritance. Each member of such a community of heirs has the right to demand dissolution at any time, even without good cause.
In order for a community of heirs to be dissolved without disputes, it is advisable to follow certain steps. From the correct valuation of the estate to inheritance taxes, there are important formalities to observe.

• Determine the estate

  Until the estate has been determined, a community of heirs cannot be divided. The heirs receive most of the information from the bank where the deceased had the accounts or deposits. In order to gain access to these, a certificate of inheritance or a will with a court opening protocol is required. However, debts are also part of the estate. In order to determine the estate completely, the debts and the assets should be compared and reconciled.

• Pay the debts of the estate

  The debts of the estate can be paid by the heirs of the community of heirs from the estate. It is not uncommon for items belonging to the estate to have to be sold for this purpose, such as real estate or land.

• The gifts and donations take into account

  If an heir has received gifts or donations from the deceased during his or her lifetime, these may be subject to equalisation. The gifts that are subject to equalisation increase the estate arithmetically and are deducted from the inheritance quota of the donee. Each heir can request information from the others about such gifts so that they are correctly taken into account.

• Sell the indivisible items

  If a true division is not possible for certain items, such as a property in the community of heirs, the heirs may have to sell this item or have it foreclosed. In order to do this, a realistic sales price must first be determined. If no agreement can be reached here, a partition auction can be initiated by one of the heirs.

• Distribute the divisible objects

  The inheritance is to be divided in the first place in nature by the heirs. Each heir can therefore take items for himself from the estate in agreement with the other heirs. Money and securities can be divided by the community of heirs according to their respective shares.

• The care services take into account

  If a child has cared for the deceased parent without consideration during his or her lifetime, compensation may be claimed for this. This must be appropriate to the duration, scope and value of the estate.

• The notary helps

  If an agreement cannot be reached, a notary can be called in by the community of heirs. This mediates between the heirs in order to reach an agreement as quickly as possible. However, it should be borne in mind that such assistance is associated with some costs.

• Consider the tax office

  Inheritance tax is always payable on an inheritance. However, some things from the estate can be deducted from the tax, such as the costs of the funeral or fees for the opening of the will.

The legal succession – this is how you inherit according to law

Legal succession regulates both the order of heirs and the individual amounts that are inherited. First the closest relatives, such as children and grandchildren, inherit and then the more distant relatives, such as nephews and nieces. Closer relatives generally exclude the more distant relatives from inheritance. The proportion to which the individual heirs inherit is documented in the certificate of inheritance. The legal succession is based on the Parantel – or order system. It divides the relatives into different orders. Accordingly, children and grandchildren of the deceased belong to the first order. Parents, siblings, nieces and nephews of the testator are assigned to the second order. The third order includes grandparents, uncles and aunts as well as cousins of the deceased. Spouses and registered partners are not considered relatives, but have the right of inheritance as spouses. This gives them a special status and limits the right of relatives to inherit. Relatives of the preceding order always exclude relatives of a subsequent order from the succession.

Learn more about intestate succession!

The partition auction in communities of heirs – the costs and the procedure

Objects such as real estate or land often give rise to disputes in communities of heirs. The ideas of how to proceed with the common property are too different and the participants cannot agree. Every heir has the right to demand a partition of the community of heirs at any time and thus to force its dissolution. In such a case, a partition auction can be the last resort to settle the disputes and dissolve the community of heirs.

Heirs without a will – depending on the degree of relationship

Although the spouse or registered partner is not considered a relative in the legal succession, he or she has a special position. If the deceased leaves both a spouse and children, the spouse inherits half of the estate and the children the other half. However, if there are more than three children, the spouse receives only one-fourth and the children divide the remainder among themselves. If there are only second-order relatives or grandparents, the spouse receives half of the estate and the second- and third-order relatives share the other half. If there are no relatives of the first, second or third order, the spouse inherits everything.

Heirs of the first order – children and grandchildren

The first order includes the children and grandchildren of the deceased. Non-marital children born after 1 July 1949 are also entitled to inherit. If a child of the deceased and the spouse are living at the time of death, both inherit half. If several children are living, the inheritance is divided between them and the spouse. If children of the deceased are already deceased, the grandchildren inherit.
Explained by example: If the deceased leaves his mother, his spouse, 2 children with two grandchildren each and a deceased child with one grandchild, the following succession results. The mother is not entitled to inherit because she belongs to the second order and there are heirs of the first order. The spouse and the two living children inherit in equal shares. The grandchild of the deceased child takes the place of the parent in the succession and thus inherits in equal shares with the two living children and the spouse. The grandchildren of the living children also do not inherit.

Heirs of the second order – parents and siblings

If there are no children or grandchildren, the heirs of the second order. The second order includes parents, siblings, nephews and nieces. If both parents of the deceased are alive at the time of death, the estate is divided in half. However, if one parent is already deceased, the descendants of this parent, i.e. siblings or nieces and nephews of the deceased, take their place.
Explained by example: The testator leaves his mother, a sister with two children, a nephew of the deceased brother and a half-sister from the father’s second marriage. The inheritance is therefore distributed as follows: One half of the estate goes to the mother’s line and the other to the father’s line. Since the mother is still alive, she receives half of the inheritance. Since the father is already deceased, his inheritance falls to his children. In this case, to the sister, the deceased brother and thus to the nephew of the deceased and to the half-sister from the second marriage. These three divide the other half of the inheritance. The children of the still living sister do not inherit.

Heirs third order – grandparents and aunts / uncles

If the deceased leaves only heirs of the third order, the inheritance is divided as follows. The inheritance of the deceased falls to the grandparents and their descendants. If a grandparent has already died, the inheritance also falls to the aunts, uncles, cousins of the deceased.
Explained by example: If the testator leaves only his grandmother and an aunt with two children, they inherit as follows. The grandmother receives half of the estate. Since the grandfather is already deceased, his descendants inherit his share. In this case, therefore, the aunt inherits the other half of the estate. However, the two children do not inherit.

Inherit debts – form and deadlines

To disclaim the inheritance requires some rules. Simply notifying the family or simply having no reaction to the inheritance is not enough. The form is very crucial. The heir must make a disclaimer to the probate court either in the form of a transcript or in a publicly notarized form. However, a simple letter is not sufficient. A personal appearance before the probate court is also possible. There, the heir explains his or her request and a judicial officer records it in writing. The local court in whose district the deceased had his or her last residence is responsible in each case. However, not only the form is very decisive for the success of the disclaimer, but also the content and the deadline of the declaration. This must clearly state why the inheritance does not want to be accepted. The reasons should be clearly listed. These may include, for example, that the estate consists mainly of debts.

The declaration is subject to a so-called six-week period. If the inheritance does not wish to be accepted, the relevant declaration must be submitted to the competent probate court within six weeks, otherwise the inheritance is deemed to have been accepted.
Generally speaking, the probate court does not have a duty to bring. The heirs are only notified of the inheritance if there is a will or if they succeed to the inheritance because, for example, someone else has already disclaimed the inheritance. In all other cases, the heirs are assumed to know whether or not they inherit anything from a deceased family member.

More on inheriting debt!

The inheritance – the deadlines, costs and most important information

The inheritance does not always hold only good things in store for the descendants. Even if many dream of riches and expensive jewellery, debts or dilapidated real estate can also be part of the estate. In such cases, it is possible to disclaim the inheritance within a certain period of time and in accordance with certain criteria.

To disclaim the inheritance requires some rules. Simply notifying the family or simply having no reaction to the inheritance is not enough. The form is very crucial. The heir must make a disclaimer to the probate court either in the form of a transcript or in a publicly notarized form. However, a simple letter is not sufficient. A personal appearance before the probate court is also possible. There, the heir explains his or her request and a judicial officer records it in writing. The local court in whose district the deceased had his or her last residence is responsible. If the deceased is German, but had his residence abroad, the Berlin-Schöneberg Local Court is responsible. In Baden-Württemberg there is a special regulation. In this federal state, the state notary’s office is your contact.

However, not only the form is very decisive for the success of the disclaimer, but also the content and the deadline of the declaration. This must have clearly listed why the inheritance does not want to be accepted. The reasons should be clearly listed. These may include, for example, that the estate consists mainly of debts. The declaration is subject to a so-called six-week period. If the heir does not wish to accept the inheritance, the relevant declaration must be submitted to the competent probate court within six weeks, otherwise the inheritance is deemed to have been accepted. The cut-off date is assumed to be the day on which you learned of the inheritance, which usually coincides with the day of death. The deadline is only extended in certain exceptional cases. For example, if the deceased or the heir himself is abroad at the time of death, the six-week deadline can be postponed.

Interview with real estate expert Jan Rickel from IHV – Die Immobilien Makler.

Possibilities for real estate heirs

FIV: Let’s start with the exciting case “I inherit a house or an apartment and don’t want to live in it myself”. Renting, selling – what’s the best thing about it?

For this decision a lot of things play a really important role regarding the private situation of the heir and regarding the condition, location and size of the property. A simple “right or wrong” gibt´s with this thing unfortunately not.

Before that, however, an action is very important for the heir: The heir must be entered in the land register as a new owner within the framework of a “land register correction”. Incidentally, the simple handwritten will of the heir is not sufficient for this! You need a certificate of inheritance from the probate court or a testament of the testator drawn up by a notary. Anyone applying for the transfer within two years of the death of the previous owner does not pay any fees for the entry in the land register and no land transfer tax.

And something else is very important in the case of inheritance! Is the property of value or over-indebted? Is the house in need of renovation or are there already high land charges registered? After all, I can also refuse the inheritance if the costs or debts on the house are higher than its current market value. But in the end only a real estate expert can determine that.

FIV: What do you mean by private situation of the heir?

Anyone who is in acute financial difficulties as an heir, for example, and has possibly even taken over debts from the testator, will certainly immediately think of selling the property. An understandable thought, but not necessarily the best. Finally, there is also the possibility of borrowing on the property as collateral for a loan. With this credit you can repay your debts, for example. I then repay the loan from the rental income. This variant makes sense if I have very personal ties to the house as an heir and do not want to sell it without further ado. Maybe I can even imagine as an heir living in this house later on. In discussion with the banks, it can then be clarified whether the loan can be arranged in such a way that the house is available to me again debt free at the desired time.

Broker, Energy Performance Certificate & Tax Aspects

FIV: But how well do I have to know about real estate in such actions?

The estate agent or a proven real estate expert can also help with such questions. For example, there is a big difference between renting a detached house in the countryside and inheriting a large apartment building in a big city with, say, a dozen apartments. The question of whether the house already has an energy certificate or not is also important.

FIV: What does an energy certificate show and how do I get it for my inherited house?

Since 2010, the presentation of an energy certificate or passport at the request of the buyer or tenant is mandatory. Special guidelines apply to commercial properties or houses with a commercial share. Basically, this passport shows me how high the energy consumption in this object is in relation to an average comparable object. For this purpose, the consumption values for heat generation in different years are usually averaged and entered on a multi-level scale. For a better understanding, there is a classification into colour levels in addition to the energy efficiency classes with letters A to E or similar. Green is the best color. When it’s red, a lot of energy really goes out the window.
An alternative method is to calculate the energy demand of a property. The degree of insulation, the design and the age of the object are taken into account.
The energy passport is issued by companies or persons, the building specialists – engineers, master craftsmen, etc. – are. It doesn’t cost much, by the way.

Renting a detached house is a very demanding business. As a rule, the tenants themselves are very demanding when it comes to the quality of the property. The landlord is always required to maintain an optimal building condition. This costs money – and sometimes even nerves if the tenant regularly arrives with wishes.
Economically – i.e. in terms of rental income – letting a single-family house means that I have to take into account loss of rental income. At least if the house is in a less sought-after area. The first problem for the heir is finding tenants. When they move out again – because they are building or buying their own house – it becomes difficult to find new tenants. In metropolitan areas, of course, this is less of a problem…
My tip: If the house is within the reach of larger companies that regularly have to accommodate employees from abroad, the rental of single-family houses is going very well. In most cases, the leases are concluded by the company for two to three years. This gives you flexibility as the owner. In addition, the companies usually pay well above average, because they attach importance to rapid availability of the property. Of course, the house must be in perfect order for something like this!

Fiscal aspects

FIV: Are there any tax aspects to inheriting a house?

Oh, yeah! Own use of a property can be tax advantageous. If the heir is the spouse of the deceased, for example, he does not have to pay inheritance tax on the property if he/she remains in it for at least ten years. This also applies to the testator’s children if the living space does not exceed 200 square metres.

If, on the other hand, the property is leased or is leased, then 90% of its value is subject to inheritance tax. By the way, the rental income is also taxable. On the other hand, you can of course credit certain expenses for tax purposes, but these are things that you discuss with your tax advisor.

FIV: Do I actually have to renovate an inherited property?

In a case like this, no one has to “have to” anything. If I want to sell the object, the price depends also completely crucially on the building condition of the house. The condition of the property as such is also important for a good selling price. The Basic Law states that property obliges the owner. So also obliged to maintain the property in good condition. It really depends on the individual case whether renovation is necessary or not.

Leverages & all about apartment buildings

FIV: Let’s go back to the subject of debt. How can I tell if my inherited property is in debt?

The insight into the land register is indispensable! Even those who believe they know if and what debts are encumbering the inherited property should ask for an extract from the land register. There may also be unknown encumbrances, such as rights of way to neighboring properties, third-party residential rights, redevelopment notices, etc. Since the heir enters into the inheritance with all rights and duties, one can also experience nasty surprises.

And finally it can be also that the inherited real estate is not yet paid off with the bank. If you want to sell hastily, you may have to include the fees for the early redemption of the loan in your bill when you redeem the loan. So it can be cheaper to enter the credit and wait for the remaining term until you sell. These are just a few aspects that need to be considered. But quite serious…

FIV: And what about an apartment building? Let’s start with renting out an apartment building.

Strictly speaking, renting an apartment building is something for professionals. But you can also become a professional over time. Also here I recommend – at least in the beginning time – to cooperate with a broker with the letting. For example, if there are vacancies in the house or if new tenants are to be sought.
The easiest way is, of course, if the house is well rented and the tenants do not cause any problems. If you don’t want to deal with the tenants yourself with regard to utility bills, renovation work, etc., you can fall back on property management.

FIV: Surely selling an apartment building is not easy?

I don’t necessarily want to call it the “supreme discipline”, but it takes a lot of experience to do something like that! This begins with the professional and market-oriented evaluation of the house, the appraisal of the building condition and continues with the preparation of the exposé, the coordination and execution of viewing appointments to the accompaniment of the sales process at the notary. Also real estate owners with a lot of experience like to use the help of real estate agents at this point.

All the other things we have talked about also apply to the sale or rental of an apartment building or an inherited flat.

Find help & use

But I would like to emphasize that nobody needs to be afraid of all these things. In addition to estate agents and real estate experts, there are tax specialists and lawyers who answer the heir’s questions. First aid can also be obtained from the appropriate websites. However, the individual appraisal of the inherited property should always be carried out personally by an expert.

FIV: That’s really encouraging! What is – to conclude the topic – if there are several heirs for the property?

Basically simple, but sometimes complicated in its effects: The individual co-heir cannot in any case dispose of the property alone. It is best if the community of heirs reaches an agreement and the property can be sold by private contract – i.e. in the normal course of business. However, I have often experienced that the heirs cannot agree on the sale. If that degenerates into a long dispute, then the property loses value day by day…

FIV: Then let’s talk about your job and living in general. Being a real estate agent means being available at all times. Buyers and sellers certainly often want immediate service, whether in the morning or – I exaggerate something – at night. With all the questions, calculations and valuations: What do you like most about the real estate business?

It’s not that exaggerated with the service even at night times – you add 22 o’clock to the night time… It’s really rare, but there are also customers who still have urgent questions at these times. In any case, weekends are often enough times for business with visits, inquiries about valuations and exposés, etc.
My parents already put the occupation with the building of houses, the trade with real estates into my cradle. But that doesn’t mean that I never wanted or could have done anything else! I really enjoy holding a really tangible and almost living product in my hands with the property. An apartment or a house is not just a simple enclosed space. Even if there are no people living in the property, the property has changed a lot over the years. By that I don’t mean the building condition, but the value. It changes with the value of the city, the district, the street.

But the main thing is the people who live, work and grow older in the property. They give every house, every apartment its individual character. I find it absolutely exciting to think about every property I build, sell or rent: How would I live and work here myself? Are the rooms cleverly arranged? Is there enough light at the right times of day? What type of person is this property best suited for?

Realtor philosophy

All these are the questions and considerations that help to connect man and property. It is a real feeling of happiness for me when I notice that the customers I have searched for and found for the property are just as enthusiastic about the property as I am. Of course, this does not always succeed. But in the course of the years not only the customer file grows but also my experience. The seller and buyer of a property then also profit from this.

FIV: What philosophy do you follow in your advice when helping customers sell their property? Is there a kind of philosophy that you follow as a broker or do you calculate sober prices and square meters?

Sobriety with regard to the valuation of an object is absolutely part of the business. It is she who gives the real estate agent the opportunity to evaluate a house, an apartment etc. without a personal history with the object. But for me, real estate is not just the proverbial concrete gold. Real estate is a living and working environment that should suit its inhabitants. When I now say that I am bringing both – property and owner – together like a marriage broker, it sounds strange, but it is a good comparison.

FIV: If I look for a real estate agent now, what do I have to pay attention to? What makes a really honest and good broker?

Until today the professional title broker is not protected. Although there are trained and partly studied real estate specialists, in the end every real estate agent who wants to can call himself a real estate agent. Also the membership in one of the many professional associations of brokers is not necessarily a quality criterion for a good broker.

Everything starts with a good gut feeling towards the broker. If I get along with his individual nature, this is the basis for a trusting cooperation. Objective criteria are then further whether the real estate agent knows the area where the property is located. he should be able to provide comprehensible information about the current market situation for purchase, sale or lease. You can also ask other buyers in the broker’s vicinity – for example – how the cooperation went. References are of course also available in bulk via corresponding portals on the Internet.

Thank you so much for the interview.

Interview with real estate expert Jan Rickel from IHV – Die Immobilien Makler.