After the death of the testator, heirs often face tax challenges, especially if no appropriate arrangements have been made. This article offers recommendations for mitigating inheritance tax disadvantages and distributing the estate efficiently.
1. Review of formally invalid wills
A will is only legally valid if it meets the formal requirements stipulated in the German Civil Code (BGB). A will that is formally invalid is legally ineffective, but for inheritance tax purposes, such dispositions can still be recognized if they reflect the testator’s wishes.
Requirements for tax recognition:
• There must be a written or oral instruction from the testator that clearly expresses his will.
• The heirs involved must carry out the order so that the testator’s will is fulfilled.
Evidence:
• Witness statements, for example from nursing staff or doctors.
• Written records, such as letters or notes.
Important: To prevent abuse, the courts require clear evidence of the testator’s last will and testament.
2. Optimizing a Berlin Testament
The Berlin Testament, in which spouses appoint each other as sole heirs and designate their children as final heirs, has tax disadvantages. The children’s tax allowances are lost upon the death of the first parent to die.
Design options:
• Disclaimer by the spouse: The surviving spouse can disclaim their inheritance, so that the children inherit directly. This prevents the tax-relevant transfer of assets to the surviving spouse, and the children’s tax allowances can be utilized.
• Claiming a compulsory share: Children can claim their compulsory share of the inheritance from the first deceased parent without being completely disinherited. In some cases, a settlement can be agreed upon to avoid conflicts.
Important: It should be examined whether claiming a compulsory share is the best option in the long term, especially if there are penalty clauses in the will regarding compulsory shares.
3. Rejection as a design element
Renouncing an inheritance is often seen as a means of avoiding over-indebted estates, but it can also be used for tax purposes to distribute assets in a targeted manner.
Tax advantages of disclaiming inheritance :
• The inheritance is transferred to other people who may benefit from higher tax allowances or more favorable tax brackets.
• By dividing the estate among several people, the tax allowances can be used multiple times.
Prerequisite: The disclaimer must be declared at the probate court and is subject to formal requirements.
4. Dealing with legacies
A legacy entitles a specific person to certain assets without directly appointing them as an heir. However, a legatee can choose to disclaim the legacy.
Advantages of rejecting the test :
• The inheritance tax on the legacy is waived retroactively.
• In the case of substitute legatees, the legacy is passed on to this person, thereby transferring the tax liability to them.
Special considerations apply to heirs entitled to a compulsory share :
An heir who is also a legatee has several options:
• Acceptance of inheritance and legacy.
• Rejection of both and assertion of the compulsory share.
• Rejection of only the inheritance share or only the legacy.
The decision depends on which option is the most advantageous in terms of taxes and finances.
5. Advance legacy vs. division order
A legacy in advance and a division order have different legal and tax consequences.
Differences:
• Advance legacy: A specific heir is given preferential treatment and receives an additional financial benefit.
• Division order: The testator gives instructions on how the estate is to be distributed among the heirs without changing the inheritance shares.
Important: If the testator does not provide clear instructions regarding the crediting of a legacy against the inheritance share, it is assumed to be a legacy in advance. The tax treatment depends on the value of the estate and the ratio of the bequests to the inheritance shares.
6. Disclaimer in the community of accrued gains
Spouses living under the statutory property regime of community of accrued gains can use the option of disclaiming an inheritance to gain tax advantages or to influence the method of settlement. By disclaiming, the surviving spouse can claim a small compulsory share and equalization of accrued gains instead of the statutory share of the inheritance. This requires a careful valuation of the estate and the claims for equalization of accrued gains, as these must be calculated within the disclaimer period.
Example: A wife can often achieve a more favorable financial position by disclaiming her inheritance, combined with the claim for equalization of accrued gains, than by accepting the inheritance.
7. Disclaimer by the heirs of the deceased
If the testator could disclaim an inheritance, their heirs can also do so if they are named as substitute heirs. This is possible, for example, in the context of a joint will (Berliner Testament). Disclaiming an inheritance can create tax-advantageous situations, as multiple inheritances are assessed separately and tax allowances can be used multiple times.
Example: If parents die in quick succession, the children can disclaim the inheritance of the first deceased, thus triggering separate inheritance cases, allowing them to make optimal use of the tax allowances of both parents.
8. Rejection of offer in exchange for severance pay
Renouncing an inheritance in exchange for a settlement also offers some flexibility. In this case, the settlement is treated like an acquisition from the deceased, which allows for the use of statutory tax allowances. A partial settlement can help to implement partial disclaimers that are not legally permissible under civil law. The disclaimer can also postpone the tax assessment date, as inheritance tax only becomes due upon agreement of the settlement. “Even if the disclaimer results in a gratuitous enrichment of the beneficiary, this is not considered a gift for tax purposes,” explains lawyer István Cocron.
9. Rejection of a legacy
Legatees can disclaim a legacy, which can offer tax advantages. Disclaiming the legacy means it is considered not to have been received. This is particularly advantageous if no substitute legatee has been designated, as the legacy is then completely forfeited, reducing the burden on the heir.
10. Interpretation of a will: legacy in advance or division order
The distinction between a legacy and a division order is crucial, as they have different legal and tax consequences. While a legacy grants an heir an additional benefit, a division order merely regulates the distribution of estate assets. The decisive factor is whether the testator has stipulated that the legacy be credited against the heir’s share of the inheritance.
11. Use of tax allowances through gifts
To optimize inheritance tax burdens, timely planned gifts can be used. These allow tax-free allowances to be fully utilized during the testator’s lifetime. Particularly with assets such as real estate or company shares, these allowances can be used again every ten years.
“ Gifts should be made early and well-planned in order to maximize tax advantages and optimally divide the estate, ” says lawyer Cocron.
