Which costs can be deducted as liabilities of the estate when settling an inheritance? According to the Federal Fiscal Court (BFH), the term “estate settlement costs” is to be interpreted broadly. This includes expenses incurred in connection with an auction – such as consulting and storage costs – provided they serve to generate the sums of money stipulated in the will for the co-heirs.
In a ruling dated August 21, 2024, the Federal Fiscal Court (BFH) decided that costs for the auction of movable estate assets are also deductible if they contribute to financing testamentary monetary gifts to the beneficiaries.
Facts
The plaintiff, a co-heir named in the will, inherited after the death of her mother in 2017, who in turn was the sole heir of her previously deceased husband. After the couple’s death, their belongings were placed in storage, as there was no space for them in the deceased’s retirement home. According to a joint certificate of inheritance, the plaintiff was entitled to a share of 10.103% of the estate.
The executor of the will claimed various costs in the inheritance tax return, including costs for clearing out the deceased’s apartment and office, storage costs for the stored estate items, and fees for an art expert who advised on the sale of the estate items.
While the tax office only recognized the clearing costs as deductible liabilities of the estate, it rejected storage and fee costs on the grounds that these were related to the administration or realization of the estate. The tax court upheld this view. The Federal Fiscal Court, however, ruled in favor of the plaintiff and overturned the tax court’s decision.
Delineation of estate settlement costs
Costs are deductible as liabilities of the estate if they are directly related to the settlement, administration, or distribution of the estate or the acquisition of the inheritance. ” The term ‘estate administration costs’ encompasses both factual and legal measures for determining and valuing the estate and for securing the inheritance for the heirs, ” explains attorney István Cocron.
A prerequisite for deductibility is a close factual and temporal connection to the acquisition by inheritance. If this connection is lacking—for example, if the costs only arise during the later administration or liquidation of the estate—they are considered non-deductible administrative costs. Administrative costs can also be incurred in the management of ordinary assets outside of an estate, which clearly distinguishes them from estate administration costs.
The precise distinction between deductible estate settlement costs and non-deductible administrative costs always depends on the circumstances of the individual case. The decisive factor is the reason for the costs, not a fixed timeframe.
Decision of the Federal Fiscal Court in the dispute
The Federal Fiscal Court (BFH) ruled that costs incurred during the division of an estate for the auction of movable estate assets are also deductible as estate settlement costs. This applies in particular if these costs are necessary to obtain sums of money that the testator has designated in his will for the beneficiaries.
“ In the present case, the costs for the auction of the estate assets directly served to procure the sums of money required for the testamentary bequests. The Federal Fiscal Court (BFH) determined that such costs serve the preservation, increase, and use of the estate and are therefore deductible, ” explains attorney Cocron.
