Our law firm regularly advises heirs, those entitled to a compulsory share of the inheritance, and estate administrators in complex inheritance law situations. A recent case serves as an example of why, in certain situations, filing for insolvency may be essential for the proper settlement of a complicated estate.
The case at a glance:
One son was named as heir in the will, while a long-time friend of the deceased was to receive a property belonging to the estate as a legacy. Liquidity was scarce, and the funeral expenses remained unpaid. Initial attempts at settlement failed. The son, represented by a lawyer, subsequently renounced the inheritance and instead asserted his right to a compulsory share.
The legatee objected, arguing that the son had already accepted the inheritance through his actions. The conflict escalated. Since the line of succession was unclear, an administrator of the estate was appointed pursuant to Section 1961 of the German Civil Code (BGB) at the request of the person entitled to a compulsory share.
After the initial review of the estate situation, the estate administrator sought legal Counsel.
Our assessment was clear: Without initiating estate insolvency proceedings, the caretaker faced a legal minefield with significant financial and legal consequences.
Reasons for filing for insolvency:
- Avoiding complex legal disputes: Without insolvency proceedings, the estate administrator would have faced multiple lawsuits – from both the person entitled to a compulsory share and the legatee. Since the legacy may be reduced according to Section 2318 of the German Civil Code (BGB), third-party notices and lawsuits at state expense would have been a real threat.
- Estate effectively insolvent: The unpaid funeral and legal costs alone made it clear: The estate was illiquid, despite existing real estate holdings.
- Probably over-indebted: Considering the compulsory share claim, over-indebtedness of the estate was likely.
- Priority satisfaction in insolvency proceedings: It is little known that compulsory portion claims under Section 327 Paragraph 1 of the German Insolvency Code (InsO) take precedence over legacies in insolvency proceedings.
- Faster conflict resolution: Insolvency proceedings make it possible to quickly resolve claims arising from compulsory portions and legacies via the filing of claims (§ 179 para. 1 InsO) – significantly more efficiently than lengthy individual processes.
Conclusion:
Anyone involved in settling an estate – whether as an heir, a person entitled to a compulsory share, an estate administrator, or an executor – should be familiar with the instrument of estate insolvency proceedings. It ensures legal certainty, protects those involved from incalculable risks, and significantly reduces procedural costs.
