DIFFERENCES GERMAN VERSUS AMERICAN PROBATE AND ESTATE LAW
Whilst a German Heir (“Erbe”) under German Estate Law and German Succession Law directly steps into the shoes of a German Decedent at the moment of the German Decedent’s death without any interposition of a Fiduciary, Personal Representative, Executor of Estate, Administrator of Estate or the like, any other Beneficiary of a German Decedent’s Estate will have a claim and a cause of action only against the German Heir or against the German Joint Tenancy in Common of Heirs (“Gesamthandsgemeinschaft”, “Erbengemeinschaft”) consisting of the German Heirs and will not have such a claim against the Estate itself due to the non-existence of the Estate’s under German Law as a separate legal entity.
German Freedom of Testatorship (“Testierfreiheit”) will be limited by German Forced Heirship Rules (“Pflichtteilsrecht”) in Germany to a German Decedent’s surviving spouse and to his or her surviving children, i.e. to his or her descendants of the first degree, but not to their offspring/issue of any further degree, i.e. not to a German Decedent’s grand children nor to his or her great grand children nor to any other of his or her descendents of any more remote degree of kinship.
Neither per stirpes rules nor representation rules are applying to the German Forced Heirship Rule (“Pflichtteilsrecht”), instead, solely a surviving spouse and surviving children will qualify for taking under those rules.
A German Last Will and a German Testamentary Will (“Testament”) will not have to be witnessed or approved by two or three witnesses nor by any witnesses at all.
Instead, German Wills (“Testamente”) may either be established by means of being sworn before a German Notary Public (“Notar”) in the form of a German Notarial Will (“Notarielles Testament”) or they may be established in the form of a German Holographic Will (“Eigenhändiges Testament”).
The U.S. concept and legal notion of the contestability of a Testamentary Will for alleged exercise of undue influence on a Testator or a Testatrix is unknown to German Probate and Estate Law.
In particular, there is nothing like the American “Putnam scrutiny principle” preventing the making of testamentary bequests to persons standing in a confidential relationship with the Testator or the Testatrix, such as testamentary bequests made to the attorney drafting the will, the drafting attorney’s law partner, the drafting attorney’s spouse, physicians, nurses, clergymen, administrators of nursing homes or similar holders of personal confidence in German Probate and Estate Law.
All German substantive Estate Law, Inheritance Law and Succession Law in Germany and all German procedural Probate Law in Germany is Federal Law only and will be applied on a uniform and nationwide basis all over Germany.
There are no deviations of German Estate Law and German Probate Law on a State (“Bundesland”) by State (“Bundesland”) basis.
Unlike in the U.S., a German Estate (“Nachlass”) is not viewed by German Estate and Probate Law as a separate legal entity (“Juristische Person”).
Consequently, the offices of a Personal Representative of Estate, of an Executor of Estate and of an Administrator of Estate in the sense of U.S. Estate and Probate Law are virtually unknown to German Law, even though a German Executor may be named by a German Decedent in his or her Will (“Testament”), which in practice, however, is rarely done, because, as already outlined above, German Heirs (“Erben”) are deemed to directly step into a German Decedent’s shoes at the moment of his or her death as a German Joint Tenancy in Common of Heirs (“Gesamthandsgemeinschaft”, “Erbengemeinschaft”).
A Trust in the sense of U.S. Common Law is not known in German Estate Law either, i.e. there is no German Trust.
Jurisdiction over German Probate Proceedings will be held by the German Probate Court/German Surrogate’s Court (“Nachlassgericht”), which, in turn, is a department of the local German Municipal Courts (“Amtsgericht”) ranking still below the respective German County Court level/German District Court level.
Unlike in the U.S. and differing from U.S. Probate Law and U.S. Estate Law, in the event of a cross-border Estate, i.e. of an Estate involving assets in two or more countries, the governing for the international jurisdiction of a German Probate Court/German Surrogate’s Court over the personal assets, i.e. over the movable assets, of an international Estate under German Conflict of Law Rules will be established by the laws of the citizenship of the Decedent at the moment of his or her death and not by the laws of his or her last domicile.
In the event that a Decedent should have died holding two or more citizenships, such as the American citizenship and the German citizenship, any foreign citizenship such as a Decedent’s additional American citizenship will be disregarded by a German Probate Court and a German Surrogate’s Court (“Nachlassgericht”) for purposes of determining the laws applicable to the Estate.
As to real property, i.e. immovable assets/real estate, American Conflict of Law Rules and German Conflict of Law Rules fortunately do coincide and both refer to the location/situs (“Belegenheit”) of the respective land or other real property right.
Unlike in the U.S., there is no German Estate Tax in Germany, and, instead, German Death Taxes will be raised on a “per beneficiary basis” only in the form of a German Inheritance Tax (“Erbschaftsteuer”) raised per each individual Heir, and not in the form of a literal Estate Tax raised on the entirety of a German Estate.
In other words, German Federal German Inheritance Tax (“Erbschaftsteuer”) will be raised per each Heir/Beneficiary/Distributee/Legatee and will not be raised per Estate.
Consequently, allowances, exemptions, tax tables, and inheritance tax rates will apply per each Heir/Beneficiary/Distributee/Legatee only and not per Estate.
Thus, by means of this type of granting of multiple allowances the total German Inheritance Tax burden will somehow mitigated in comparison to a flat estate tax on an entire estate.
Amounts of allowances per each Heir/Beneficiary/Distributee/Legatee range and vary from EUROS 1,000 through EUROS 307,000 depending on the degree of kinship of each Heir/Beneficiary/Distributee’s/Legatee with Decedent.
Maximum tax rates and tax brackets of German Inheritance Tax range from 17 percent through 50 percent, once again depending on the degree of kinship of each Heir/Beneficiary/Distributee/Legatee with Decedent.
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Moreover, such German Inheritance Tax (“Erbschaftsteuer”) will be raised on a Federal level only and not on the level of any of the sixteen German States (“Bundesländer”).
In other words, there is no German State Estate Tax raised in any of the sixteen German States (“Bundesländer”).
Unlike in the U.S., there is no option or election right for an Alternate Evaluation Date six months after the Decedent’s death as provided in U.S. Federal Law by Internal Revenue Code (I.R.C.) Section 2032.
So-called Tie-Breaker Rules provided by the American-German Estate and Inheritance Tax Treaty Dated December 3, 1980, i.e. by the “Convention Between the Federal Republic of Germany And the United States of America For the Avoidance of Double Taxation With Respect to Taxes on Estates, Inheritances and Gifts Dated December 3, 1980” (“Abkommen vom 3. Dezember 1980 zwischen der Bundesrepublik Deutschland und den Vereinigten Staaten von Amerika zur Vermeidung der Doppelbesteuerung auf dem Gebiete der Nachlass-, Erbschaft- und Schenkungsteuern”), provide that the right to raise Estate Tax or Inheritance Tax on an American-German Estate on a worldwide basis will solely go to the country of Decedent’s last “residence” (“Wohnsitz”), in case of two or more “residences” (“Wohnsitze”) to his or her last “permanent home” (“ständige Wohnstätte”), in case of two or more “permanent homes” (“ständigen Wohnstätten”) to the country of his or her last “center of vital interests” (“Mittelpunkt der Lebensinteressen”), then to the country of his or her last “habitual abode” (“gewöhnlicher Aufenthalt”), then to the country of his or her last “citizenship” (“Staatsbürgerschaft”), and finally, and in the event that the individual at the moment of his or her death had been a citizen of both the U.S. and Germany or of neither of them, as a matter of last resort, the U.S. government and the German government will have to settle the question by means of mutual agreement (“Verständigungsverfahren”).
Autor dieses Rechtstipps
Dr. Peter Barandt
Dr. Peter BARANDT Anwaltskanzlei (Frankfurt/Main und New York)Weitere Rechtstipps (3)
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Rechtsanwalt Peter Barandt