Inheritance Taxes under German Law

In Germany there is no estate tax levied on the entire estate as such.

If the decedent was a resident of Germany or if the assets are located in Germany, even foreign beneficiaries have to pay inheritance taxes in Germany (“Erbschaftsteuern”).

However, each beneficiary has to pay an inheritance tax to the German government on the distribution received by him/her.

Distributions Subject to German Inheritance Tax

  • Inheritances based on wills;
  • Inheritances based on testamentary contracts (“Erbvertrag”);
  • Bequests based on the above;
  • Inheritances based on the rules of intestate succession (“gesetzliche Erbfolge”);
  • Transfer-on-Death or Payable-on-Death Beneficiary designations regarding:
    • Bank accounts
    • Brokerage accounts
    • Life insurances
    • Partnership agreements
  • Settlement payments received in exchange for disclaiming
    • A mandatory minimum inheritance share (“Pflichtteil”)
    • An inheritance
    • A bequest
    • A claim based on a beneficiary designation.

The valuation of estate assets is based on the market value at the date of death.

The inheritance tax rates and exemption amounts depend on the grade of kinship between the decedent and the beneficiary.

Based on the grade of kinship to the decedent all beneficiaries are assigned to the following three groups:

Tax Class I (“Steuerklasse I”)

  • The spouse or registered domestic partner
  • Children
  • Step-children
  • The descendants of the children and stepchildren (grandchildren, great-grandchildren, etc.)
  • Parents (in most cases)
  • Grandparents (in most cases)

Tax Class II (“Steuerklasse II”)

  • Parents and grandparents in certain limited cases
  • Siblings
  • Nephews and nieces
  • Step-parents
  • Sons-in-law, daughters-in-law
  • Divorced spouses and former domestic partners

Tax Class III (“Steuerklasse III”)

  • All other beneficiaries
  • Including legatees of bequests with which other beneficiaries were burdened, even if the former would otherwise fall into a different tax class.

Exemption Amounts

  • Spouse and registered domestic partner: € 500,000
  • Child: € 400,000
  • Child of a pre-deceased child: € 400,000
  • Grandchild: € 200,000
  • Other beneficiary in the Tax Class I: € 100,000
  • A beneficiary in the Tax Class II: € 20,000
  • A beneficiary in the Tax Class III: € 20,000

Further exemption amounts are awarded to spouses/registered domestic partners, as well as to children and step-children under 27 years old.

Goods exempted from inheritance tax:

  • Household goods, including personal effects, up to € 41,000, received by persons in the Tax Class I;
  • Vehicles, boats, artwork, collections, jewelry, precious metals, musical instruments, and animals received by persons in the Tax Class I up to € 12,000.
  • Household goods (including personal effects) and other physical goods received by persons in the Tax Classes II and III up to € 12,000.

Gifts received from the decedent in the last 10 years are counted together with the inheritances received. The exemption amounts are awarded only once. The gift tax paid for the prior disbursement is deducted from the inheritance tax.

Tax Rates

Inheritance Value up to €

Percentages in the Tax Classes

I

II

III

75,000

7

15

30

300,000

11

20

30

600,000

15

25

30

6,000,000

19

30

30

13,000,000

23

35

50

26,000,000

27

40

50

Over 26,000,000

30 43

50

These rates are not progressive. This means that the a certain rate applies to the entire inheritance.

Preferential Treatments:

  • Rents and other yearly earnings are capitalized and the inheritance tax is due after the death. However, the beneficiary may request to pay the tax in yearly installments.
  • Beneficiaries who have cared for the decedent for free oder a charge below market value may deduct up to € 20,000 from the taxable distribution. Spouses or domestic partners are excluded, as they are required by law to provide care.
  • The tax on inheritances by persons in the Tax Class I that were inherited in the past 10 years by another person in the Tax Class I may — depending on the time lapsed — be reduced by up to 50%.
  • Estate or inheritance taxes paid abroad may be deducted from the tax to be paid in Germany.
  • Tax on residential real estate may be deferred up to 10 years, if the beneficiary would otherwise need to sell the property to pay the tax.

No US Tax on Inheritances from Abroad

US beneficiaries do not have to pay taxes in the United States on distributions received from foreign estates. Distributions that exceed $100,000 in any year have to reported on IRS Form 3520 by April 15th of the following year.

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