Navigating the complexities of inheritance law in Germany can be challenging, particularly for expat families who are new to the country. Ensuring that your children are adequately provided for in the event of your passing is a crucial part of financial planning for every family. This blog aims to shed light on the key aspects of inheritance for expat children in Germany, including legal frameworks, tax implications, and practical considerations, helping you make informed decisions to secure your family's future.
The Legal Framework: German Inheritance Law
Germany’s inheritance law is governed by the Bürgerliches Gesetzbuch (BGB), or Civil Code. The system is based on a principle known as universal succession, meaning that the entire estate, including assets and liabilities, is transferred to the heirs upon the death of the individual. For expats, understanding how these laws apply to your children is vital.
If you pass away without a will, German inheritance law determines the distribution of your estate according to intestate succession rules. Under these rules:
In Germany, children are considered the primary heirs (Erben erster Ordnung). They are entitled to an equal share of the estate, regardless of whether they are from a current or previous marriage.
German law protects children by guaranteeing them a statutory share of the estate, even if they are not included in the will. This mandatory portion is half of what they would have received under intestate succession.
Expat children who are not German citizens are still entitled to inherit under German law if the parent was residing in Germany at the time of death. However, the rules may vary if the parent was not a resident or had assets in other countries.
Testamentary Freedom
Germany allows for testamentary freedom, meaning you can draft a will to specify how you want your estate to be distributed. However, it’s important to note:
While you have the freedom to distribute your estate as you wish, the statutory share for children cannot be overridden unless certain conditions are met, such as disinheritance for valid reasons under German law.
As an expat, you can choose the law of your home country to govern your will under EU regulations. This is particularly useful if your home country’s inheritance laws differ significantly from those in Germany. However, even with a foreign will, the statutory share for children under German law may still apply if the assets are located in Germany.
Tax Implications
Inheritance tax (Erbschaftsteuer) in Germany is another critical consideration for expat families. The tax is levied on the heirs, not the estate, and the rates and exemptions vary based on the relationship between the deceased and the heir.
Tax Rates and Exemptions
Inheritance tax in Germany is divided into three classes. Children fall into Tax Class I, which benefits from the most favourable tax rates and exemptions.
As of 2024, each child is entitled to a tax-free allowance of €400,000. This means that if the inheritance received by a child is within this threshold, no tax is payable. For amounts above the exemption, tax rates range from 7% to 30%, depending on the value of the inheritance.
Additional allowances are available for specific circumstances, such as a €20,000 exemption for household effects and personal belongings.
Germany has double taxation treaties with several countries to prevent the same inheritance from being taxed twice. If you have assets in multiple countries, it’s essential to understand how these treaties apply to ensure that your children do not face excessive tax burdens. Reach out to our professional advisers here at Granite Financial to understand this subject more.
Practical Considerations for Expat Families
When planning your estate and considering inheritance for your children, there are several practical steps to take:
Drafting a Will
It’s advisable to consult with a legal expert familiar with both German inheritance law and the laws of your home country. They can help you draft a will that respects your wishes while complying with relevant legal requirements.
If your children are minors, clearly specify guardianship arrangements in your will. This is particularly important for expat families, as guardianship laws and processes can vary widely between countries.
If you need help drafting a will, some legal insurance, or Rechtschutzversicherung, providers offer online tools to help you. Reach out if you need help understanding if this could be a suitable option for your will drafting needs, as well as the additional risk coverage the insurance offers.
Cross-Border Inheritance
If you have assets in multiple countries, be aware that each country may have its own inheritance laws and tax regulations. It’s crucial to understand how these interact, particularly if you plan to pass on property, investments, or other significant assets located outside Germany.
The EU Succession Regulation (Regulation No 650/2012) allows you to choose the law of your nationality to govern your inheritance across the EU. This can simplify the process for expat families with connections to multiple European countries.
Facts and Figures
Here are some important facts and figures to consider regarding inheritance for expat children in Germany:
Germany’s €400,000 inheritance tax exemption for children is relatively generous compared to other European countries, reducing the likelihood of a significant tax burden on your heirs.
In Germany, over €400 billion is inherited annually, reflecting the importance of understanding inheritance laws and tax implications to safeguard your family’s financial future.
Despite the complexity of inheritance laws, only around 30% of Germans have a will in place, highlighting the need for proper estate planning, especially for expat families.
Inheritance planning is a crucial aspect of ensuring your children’s financial security, particularly for expat families navigating the complex German laws. By understanding the legal framework, tax implications, and practical steps involved, you can make informed decisions that protect your children’s inheritance while respecting both German and international regulations.
Whether you choose to rely on the statutory succession rules or draft a will that reflects your wishes, taking proactive steps today will provide peace of mind and ensure that your children are well taken care of in the future - we never know what can happen in life. As always, seeking professional advice from a financial adviser such as our expert team is highly recommended to navigate this complex landscape effectively. Don't hesitate to reach out to Granite Financial today with any of your financial-related queries!
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