All information is without guarantee of correctness and completeness and does not represent tax or legal advice.
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Generally, it is recommended to write a last will.
Many though are not eager to compose their testament, leading to the circumstance that in Germany only around one third have drafted a will.
If no testament exists the legal order of succession takes place, not necessarily mirroring the will of the deceased.
There are different forms of a possible testament:
A publicly, notarially certified testament, a testamentary contract or a private, handwritten testament. The last one should be completely handwritten and signed. A text which is typescripted and has a signature beneath is not sufficient enough.
The notarially certified testament should be chosen with care. If, for e.g., there is an agreement in this form between father and son, and one of the two wants to make changes, both have to agree.
If you consult a notary and deposit your testament with them, it’s probably the safest way to secure that your last will be implemented after your death.
The decedent cannot only define the heir, they can also allocate certain items or amounts of money to a certain person. This is called legacy. The difference between to hand something down or to bequeath something to someone is the following:
The heir is a successor in interest, the legatee is only entitled to a certain object or a certain amount of money.
Not every heritage is getting taxed, there are certain amounts for tax exemption.
Tax allowance and tax category are connected to the degree of kinship.
Spouses have an allowance of €500.000.
Children, stepchildren, and adopted children, as well as grandchildren whose parents are dead, have an allowance of €400.000.
Grandchildren have an allowance of €200.000.
Parents and grandparents don’t have to pay tax until the inheritance is higher than €100.000. Siblings, nephews and nieces, stepparents, parents-in-law, and divorcés only have an allowance of €20.000.
Additionally to the normal allowance, there is an extra tax free amount (called Versorgungsfreibetrag). Spouses receive up to €256.000 extra tax free amount.
Children also have an extra allowance but it varies depending on the age of the child.
E.g., children up to five years have an extra of €52.000 allowance, children between the ages 20 and 27 only get the amount of €10.300 for free.
But be careful: if you receive a widow’s pension, firm pension scheme or orphan’s pension this extra tax free amount is significantly lowered. Accordingly, the value of the pension is subtracted. E.g. a widow receives €800 per month survivor’s pension. The extra tax free amount is then lowered by €120.000.
Your tax category is dependent on the degree of relationship.
Spouses, children, grandchildren or parents are in the first class.
Siblings, nephews and nieces, stepparents, children-in-law, parents-in-law, divorced people have the second class.
All others have class III.
|75.000 Euro||7 %||15 %||30 %|
|300.000 Euro||11 %||20 %||30 %|
|600.000 Euro||15 %||25 %||30 %|
|6.000.000 Euro||19 %||30 %||30 %|
|13.000.000 Euro||23 %||35 %||50 %|
|26.000.000 Euro||27 %||40 %||50 %|
|< 26.000.000 Euro||30 %||43 %||50 %|
Cash can be passed to the heir with a certain tax allowance.
Tax exempt amounts are €500.000 for spouses, €400.000 for children, €200.000 for grandchildren, €100.000 for parents and grandparents. Siblings, divorced people, nephews or nieces, parents-in-law, children-in-law and step-parents can inherit €20.000 without tax.
Generally, if you pass property on, you have the same tax-free allowances as if you hand cash down.
But if you succeed a higher amount, and normally would have to pay tax, there are still possibilities to decrease the tax.
For example if your property is rented to someone else, only 90 % gets taxed.
If you can’t pay your tax-debt, you can get an extension for payment. You then get up to 10 years to pay your tax-liability.
A consultant can estimate the value of the property. But there is also another method using the common rent in the neighbourhood and the condition of the building as a reference value.
Spouses receive property, in which they live by themselves, tax-free.
It also remains tax-free for the spouse, if he or she can’t live in the property due to the need for long-term care.
There is always only one property which can be declared as a personal used property [Eigenbedarf].
Children also don’t have to pay tax for a property, if they inhabit it for at least ten years. But they have to move in within six months after the parent passed away. And the living space shouldn’t be bigger than 200 square meters. Also: only if the beneficiary needs nursing care, he or she is allowed to move out without losing the allowance. Other reasons such as a new job opportunity somewhere different than the property don’t count.
Smaller businesses which are inherited don’t have to pay taxes. Usually business assets up to €1 million are liberated from taxes.
Business successors always get tax category I, independent from family relationship.
If a business gets passed on, the business can get into trouble due to tax-depth.
In order to protect employees and the company itself, certain mechanisms are possible.
First, the heir has to accept the testimony. One possible way to reduce taxes is to make a commitment for five years and to keep the salary of the employees on the same level. In the following five years the heir has to pay 400 % (the scale are the last five years) of the wages to the employees. If the employer has to dismiss people, the wages of the other employees have to increase. If the heir manages to keep the wages on a similar level, 85 % of the companies value remains tax-free.
Another possibility is to promise to keep the wages for the next seven years on one level. If the bond is fulfilled, the company is freed from taxes.
But if the successor sells the company before the time is up, he or she loses all tax advantages. Usually, companies with less than 20 employees are freed from complicated wage regulations.
The transfer between living people has similar allowances as the heritage.
Gifted money is being taxed if someone inherits more than the following:
Spouses: €500.000, children: €400.000, grandchildren: €200.000, parents and grandparents: €100.000. If someone succeeds more money, the tax can vary between 7 % and 50 %.
Especially spouses and children receive quite a big allowance.
Every ten years, allowance gifts to someone can be repeated.
Children have an allowance regarding their father as well as their mother.
For example, each parent can gift their child an amount of €400.000, and is able to repeat this after ten years. Totally, they then have transferred an amount of 1.6 million € tax-free to their child. Grandchildren can be included, even increasing the amount which can be transferred.
If you gift money you have to pay attention to who exactly you are gifting it to. For example, if you want to gift money to your son and his wife, you should consider that your daughter-in-law can only receive €20.000 tax-free. In this case, it makes more sense to only gift the amount to your son, who has a much higher allowance.
Generally, properties can be given away relying on the same allowances as cash.
There is one particularity, if you give away your property to someone else, but still want to live in it, its called Nießbrauchsvorbehalt. The donator can stay in the property as long as he or she wishes. The receiver of the property also has a benefit, because the time the owner lives in the property decreases the value of the property when it’s handed over. E.g. a property has a value of €500.000, but because the owner remained living in it for another few years, this Nießbrauch benefit is subtracted from the value. Instead of €500.000, e.g. only €400.000 has to be taxed.
Someone running a business can give away shares.
By passing on shares of the company, taxes can be avoided. Additionally, predefined shares of the heritage [Pflichtteilsanspruch] can be modified.
And time remains to introduce the successor into the company.
If you plan to give the whole company to someone, the rules are the same, as if you would inherit it. The more the trustee enables the same wages as before to the employees, the more taxes can be avoided.