Inheritance law: inheriting real estate – what to pay attention to?
Real estate is a complex topic in inheritance law that you should consider early. If you want to determine who inherits your house, your owner-occupied apartment, your estate or several pieces of real estate, you need a will or inheritance contract. Without these documents, legal succession occurs. To avoid conflict, thoroughly planning your inheritance is prudent.
Why is it important to treat real estate separately in inheritance law?
If you want to leave a house or apartment, an estate or several pieces of real estate to an heir, a consultation with a lawyer for inheritance law is recommended to avoid mistakes that disadvantage the heir.
Possible mistakes regarding the inheritance of real estate are:
- The testament is the preferred instrument in inheritance law regarding the inheritance of real estate. However, this can be problematic for tax reasons. The Berlin Testament, in which both spouses designate each other as heir, can also worsen the tax situation. It is all the more important to inform yourself about the different options for real estate in inheritance law.
- The most common mistake in inheriting real estate is that the value of the real estate is set too high or too low. If the value is set too high, the heir can be afflicted with needlessly high inheritance tax. If the value is set too low, the tax office might reach out because the heir or heirs are profiting from tax benefits due to the low value. Then you might be accused by the tax office, for example of tax fraud, tax manipulation or fraud. Even if you eventually defend yourself successfully against these attempts, a process at the finance court is always costly. Detailed knowledge of the actual value of the real estate might have led to a different course of action for determining the inheritance.
- Another severe mistake regarding real estate in inheritance law is taking no measures to preserve the real estate. Real estate is an indivisible material asset. If for example several children inherit a real estate in equal parts and an heir gets into financial trouble, the inheritance is endangered. There are fitting protective measures to preserve the inheritance even in situations of crisis.
- Frequently the tax consequences are also misjudged. Those who can’t pay the due inheritance taxes in time risk having the real estate put into forced sale. The same applies to a community of heirs that conflicts about the sum of inheritance taxes due. The reason is often that there is disagreement about the value of the inherited real estate.
These reasons are only a few examples for why the separate consideration of real estate in inheritance law is important.
I will gladly advise you!
Book an appointment for a free initial assessment or contact me by phone, e-mail or via my contact form:
Lawyer Christian Janssen from Berlin
Real estate in inheritance law: how useful is a will?
The goal of a will is to change legal succession. A will is valid when it has been written by hand and signed with place and date and your first and last name. That means that will written on the computer, printed out and signed is invalid. The will should be labelled as such as the pages should be numbered. While gifting or selling real estate requires notarisation, the same isn’t necessary for passing on real estate by inheritance. The will can be changed or retracted any time. Your will is found if you give it to the local inheritance court for paid safekeeping. Then it is registered into the register of wills of the national association of notaries.
What options does an inheritance contract offer?
The inheritance contract is a contract that is made between the decedent and a person of their choice during the decedent’s lifetime and that requires notarisation. Just as with a will you can designate heirs outside of legal succession. In difference to a will the inheritance contract is a notarised contract that both parties must agree to. The advantage of an inheritance contract is that you can make arrangements with people you aren’t related to. In contrast to a will, the inheritance contract is highly binding if both parties agree. The disadvantage is that notarisation is necessary, which is costly and becomes necessary again if the inheritance contract needs to be changed. An inheritance contract can be disputed, though the decedent’s right to dispute ceases after a year. The condition is a reason to dispute, such as a threat, deception or a mistake.
Is a bestowal the right solution for real estate in inheritance law?
It can be useful to gift real estate during one’s lifetime. Just as an inheritance contract, a bestowal is a contract that requires notarisation. The recipient becomes owner of the real estate as soon as they are entered into the title register. A bestowal happens without compensation. However, it can be done in a limiting way by applying conditions.
Examples of use for conditions applied to bestowal:
- Right of abode: In the bestowal contract you can agree on a lifelong right of abode or beneficial interest that gets entered into the title register. Beneficial interest differs from lifelong right of abode in that you can also sublet the real estate.
- Life annuity: The bestowal contract can also include payment of a lifelong or limited payment of annuity to increase your monthly income as compensation for the bestowal.
- Single payment: You can combine the bestowal with a single payment that the recipient pays to you. It’s also possible to let the recipient take over the remaining land charge of the real estate as compensation.
- Care obligation: The bestowal contract can contain an agreement that the recipient will take care of the giver. In that case it’s important that the contract contains detailed care instructions. The arrangement and financing of a care service through the recipient is also possible.
- Right to reclaim: You can also contractually preserve a right to reclaim the real estate, though the conditions should be written out in detail and unambiguously in the bestowal contract. Examples for a right to reclaim are bankruptcy, divorce, or the death of the recipient.
If the bestowal of real estate happens without conditions, the recipient has free disposal of the real estate. That means that they can gift, sell or rent it out.
Why is it important to consider real estate separately in inheritance law?
If real estate passes to a community of heirs, for example because there is no will or inheritance contract, the community of heirs has to agree on what to do with the real estate. If the decision is made in favour or renting it out, the community of heirs continues. But there are also cases where the community of heirs is dissolved on the condition that the heirs agree, namely these:
Sale of the inherited real estate: The community of heirs can sell inherited real estate to a third party. Sale to a co-heir is also possible so long as they can buy out the other heirs.
Establishment of owner-occupied property: Sometimes it’s possible to split real estate into several units, such as for large houses or apartment buildings. There the specific legal conditions for establishing such property must be considered.
Once the community of heirs has agreed on the use of the inherited real estate, it can be dissolved so long as specific conditions are met. Until the dissolution of the community of heirs it has to take over a number of responsibilities. Among them are the proper, extraordinary and necessary administration of the inherited real estate. To make the ownership visible externally the heirs of a community of heirs should each be entered into the title register. Then the names are listed and each given the addition “in community of heirs”. The correction of the register is free of charge when it is done within two years of the decedent’s death.
Real estate and inheritance tax – what to pay attention to?
Inheritance tax becomes due when assets such as real estate are passed on to the heirs after the death of the decedent. However, this only applies to assets over the tax exemption limit. Its amount depends on the value of the real estate as well as the degree of relation between decedent and respective heir. By this the heirs are separated into three tax brackets.
Tax bracket 1 includes all relatives in direct ascending or descending line as well as spouses, meaning children, grandchildren, greatgrandchildren, parents and grandparents. Both biological and adopted children as well as stepchildren are counted as children. Depending on the value of the inheritance, real estate in tax bracket 1 is taxed at 7 to 30 percent.
Tax bracket 2 contains siblings, aunts, uncles, nieces, nephews, parents-in-law, step-parents, divorced spouses and children in law. They are taxed at 15 to 43 percent.
In tax bracket 3 you find non-relatives such as unmarried life partners. This tax bracket is taxed at a minimum of 30 percent.
If the value of the real estate to be inherited stays under the tax exemption limit, inheriting the real estate does not come with taxes. Beyond that there are ways to save on inheritance tax or to legally avoid it entirely. If real estate is passed on to a community of heirs, the tax office determines which heir has to give a tax declaration. A community of heirs can also declare inheritance tax together, so that the inheritance tax can be paid directly out of the inheritance.
Options for saving inheritance tax in legal ways:
1. Spouses and children of the decedent inherit a piece of real estate tax-free if they use it themselves and continue living there for at least ten years after inheriting.
2. A change of relation with the decedent and thus of the appropriate tax bracket can lower the tax burden of the inheritance tax, for example via marriage. Adoption of a person close to the decedent also changes the relation positively.
3. A bestowal during the decedent’s lifetime also lowers the tax burden. Other than inheritance tax, the tax exemption limit of gift tax can be used up again every ten years.
4. You also save taxes by deducting some costs in your inheritance tax declaration. This applies for example to costs for the funeral and headstone as well as costs for the cemetery maintenance. You can also deduct the so-called inheritance allowance of 10.300 Euro that doesn’t require verification.
Inheriting real estate: why is a certificate of inheritance important?
In case of inheritance, your heirs have to prove their inheritance right in many situations. If there is no will or inheritance contract, this proof can be done for example in the form of a certificate of inheritance given by the inheritance court. It is given on request. Once you request a certificate of inheritance, you accept your position as heir. That means that you can no longer waive your right in the succession if you inherit for example encumbered property. As the single heir of real estate in inheritance law you receive a certificate of sole inheritance, while several heirs receive a certificate of joint inheritance or a certificate of partial inheritance that only applies to an individual portion of the inheritance.
To be entered into the land register as the owner of real estate, presenting a certificate of inheritance is mandatory. Only by being entered into the land register does the real estate become your property. This requires a land register correction, the claim for which has to be made at the district court of the district that contains the real estate. If there is a notarized will or inheritance contract, the certificate of inheritance can be foregone.
To request a certificate of inheritance at the appropriate inheritance court – that is the district court of the last district the decedent lived in – you need specific documents and pieces of information. Besides a valid form of identification that includes the death certificate and the family register to prove relation. If there is a will or inheritance contract, those also have to be shown, additionally the property regime for spouses. The cost of the certificate of inheritance is determined by the value of the inheritance or the real estate at the time of death. The certificate of inheritance loses its validity if the inheritance changes subsequently, for example because a will is discovered after all.
You have questions regarding real estate in inheritance law because you want to pass on a house, an apartment, an estate or several pieces of real estate? It’s important to take care of your inheritance in time and make the needed preparations so your inheritance passes securely to your heirs. This way you prevent remarkably expensive estate settlements. Contact me under https://www.kanzlei-cj.de/#kontakt or call me at 01 71 | 864 62 33.
I will gladly advise you!
Book an appointment for a free initial assessment or contact me by phone, e-mail or via my contact form:
Lawyer Christian Janssen from Berlin
Frequently Asked Questions regarding real estate and inheritance law
Other areas of law
Pension law
I would also be happy to assist you in drawing up your own personal living will, health care proxy, and power of attorney.
Social law
I would be happy to explain how you can use the costs of care to structure the transfer of your assets to the next generation.
