Wealth inherited in Germany will increasingly involve real property assets. A recent survey by the DIA German Pension Provision Institute suggests that more than four million properties will devolve onto heirs between now and 2024. The trend is owing not least to the fact that condominiums and family homes represent an important part of private pension plans whose stability of value make them the assets of choice for estates to be passed on to coming generations. Another survey, this one commissioned by Deutsche Bank, analogously revealed that the number of Germans who expect to inherit real estate, among other things, is rising steadily. In July 2015, the Allensbach Institute for Public Opinion Research polled more than 1,600 people on the subject of inheritance. Out of this total, 37 percent said they had already inherited owner-occupied residential property. At the same time, 58 percent expect to inherit real estate in the coming years. The subject of real estate inheritances will increasingly move centre stage as a result.
First Steps to Take in the Event of Succession
However, the Deutsche Bank survey also shows that many heirs have either not prepared for, or are unable to cope with, an event of succession. People simply resent the thought of death, and often fail to familiarise themselves with the process involved in the devolution of assets until the actual event. According to the survey, the sort of experience people have had with the devolution of inheritances has deteriorated since 2013. The reason for the negative experience is often ignorance of the costs involved. In the event that real estate is inherited, the most important thing to remember is to notify the inland revenue office right away. The grace period for doing so is three months. The inland revenue office will then determine the amount of inheritance tax due. How high it is depends on the degree of kinship, which governs the tax allowances and tax rates in a given case. The Ministry of Finance of the State of Saarland has compiled a helpful brochure on the details, which in some aspects are rather complex. In order to calculate the inheritance value and with it the associated tax debt, the inland revenue office will commission an expert opinion. Yet this tax assessment is based on a rigid quota that ignores personal factors such as a property's state of repair. An heir is therefore well advised to review such an expert opinion for plausibility. Indeed, it may be sensible to commission a separate opinion from a competent expert.
Children and widowed spouses can moreover take advantage of the option to inherit a home or apartment entirely tax-free. But this presupposes that the heirs owner-occupy the home or condominium for at least ten years. If they move out before the end of this period, they become retroactively subject to inheritance taxation over the full amount. In this case, it is irrelevant whether they sell or let the inherited property. The few exceptions that authorities will make include, for instance, the demise of the heir himself or herself, or infirmity forcing the heir to move into a care home or a disability-compliant flat.
Having the land registry changed is another thing that should be taken care of right away. The change is free of charge during the first two years after the testator's death. The certificate of inheritance is used to substantiate the succession.
Community of Heirs and Disposal of the Property
If the testator is survived by several heirs but has failed to designate a principal heir, the heirs form a so-called community of heirs. In this case, no single member of the community may decide what to do with the property. Even minor maintenance or refurbishment work needs to be authorised by all stakeholders in writing. The optimal solution is therefore to sell the property and split it in fair shares. Selling an inherited property swiftly is perhaps the best way to avoid disputes among heirs. This is facilitated by calling in an unbiased estate agent, who will find a buyer, negotiate the highest price possible, and take care of all the paperwork.
But selling can also be a sensible thing to do for sole heirs for whom owner-occupation is not an option. Here as in the above case, an estate agent can expedite the disposal. The sales proceeds may in turn be invested in an attractive property that could serve as basis for the own retirement scheme.