1. General Overview of German inheritance law
German inheritance law is characterized by several principles, one of the most important ones being the principle of universal succession, as stipulated in paragraph 1922 German Civil Code.
Universal succession means that all assets of the decedent automatically pass on to his heirs immediately after the decedent’s death with no further act of transfer. The heir therefore automatically becomes the decedent’s mandatory universal successor.
Contrary to several other jurisdictions, particularly to the US, the decedent’s assets within the scope of the universal succession include not only the actually available assets, e.g. cash, bank accounts, stock portfolios, real property etc., but also the decedent’s debt that may have existed at the time of his death. Hence, the estate consists of all assets, rights and obligations, whether they are proprietary or not.
Besides obligations or commitments the decedent entered during his lifetime and the resulting debts, the heir is additionally liable for obligations that occurred after the decedent’s death, e.g. costs or fees in regards to the administrations of the estate, compulsory portions, bequests or other regulations made by the decedent.
2. Differences between German inheritance law and the legal situation in the US
As the German inheritance law does not differ between the liability of the estate and the liability of the heir, the heir is directly and personally liable for the obligations listed above, it is not limited to the estate as such. While heirs in the US are usually not held personally liable for the decedent’s obligations or debts, German law provides for the heir to be held liable with all his personal assets.
This is where German inheritance law differs significantly from the US jurisdiction, as the liability is limited to the estate whenever US law is applicable. In the US, the personal representative, executor or administrator of the estate services the decedent’s creditors from the estate, therefore, it is at the expense of the creditors should there not be enough assets to satisfy all of their claims. The heir is not personally liable for the remaining debts and obligations.
3. Waiver of succession, probate insolvency and estate administration
Once there is reason to believe that the decedent was significantly in debt, it may be advisable to waive the succession in order to prevent being held fully and personally liable as heir. It is crucial to meet the set deadline for such a waiver.
By waiving the succession, the estate and the universal succession is rejected by the heir. To do so, the heir must file a written statement with the inheritance court or with a German Notary during a time period of six weeks after the decedent’s death. Should the decedent have not resided in Germany or the heir is living abroad, the time period is prolonged to six months.
It is also possible to limit the heir’s liability without completely waiving the succession, the heir has two options to do so: By having the estate administered or by opening probate insolvency proceedings.
The heir must file an application for estate administration with the competent inheritance court, the court then appoints an administrator that resolves the estate as trustee. However, it is important to note that is not possible to apply for an estate administration anymore after the heir is fully liable for the estate.
Once it is clear that the estate is over-indebted, the heir is obliged to open insolvency proceedings as soon as he learns about the debt the decedent had. The insolvency proceedings are opened by filing an application with the competent insolvency court. In case of an over-indebted estate, it is crucial to act in a timely manner as the heir is liable for potential damages or losses that occurred due to not opening the insolvency proceedings.
4. The exception: Special succession and its most relevant examples
There is one exception to the described principle of universal succession, the so-called special succession. In regards to particular assets, such an exception is inevitable. Through the special succession, some individual assets are separated from the remaining estate and form a separate, special estate.
The principle of special succession is relevant in regards to tenancies or other rental arrangements made by the decedent, when appropriate and applicable in regards to corporate shares or relationships and also in regards to agricultural holdings and farms to name a few relevant examples.
The decedent’s tenancy is continued by his spouse or partner or some other family member, not necessary by the heir in order to ensure that the decedent partner or child is able to maintain their domicile and center of their lives. Once these privileged persons decide to reject to continue the tenancy, the heir would step in to do so.
In regards to corporate shares, the special succession was established through further development of the law by judicial decisions. Special succession is to be applied if the decedent used to be a personally liable partner to prevent possible collisions between inheritance and corporate law.
Special succession in terms of agricultural holdings was introduced to preserve the holding or farm itself and is regulated by the particularly applicable so-called “Anerbenrecht”, a special code of agricultural succession law.
5. Not inheritable legal relationships
In the German jurisdiction, there are so-called personal rights, which are considered to be especially protected, are not subject to universal succession. The law relating to the use of one’s name, the decedent’s right of personality are personal right to name a few. Not necessarily the heir, but the decedent’s next of kin are entitled to the non-material component of the decedent’s right of personality, which is why special succession applies.
Furthermore, some rights that are personally tied to the decedent, e.g. a usufruct or another limited personal encumbrance, but also claims for maintenance, child support or other family rights such as parental care, cannot be inherited, these rights or claims cease with the decedent’s death.
Please contact our German, Munich-based office should there be a possibility of inheriting estate located in Germany or if you wish for a general consultation in regards to German inheritance law.