Family Businesses

New Succession Regulation – Wills Need to be Adapted

Ger­mans who fre­quently stay in coun­tries other than Ger­many on an ex­ten­ded ba­sis, be­cause they work or have a va­ca­tion home there, should keep an eye on Au­gust 17, 2015.

On that date the new EU Suc­ces­sion Re­gu­la­tion en­ters into force, and it could re­sult in a change in the ap­plica­ble suc­ces­sion law. This could mean that their es­tate is sud­denly go­ver­ned by for­eign law in­stead of Ger­man law.

New Succession Regulation © Thinkstock

Un­der cur­rent Ger­man choice-of-law ru­les, suc­ces­sion is go­ver­ned by the law of the state of which the de­ce­dent is a na­tio­nal at the time of de­ath. For Ger­mans, the­re­fore, the ba­sic rule is that Ger­man law ap­plies to their es­ta­tes. Howe­ver, in many other le­gal sys­tems, the ap­plica­ble law is not ba­sed on the na­tio­na­lity of the de­ce­dent, but on the de­ce­dent's ha­bitual abode at the time of de­ath. This could mean that an es­tate is go­ver­ned by the laws of more than one coun­try. To avoid this si­tua­tion, it has now been es­ta­blis­hed wi­thin the EU (with the ex­cep­tion of the UK, Ire­land and Den­mark) which coun­try's suc­ces­sion laws will be ap­plied to all as­pects of a de­ce­dent's es­tate. The Ger­man le­gis­la­ture has also ta­ken ac­tion on this is­sue and will trans­pose the re­le­vant pro­vi­si­ons into Ger­man law by Au­gust 17, 2015.

From now on, the de­ce­dent's es­tate will be go­ver­ned by the suc­ces­sion laws of the coun­try where he had his ha­bitual abode at the time of his de­ath. It has not been ex­pressly es­ta­blis­hed how to de­ter­mine ha­bitual abode. It will be ba­sed on an over­all eva­lua­tion of the life cir­cum­stan­ces of the de­ce­dent prior to his de­ath and at the time of his de­ath. As a re­sult, dif­fi­cul­ties of in­ter­pre­ta­tion bet­ween the coun­tries in­vol­ved are al­most bound to hap­pen.

For ex­am­ple, it is not com­ple­tely clear which suc­ces­sion laws will ap­ply if the de­ce­dent spends six months in Spain and six months in Ger­many in a year. Even more dif­fi­cult (and lar­gely de­pen­dent on chance) is the de­ter­mi­na­tion of the ap­plica­ble law when the de­ce­dent has spent dif­fe­rent amounts of time in Ger­many and at his va­ca­tion home out­side Ger­many.

To be on the safe side, the­re­fore, you should ex­pressly es­ta­blish in your will or in­heri­tance con­tract which law go­verns your es­tate. Con­trary to the si­tua­tion un­der cur­rent Ger­man law, in the fu­ture de­ce­dents will be able to select the suc­ces­sion law of the state of which they are a na­tio­nal. This ex­press right to choose the go­verning law should be ta­ken into con­side­ra­tion if you spend lon­ger pe­riods of time at a va­ca­tion home out­side of Ger­many. But it should also be con­side­red if you move to ano­ther coun­try, even tem­pora­rily, for work re­asons, since this could change your ha­bitual abode.

If you are plan­ning your will or in­heri­tance con­tract, as a ge­ne­ral rule you should pro­vide for the go­verning law — you ne­ver know whe­ther for health re­asons you might end up ha­ving your ha­bitual abode in ano­ther coun­try or whe­ther you might de­cide to re­tire to sunny Sou­thern Eu­rope, wi­thout re­mem­be­ring to amend your will or in­heri­tance con­tract.
By es­ta­blis­hing the law of the coun­try of which you are a na­tio­nal as the law go­verning your es­tate, you can avoid un­cer­tain­ties that could arise from a change in your ha­bitual abode. On the other hand, for­eign law might al­low you to struc­ture your es­tate in a way that it is more in line with your wis­hes. So you should weigh your op­ti­ons care­fully.
There are va­rious ways to draw up a will in Ger­many: it can eit­her be in the form of a "pu­blic" will (re­cor­ded by a no­tary) or in the form of a hand­writ­ten (ho­lo­gra­phic) will.
In­heri­tance con­tracts can be en­te­red into bet­ween the de­ce­dent and any third party of his choo­sing. There is no re­qui­re­ment that the third party be re­la­ted to him by blood or by mar­riage. Howe­ver, in­heri­tance con­tracts must be in no­ta­rial form and can only be exe­cu­ted be­fore the no­tary if both par­ties are pre­sent at the same time.

The choice of law in a no­ta­ri­ally-re­cor­ded will or in­heri­tance con­tract will re­sult in ad­di­tio­nal fees, so that it might be bet­ter to es­ta­blish your choice of law in a hand­writ­ten will. The new Suc­ces­sion Re­gu­la­tion does not in any way change the tax con­se­quen­ces. Ger­man and for­eign suc­ces­sion and gift tax laws will con­ti­nue to go­vern side by side. Be­cause there is of­ten no dou­ble ta­xa­tion treaty with re­gard to this type of tax, there will fre­quently be dou­ble ta­xa­tion, be­cause a va­ca­tion home may be ta­xed in Ger­many and in the coun­try where it is lo­ca­ted. This dou­ble ta­xa­tion is mit­iga­ted by the fact that the for­eign tax can be off­set against the Ger­man suc­ces­sion and gift tax.

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