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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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