Statutory succession or last will – what is what?
Many property owners as well as owners of other assets ask themselves whether it is advisable to make provisions for their own death, or whether it is better to simply leave succession to the (German) law.
Nevertheless, the ability to take such a decision in an informed manner requires knowledge of the rulings contained in the law. Only those who know the statutory mechanisms can achieve an optimum balance between the actual as well as the legal alternatives of the available structuring modalities. The structuring options are often complex and are not infrequently determined to a decisive extent by details.
Cases that appear similar at first glance can ultimately require completely different treatment, as the circumstances of the individual case are frequently decisive. Nevertheless, it is naturally that a private person cannot know all the details of (German) law of succession. Frequently however, half the battle is having a sense for any possible problems and then being able to ask an expert for advice if necessary.
German Inheritance Law
In terms of “being sensitive to the problem”, it is good to know that German inheritance law is based on the principle of universal succession. The consequence is that the statutory law of succession regulates succession as a whole. In this respect, the law of succession works on the basis of the so-called stirpes or also order system in terms of determining the statutory heirs. The individual orders are designated one after the other. Initially, the first order based on the testator is designated, followed by the other orders in ascending order. Each order designated earlier excludes the later one. The single orders are defined as descendants of the testator (first order), parents of the testator and their descendants (second order), grandparents of the testator and their descendants (third order) etc. The surviving spouse is also designated as heir as a fundamental rule.
Nevertheless, the level of his/her inheritance depends on the presence of the various orders. In this respect, a registered (same-sex) partner that could be entered into Germany until October 2017 is placed on an equal level with the spouse.
The order system is also supplemented by the stirpes principle or by the law of succession by line. For the first order, this means for example that a closer descendant excludes his/her own descendants; these will therefore not come into consideration as heirs; they only replace the closer descendant in the case that the latter falls away. If, for example, the testator leaves a son and a grandson, the surviving son excludes the grandson. Equally close heirs are taken into account in equal shares within the stirpes (sharing of inheritance based on the number of persons).
Example case 1:
The only asset owned by the testator is a property and he dies without children. He leaves behind his mother. His father and his only sister have died. His sister has an illegitimate child. Nevertheless, he had no contact to this child during his lifetime as a result of family disputes.
Based on the statutory law of succession, the heirs to the property in this case are the testator’s mother and the illegitimate child of his deceased sister – despite the fall-out.
If, while alive, a person decides that the statutory law of succession should not apply, the possibility exists of making “independent rulings”. The regulatory instruments available are the will and the contract of inheritance. In principle the will and contract of inheritance are of equal value. Nevertheless, they differ in terms of the formal requirements for their drawing and partly in terms of their legal effects. The so-called “handwritten will” is an unilateral declaration of intent, and the person drawing it up must write and sign it in his/her own handwriting in order for it to be effective. It should also include the date and place of drawing up, although this is not a prerequisite for being legally effective. In contrast to the contract of inheritance, it does not require authentication by a notary public.
The so-called “joint will” can only be drawn up by spouses as well as by registered (same-sex) partners. Other than with the handwritten will, a joint will is effective if handwritten by only one of the parties making the will. Nevertheless, it must be signed by both decedents. At the same time, there is a need for caution in this context: the dispositions made in a joint will frequently could contain reciprocally binding effects and, in certain circumstances, can no longer be changed by the surviving partner following the death of the first to die. To avoid undesired legal consequences here (possibly at a later date), it is important to take great care when drawing up the will and to include clear rulings on binding effects etc., so as to avoid unintended consequences.
In all cases, a contract of inheritance will only be effective if authenticated by a notary public and, due to its contractual character, has a binding effect as a fundamental rule.
In addition to any rulings to be made concerning the estate, persons frequently wish to make gifts to family members or third parties while still alive, in order to control and clarify various situations during one’s lifetime. Nevertheless, consideration should be given to the fact that interests can frequently change over the course of time. If this has not been taken into account when formulating the gift and no corresponding precautionary measures taken, unpleasant surprises can frequently be the result later.
Example case 2:
The married couple and parents own a large item of real estate on which a single-family house has been built. The married couple have two adult children, a daughter and a son. The daughter is already married and has a child.
The daughter wishes to build a house on the parents’ real estate together with her husband, as the real estate is sufficiently large for this. To this end, the real estate is partitioned and the daughter receives half ownership of the original portion of the real estate as a gift. The gift agreement contains no other rulings. 10 months later, the daughter dies suddenly as a result of a traffic accident. The daughter has died without having drawn up a will.
In the absence of a will by the daughter and/or any fall-back clauses in the gift agreement, the daughter’s husband and child inherit the portion of the real estate on the basis of statutory succession. The parents have lost the portion of the real estate, originally belonging to them, for ever, as they have not made any rulings to the contrary.
To avoid unintended consequences it always makes sense to ask an expert for advice.