When it comes to inheritance, there are arguments. Quite often at least. Suddenly there is no trace of unity in the family – except for one point: the state should get as little as possible. But how complicated it becomes when everything has to be brought together – family peace and tax advantages – is shown by a recent ruling by the Federal Finance Court (BFH).
Germany’s highest tax judges had to decide on a so-called Berlin will and its tax consequences. A Berlin will is a regulation in which spouses or life partners appoint each other as sole heirs and disinherit the children as a first step. Only when the second partner dies is the inheritance distributed to the descendants.
The model is extremely popular: 2018 had the Allensbach Institute in a representative survey On behalf of Deutsche Bank, it was determined that significantly more than half of the married couples in the country regulate their estate with a Berlin will. So it is “still in trend,” said BFH judge Anette Kugelmüller-Pugh when presenting the judgment on Tuesday. And the Berlin will has undisputed advantages under civil law – but also “disadvantages from an inheritance tax perspective.”
The second BFH Senate has now spelled one thing out: Because the children are entitled to the compulsory share of the inheritance even if the first partner dies, many wills contain clauses that are intended to prevent the share from being claimed. For example, the so-called Jastrow clause. Their goal: If one or more children demand the compulsory portion upon the death of their first partner, they should receive as little as possible; In return, everyone who has given up for the time being should receive more after the death of their second partner.
However, this “extra” must be taken into account in the inheritance tax. This initially affects the longer-living partner; if they exceed the exemption amount of 500,000 euros, then inheritance tax will be due. This in turn diminishes the legacy of the “patient” children. After the death of the second parent, they must in turn tax their entire inheritance, at least if it exceeds the exemption amount of 400,000 euros.
The BFH has now ruled that this does not constitute unlawful double taxation (ref. II R 34/20). The same amount is actually taken into account twice in the tax – but for two different people. This is due to the construction of Jastrow’s clause and is not objectionable.
First highest court decision on property tax
It is unlikely to be the only decision from the second Senate of the BFH that affects many citizens this year. Because he is not only responsible for questions of inheritance tax, but also property tax – and an initial decision will probably be made before the summer break, said BFH President Hans-Josef Thesling. Whether everything in the revaluation of all properties in Germany is in accordance with the constitution, “this question is being discussed all over the country.”
The Rhineland-Palatinate Finance Court, which had to judge the present case in the first instance, expressed doubts about this. If the BFH follows this assessment, it would be a clear indication – and possibly a big problem for the tax authorities. The newly calculated tax should actually be levied from 2025. However, the matter is unlikely to be finally clarified in Munich, but rather in Karlsruhe at the Federal Constitutional Court.
This was forced by the entire property tax reform in 2018 with a fundamental decision. The core of the dispute now revolves around how the value of land and real estate is determined and whether this should not be done uniformly. The federal and state governments could not agree on a method of calculation; the majority of states use the so-called federal model, while some states, including Bavaria and Baden-Württemberg, pursue their own approaches.