Inheritances: Berlin wills can be disadvantageous in terms of taxes

The Federal Finance Court has ruled on the tax consequences of a Berlin will. Married couples appoint each other as heirs – the children are only supposed to inherit after their death. But the state collects inheritance tax twice.

The Berlin Testament is very popular in Germany. Around 60 percent of married couples and partnerships had made such an arrangement in 2018. The highest tax court in Munich has now pointed out that such a regulation can also have tax disadvantages.

Spouses want to use the Berlin Will to protect each other financially. For example, they want to avoid having to sell a house to pay off the children after the death of a partner. By law, children can claim a compulsory share after the death of a parent. This is not ruled out by the Berlin Will, but it is regulated.

Penalty clauses should desires impede

If a child does not want to wait until the last parent dies and demands the compulsory portion, a penalty clause can be formulated in the Berlin will. This goes something like this: If the child demands the compulsory share and receives money after the death of the first spouse, he or she will also receive the compulsory share after the death of the second spouse.

The consequences are noticeable: the child does not become an heir, but only receives a monetary claim that includes half of the legal share of the inheritance. The clause can also be worded even more strictly.

In the case decided by the Federal Finance Court, the parents had also written the so-called “Jastrow clause” into the will: This states that as soon as one child demands the compulsory share, the other child receives a legacy from the estate of the first deceased, i.e. receives one in addition to the actual inheritance Surcharge. However, this legacy only becomes due after the death of the last parent. After the father died, the mother became the sole heir and also had to pay tax on the legacy. That was the trigger for the legal dispute.

Adverse tax consequences

Spouses often don’t think about the tax consequences of a Berlin will. The law treats the Berlin will as two inheritance cases, so that inheritance tax is due twice. In the event of the first inheritance, the surviving spouse must pay inheritance tax if their exemption amount of 500,000 euros has been exhausted.

In the second inheritance case, the children are affected. “The children have allowances of 400,000 euros each. But these are given away in the Berlin will,” says inheritance law specialist Anton Steiner from the German Forum for Inheritance Law. Because they are initially disinherited when they first inherit.

Legacy puts additional strain on the children

In the case of the Federal Finance Court, one of the daughters claims that the legacy is a double tax burden for her. In the first case, the mother paid tax on the father’s legacy, and now she has to do the same. The Federal Finance Court has admitted this. “Although it is unfavorable for the taxpayer, it is not objectionable.”

Reason: there are two people involved: the mother was taxed the first time, the daughter was taxed the second time, but she was able to deduct the legacy from her taxes as an estate liability. The Federal Finance Court has described the legal construction of the Berlin will as compliant, but also makes it clear that it can have tax disadvantages. Anyone who draws up a Berlin will should keep this in mind.