In Germany, a “Berliner Testament” (literally, “Berlin will”) is a type of joint will that aims to provide security for both partners in a marriage, making it particularly popular among married couples. It can, however, be a suboptimal choice as far as estate tax is concerned.
This type of spousal will entails each partner naming the other as their sole heir, which ensures that the surviving spouse is financially secure following the death of their partner. The drawbacks of this kind of arrangement, on the other hand, become apparent when one considers the tax side of the equation, notes commercial law firm MTR Legal Rechtsanwälte, whose areas of expertise include trusts and estates law. An attorney who is well-versed in this field can discuss the pros and cons of a Berliner Testament and how best to take advantage of the financial security it offers and how to make the most of the tax allowances available.
One of the benefits of spouses being able to mutually appoint each other as their sole heirs is that the inheritance is not divided proportionally among the surviving partner and the children, with this ensuring greater financial security for the widowed spouse. Typically, the children are designated as the final successors, set to inherit after the surviving spouse has passed away as well. An expert in inheritance law can advise on how to ideally structure a Berliner Testament with a view to making arrangements for the order of succession.
Of course, one should also be mindful of the disadvantages of this form of spousal will, including the possibility of less-than-optimal use of tax allowances. German inheritance laws currently provide for a tax allowance of 500,000 euros for the surviving spouse, as well as a 400,000-euro allowance for each child. Accordingly, if initially only the former inherits, it is not hard to exhaust the tax allowance available to him or her. A trusts and estates lawyer can shine a light on these “tax traps” and advise on how best to circumvent them.
One option is gift-giving during the lifetime of the testators. Gifts can be given to the soon-to-be widowed spouse and the children in anticipation of the other spouse’s death. An inheritance lawyer can explain how the allowances for gifts can be used every 10 years. Alternatively, it is possible for the testators to make bequests for the benefit of their children. The question of which option makes the most sense is one that is best answered by an experienced legal practitioner on a case-by-case basis.
The team at MTR Legal Rechtsanwälte advises on all things inheritance-related, including – but not limited to – wills and gifts.
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