Individuals coming into an inheritance should always be mindful of estate tax, since it is very difficult to challenge the decision to accept an inheritance at a later date on account of an error relating to estate tax.
German inheritance laws provide for different tax allowances for estate tax depending on the degree of kinship. It is always a good idea to consider how one can get the most out of these allowances before coming into an inheritance, advises commercial law firm and trusts and estates specialist MTR Legal Rechtsanwälte.
In a scenario where there are multiple heirs that benefit from different tax allowances, which of them ultimately accepts the inheritance can have a big impact on the final tax bill. It is important to keep this in mind at all times, as challenging the acceptance of the inheritance later on based on a mistake regarding the amount of estate tax to be paid is anything but easy. Case in point: a ruling of the Oberlandesgericht (OLG) [Higher Regional Court of] Hamm from November 4, 2021 (case ref.: 10 W 125/21).
The testator in that case, a single and childless man, had designated his mother and brother as his heirs in his will. While both the mother and the brother accepted the inheritance, the brother later sought to reverse his acceptance.
Having assumed that he would be benefiting from a significantly higher tax allowance, the brother justified this rethink by citing his misguided expectations about the amount of estate tax he would have to pay. As the testator’s brother, he was due a tax allowance of just 20,000 euros. It turns out he would be better off if he renounced the inheritance. This would see the mother receive his portion of the inheritance, which he would then inherit following her death. As her son, he would be able to take advantage of a considerably higher tax allowance – currently 400,000 euros – which is why he went on to formally contest his acceptance of the inheritance.
But his plans were dashed by the probate court and the OLG Hamm, with the latter ruling that it was not possible to contest the acceptance of an inheritance due to having erroneously underestimated the amount of estate tax that needed to be paid. The court clarified that it is generally only possible to appeal a declaration of intent if the error pertains to its substance and this gives rise to substantially different legal consequences. The OLG Hamm noted that the heir had not been mistaken in his understanding of the legal implications of accepting the inheritance in determining estate tax; rather, he was only mistaken about the amount of tax that would have to be paid, an error which does not constitute grounds for challenging the acceptance of an inheritance.
MTR Legal Rechtsanwälte can provide counsel on matters relating to inheritances, including estate tax.
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