Why Your Will Directly Affects Inheritance Tax
Many people think of writing a will as purely a matter of family law -- deciding who gets what. But in Germany, the structure of your will has direct and often dramatic consequences for inheritance tax. The same estate can produce vastly different tax results depending on how the will is drafted. A well-structured will can save heirs tens or even hundreds of thousands of euros, while a poorly drafted one can waste valuable allowances and trigger unnecessarily high tax bills.
German law provides considerable freedom in how you structure your estate plan. Understanding the tax implications of different will structures is essential for making informed decisions that serve both your family's wishes and their financial interests.
Types of Wills in Germany
German law recognizes several types of wills, each with different formal requirements and implications.
The handwritten will (eigenhaendiges Testament) must be written entirely by hand and signed by the testator with their full name, date, and place. It cannot be typed or printed. This is the simplest and most common form, requiring no notary or witnesses. However, it is also the most vulnerable to challenge, and ambiguous language can lead to costly disputes.
The notarial will (notarielles Testament) is drafted with the assistance of a notary and deposited with the local court (Amtsgericht). It provides greater legal certainty, is harder to challenge, and eliminates the need for a certificate of inheritance (Erbschein) in many cases, saving time and money during estate settlement. The cost is based on the estate value, calculated according to the Court and Notary Fees Act (GNotKG).
The joint will (gemeinschaftliches Testament) can only be made by married couples or registered civil partners. It allows both partners to make their testamentary dispositions in a single document. The most common form is the Berlin Will, which we discuss in detail below.
The Berlin Will: Popular but Tax-Inefficient
The Berliner Testament is by far the most common will structure in Germany. In it, the spouses appoint each other as sole heirs and designate their children as final heirs (Schlusserben) who inherit after the second spouse dies. The appeal is obvious: it ensures the surviving spouse receives everything and has full financial security.
However, the Berlin Will is a well-known tax trap. When the first spouse dies, the entire estate passes to the surviving spouse. The children inherit nothing at this point, which means their personal allowances of 400,000 EUR each go completely unused. When the surviving spouse later dies, the children finally inherit, but they can only use their allowances once against the now-larger combined estate.
For a couple with a combined estate of 1,500,000 EUR and two children, the Berlin Will can result in an additional tax burden of 50,000-100,000 EUR or more compared to an optimized will structure. The larger the estate, the greater the wasted potential.
The Legacy Solution: Best of Both Worlds
A much more tax-efficient approach is to include bequests (Vermaechtnis) in the will alongside the main inheritance. In this structure, the surviving spouse remains the primary heir and receives the bulk of the estate, ensuring financial security. At the same time, each child receives a specific bequest equal to or near their personal allowance of 400,000 EUR.
The legal difference between an heir (Erbe) and a legatee (Vermaechtnisnehmer) is important: the heir inherits the estate as a whole, including all rights and obligations, while the legatee receives only a specific claim to a defined asset or amount. The children's bequests create a legal obligation on the surviving spouse to pay the specified amounts, but the timing can be deferred -- for example, until the surviving spouse's death or upon request.
This structure utilizes the children's allowances at the first death without depriving the surviving spouse of any practical control or access to the assets. The bequests reduce the size of the estate passing to the surviving spouse, thereby also reducing any tax that the spouse might owe. It is a classic win-win in estate tax planning.
Usufruct in Estate Planning
Usufruct (Niessbrauch) is another powerful tool that can be incorporated into a will. The testator can leave property to a child while granting the surviving spouse a lifelong usufruct -- the right to live in the property or receive its rental income.
For inheritance tax purposes, the property is valued at its full amount for the child's inheritance, but the child can deduct the value of the usufruct burden, significantly reducing the taxable amount. Meanwhile, the surviving spouse has the practical benefit of using the property without owning it for tax purposes.
The usufruct value is calculated using official actuarial tables based on the surviving spouse's age and the property's annual value. The younger the surviving spouse, the higher the usufruct value and the greater the tax deduction for the child.
Disinheriting and Compulsory Portion (Pflichtteil)
German law does not allow complete disinheritance of close family members. Spouses, children, and (if there are no children) parents are entitled to a compulsory portion (Pflichtteil) equal to half the value of their statutory inheritance share. This claim is purely monetary -- it does not entitle the disinherited person to any specific assets.
For inheritance tax purposes, the compulsory portion is taxed when it is actually claimed, not when the death occurs. If the disinherited person chooses not to claim their compulsory portion, no inheritance tax is due. This creates a planning opportunity: if a disinherited child does not need the money, waiving the compulsory portion avoids inheritance tax entirely, and the assets remain with the primary heir.
Succession Contracts (Erbvertrag)
An alternative to a will is the inheritance contract (Erbvertrag), which must be notarized and is binding on both parties. Unlike a will, which can be changed or revoked at any time, an inheritance contract creates legally binding obligations that cannot be unilaterally altered.
Inheritance contracts are particularly useful in business succession planning, where the heir may make significant life decisions (such as joining the family business or forgoing alternative career opportunities) in reliance on the promised inheritance. The binding nature provides certainty for both sides.
From a tax perspective, inheritance contracts are treated identically to wills. The same allowances, tax classes, and rates apply. The key difference is legal certainty, not tax treatment.
Tax-Optimized Will Checklist
When drafting or revising your will with tax optimization in mind, consider the following points. First, avoid the pure Berlin Will if your estate exceeds the spousal allowance of 500,000 EUR. Instead, include children's bequests up to their allowance limits. Second, consider usufruct arrangements for real estate to reduce the taxable value for heirs while preserving practical use for the surviving spouse.
Third, review whether lifetime gifts combined with testamentary provisions can further reduce the overall tax burden. Fourth, ensure the family home exemption requirements will be met if you want the family home to pass tax-free. Fifth, consider the implications for business assets and whether the standard or optional exemption should be targeted.
Finally, review your will regularly -- at least every five years or after any significant life event (marriage, divorce, birth of children or grandchildren, significant change in wealth). Tax laws change, family circumstances evolve, and a will that was optimal five years ago may be suboptimal today.
A tax advisor and an estate planning attorney working together can structure your will to minimize inheritance tax while fully respecting your family's wishes and needs. The investment in professional advice is almost always repaid many times over through tax savings.