Community of heirs

Community of Heirs - A community of heirs is automatically formed when a deceased person leaves behind multiple heirs. It constitutes what is known as a community of joint ownership, in which all heirs jointly administer the estate and can only dispose of individual estate assets collectively.

What exactly does “community of heirs” mean?

The community of heirs is governed by Sections 2032 through 2057a of the German Civil Code (BGB) and is established by law upon the opening of the estate-that is, upon the death of the decedent. The heirs do not become owners of individual estate assets but hold a joint interest in the entire estate. No co-heir may dispose of their share in a specific estate asset-such as real estate-on their own, but they may sell their entire inheritance share to a third party. In this case, the remaining co-heirs are entitled to a statutory right of first refusal under Section 2034 of the German Civil Code (BGB).

The administration of the estate is the joint responsibility of the heirs. The law distinguishes between ordinary administration, which can be decided by a majority vote based on the shares of the inheritance, and extraordinary measures, which require unanimity. Routine measures such as maintaining a property, commissioning necessary repairs, or extending existing lease agreements generally fall under ordinary administration. The sale of an estate property, on the other hand, constitutes a disposition of an estate asset and requires the consent of all co-heirs.

In practice, the community of heirs often proves to be a source of conflict, especially when real estate is part of the estate. While movable assets and bank balances can be divided relatively easily, a house or a condominium cannot be physically divided. The heirs must therefore agree on whether the property should be sold, taken over by one co-heir in exchange for compensation to the others, or continued to be managed jointly.

The dissolution of the community of heirs takes place through what is known as the settlement of the estate. Ideally, the co-heirs agree on a settlement agreement that governs the distribution of all estate assets. This agreement must be notarized if real estate is involved. If the heirs cannot reach an agreement, the final recourse is a partition auction pursuant to §§ 180 ff. ZVG. Any co-heir may apply for this at the competent local court-regardless of the size of their share of the inheritance.

Special Challenges with Real Estate in the Estate

Real estate poses a special challenge within the community of heirs because it is indivisible and incurs ongoing costs. Property taxes, insurance, maintenance costs, and, where applicable, condominium fees for condominiums must be borne jointly by the co-heirs-in proportion to their shares of the inheritance. If a co-heir occupies the property themselves, they owe the others compensation for use in the amount of the local market rent.

Disputes often drag on for months or years. During this time, the property must be managed, and disagreements over necessary investments or rental policies further complicate the situation. A partition auction is considered a last resort, as the proceeds typically fall significantly below market value-estimates suggest a discount of 20 to 30 percent.

Practical Tip for Property Owners in Nuremberg and Franconia

In the Nuremberg metropolitan region, there are numerous apartment buildings, semi-detached homes, and townhouses owned by communities of heirs that have existed for years or even decades. Especially in neighborhoods like Eibach, Langwasser, or Mögeldorf, where real estate prices have risen significantly over the past decade, the property value often far exceeds the rest of the estate’s assets-which further complicates the division.

Our network of experts recommends that communities of heirs obtain a professional real estate appraisal early on to establish an objective basis for negotiation. A market valuation by a certified appraiser or an experienced real estate agent with regional expertise helps to objectively assess the unrealistic price expectations of individual co-heirs. Any co-heir who wishes to take over the property themselves should clarify the financing for the settlement with the other heirs at an early stage.

Frequently Asked Questions

Can a single co-heir force the sale of the property?

A single co-heir cannot independently enforce the sale of the estate property, as decisions regarding individual estate assets require unanimity. However, any co-heir may apply to the competent local court for a partition auction. This leads to the forced sale of the property, in which every co-heir may bid themselves. A partition auction generally yields significantly lower proceeds than a private sale.

Who pays the property’s running costs within the community of heirs?

The ongoing costs-property tax, insurance, utilities, and maintenance-are borne jointly by all co-heirs in proportion to their inheritance shares. If a co-heir advances the costs alone, they may demand proportional compensation from the others. For condominiums, the monthly maintenance fee must be paid to the condominium association, for which the community of heirs is jointly and severally liable.

How can a community of heirs regarding a property be avoided?

The most effective method is a clear testamentary provision that assigns the property to a single heir and provides for compensation payments to the remaining heirs. Alternatively, the owner can transfer the property during their lifetime by way of anticipated succession-for example, as a gift with a reservation of usufruct or a right of residence. Our network of experts recommends coordinating these arrangements early on with a notary and, if necessary, a tax advisor.

What tax considerations must be taken into account when settling a community of heirs with real estate?

The distribution of an estate can have tax consequences that are often underestimated. If a co-heir takes over the property in exchange for a compensatory payment to the others, this is considered a partially remunerated transaction for tax purposes-the inheriting heir acquires the paid-for share like a buyer and may thereby trigger real estate transfer tax. In Bavaria, the real estate transfer tax is 3.5%. If real estate is divided among co-heirs (physical division), this transaction is exempt from real estate transfer tax, provided it takes place exclusively among the co-heirs. For rented properties, the speculation period under Section 23 of the Income Tax Act (EStG) must also be observed: If a rental property is sold within ten years of acquisition (inheritance is considered an acquisition), income tax is due on the capital gain. In the Nuremberg metropolitan region, where real estate values have risen significantly, the taxable capital gain can be substantial. Early tax advice from a tax advisor specializing in inheritance law is therefore strongly recommended.

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