Estate (Composition)

The estate (also known as the estate of the deceased) comprises all assets and liabilities that a deceased person (the decedent) leaves behind at the time of death and that pass to the heirs. It consists of the estate’s assets (real estate, cash, securities, household goods, receivables) and liabilities (debts, obligations, probate costs). The heir assumes the legal rights and obligations of the decedent-both positive and negative. If the liabilities of the estate exceed the assets, the inheritance should be renounced.

Estate Assets: Real Estate and Assets

Real estate is among the most valuable and, at the same time, most complex components of an estate. For inheritance purposes, they are valued at the property value under the Valuation Act (BewG), which generally corresponds to the market value or is determined by the tax authority. The valuation is usually performed automatically by the tax office but can be challenged through an expert appraisal if the tax office’s estimated value appears too high.

In addition to land and buildings, the estate’s assets include bank deposits, securities accounts, insurance claims (unless exempt from garnishment), equity interests in companies, receivables, and movable property (vehicles, works of art, jewelry). Some assets-such as life insurance policies with a right of withdrawal or assets in joint accounts-do not form part of the estate, even though they belonged economically to the decedent. A careful review is important here before filing an inheritance tax return.

Estate Liabilities: Debts and Obligations

Estate liabilities include existing loan debts (e.g., mortgages on real estate), unpaid bills, rent arrears, back taxes, and ongoing obligations arising from contracts. Funeral costs, estate administration costs, and any statutory share claims by close relatives who are not heirs are also estate liabilities.

Heirs are generally liable for these liabilities without limitation with their entire personal assets-unless they limit their liability by accepting the inheritance subject to administration of the estate or by filing for estate insolvency. The deadline for renouncing the inheritance is six weeks from the date of learning of the inheritance-a short period during which heirs must assess the quality of the estate as far as possible.

Estate Inventory as an Overview Tool

To determine the composition of the estate, it is advisable to prepare a complete estate inventory. It lists all assets and liabilities and forms the basis for the distribution of the estate, the inheritance tax return, and any calculations of the statutory share. If the inventory is incomplete, an heir may be required to submit a supplementary affidavit (§ 2027 BGB).

The probate court assists with the investigation, particularly if parts of the estate are unknown. In complex cases, it is advisable to retain an estate planning attorney who will systematically prepare the inventory and coordinate tax obligations.

Real Estate in the Estate: Special Considerations

Real estate assets in the estate require special attention. First, it must be clarified who the owner is-the land registry provides this information. Next, it must be determined whether the property is rented out and what ongoing obligations (condominium fees, property tax, maintenance reserve) exist. If there is an outstanding loan on the property, the heir assumes the loan obligations and must continue making the installment payments-otherwise, the loan may be terminated.

Finally, a decision must be made as to whether the property should be kept or sold. This decision has tax implications: If the property is owner-occupied, the sale is tax-free within three years of the inheritance; if it is rented out, the ten-year capital gains tax period applies.

Practical Tip for Property Owners in Nuremberg and Franconia

In the Nuremberg metropolitan region, real estate is often by far the most valuable part of an estate. We regularly see communities of heirs delaying important decisions-such as whether to keep or sell a property-because they lack a complete overview of the estate. Uncertainty about the property’s value is often a major obstacle in this process.

Upon request, we provide heirs with a market-based valuation of the inherited property-free of charge and with no obligation-and coordinate the sales process if the community of heirs decides to sell. With our experience in the region, we know the market and can quickly assess what proceeds are realistically achievable.

Frequently Asked Questions

Are the decedent’s debts automatically transferred to the heirs?

Yes, upon the opening of the estate, all assets and liabilities are automatically transferred to the heirs. Anyone wishing to protect themselves from debt must renounce the inheritance within six weeks (Section 1944 of the German Civil Code) or utilize other options to limit liability.

What happens if the estate is not fully known?

Heirs should actively search for documents: bank statements, land registry extracts, contract documents, tax assessment notices. The probate court may appoint an estate administrator if the estate is unknown or unclear. The process of identifying heirs can also be initiated by applying for a certificate of inheritance from the probate court.

Does the composition of the estate have to be reported to the tax office?

Yes. Under § 30 ErbStG, heirs are required to notify the tax office of the acquisition within three months of the opening of the estate. Based on the reported estate, the tax office will assess inheritance tax if applicable.

As an heir, can I challenge the real estate valuation set by the tax office?

Yes. The property value determined by the tax office using the simplified income approach does not always correspond to the actual market value. Anyone who submits an expert appraisal demonstrating a lower value can reduce the inheritance tax base. This is particularly worthwhile for properties of significant value.

What is not included in the estate, even though it belonged to the decedent economically?

Certain assets are not included in the estate and are paid directly to the beneficiary without passing through the estate. Typical examples include life insurance policies with a designated beneficiary: The decedent named a beneficiary during their lifetime; the insurance proceeds go directly to that person without becoming part of the estate. The same applies to balances in joint accounts with sole power of disposal, as well as to claims arising from employer-sponsored pension plans. While these assets may be subject to gift or estate tax, they are not available to satisfy estate creditors. It is important for heirs to understand this distinction so as not to use their own assets to pay estate debts that are not legally part of the estate.

Estate Planning as a Preventive Measure: What Owners Can Arrange During Their Lifetime

Especially when it comes to real estate assets, it is advisable to carefully structure estate planning during one’s lifetime to spare heirs from future disputes and tax burdens. Options include: drafting a notarized will with a clear allocation of real estate to specific heirs; the early gifting of real estate by utilizing the tax-exempt allowances (400,000 euros per child every 10 years) and agreeing to reservations of usufruct or right of residence, which ensure the donor’s continued use; as well as agreeing to prohibitions on partition in the will, which prevent the hasty sale of valuable properties. In the Nuremberg metropolitan region, we repeatedly observe inheritance cases where an early transfer to the next generation could have saved a considerable amount in inheritance tax. A consultation with a tax advisor and a notary is highly recommended for property owners with substantial assets.

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