Claim for a Compulsory Portion in Germany
Legal advice on compulsory portion in business succession
Planning your estate in advance is a wise decision. If the estate includes businesses or business shares, business succession could be threatened by claims for a compulsory portion. Even if they are excluded from the inheritance by a will, the following still have a right to a compulsory portion in Germany:
- the testator’s descendants
- their parents
- their spouse
Proper preparation shields businesses from liquidity outflow
The compulsory portion is determined based on the value of the statutory inheritance share. It becomes due with the inheritance and is generally payable immediately. The heir or the community of heirs is responsible for paying the compulsory portion.
If the heir cannot pay the compulsory portion claims from the remaining estate or their own funds, the company’s liquidity and survival could be at risk. The company then becomes liable. As a result, compulsory portion claims can lead to a significant outflow of liquidity for businesses.
Our consultation services for all aspects of business succession
The risks mentioned above can be avoided or minimized by planning business succession early. We offer the following solutions among others:
1. Arrangement by notarial compulsory portion waiver
The deceased’s relatives and spouse can renounce their statutory inheritance rights by contract with the deceased. This waiver agreement must be concluded during the testator’s lifetime and notarized. If the waiver is restricted to the compulsory portion, it is referred to as a compulsory portion waiver.
It is also possible to further limit the subject of the waiver. For instance, it can be agreed that a company included in the estate is not considered when valuing the estate. The compulsory portion is then calculated based on the other assets in the estate.
This way, testators can effectively protect their company without completely excluding the compulsory portion beneficiary from the inheritance. Usually, a settlement is also promised in return for the waiver. The settlement amount can be based on the amount of a hypothetical compulsory portion claim at the time of the waiver.
2. Arrangement by bequest
If the compulsory portion beneficiary receives a legacy, their compulsory portion entitlement is reduced accordingly. However, if the legacy’s value does not reach the compulsory portion amount, the compulsory portion beneficiary can demand compensation for the difference. The heir is obligated to pay this compensation. If they cannot pay the compensation from the other inherited assets and their own funds are unavailable, they must rely on the company included in the estate.
Therefore, when arranging the bequest, it is important to ensure that the bequeathed object’s value does not fall significantly short of the compulsory portion amount. Additionally, the compulsory portion beneficiary/legatee should be involved in planning and selecting the bequest object early on. This is because they can still refuse the bequest after the inheritance and demand the full compulsory portion amount.
3. Structuring through recognizable lifetime benefits
By gifting a compulsory portion beneficiary during their lifetime, the testator can reduce the compulsory portion entitlement. This is because the lifetime gift’s value must be offset against the beneficiary’s compulsory portion claim.
The requirement for this is that the donation is made voluntarily, meaning the testator was not obligated to do so. Furthermore, the testator must specify before, or at the very latest when the donation is made, that a deduction will be taken from the compulsory portion. The offset is performed in such a way that a fictitious estate is created from the actual estate and the lifetime gift. This is used to calculate the hypothetical compulsory portion, which is then reduced by the lifetime gift.
4. Avoidance of supplementary compulsory portion claims
In planning the succession of a business, potential claims for additional compulsory portions should also be taken into account. Such claims are designed to prevent the testator from diminishing the estate, and thus the compulsory portion claims, by giving gifts during their lifetime.
The beneficiary of the compulsory portion is thereby entitled to a supplement to the compulsory portion reduced by the gift. The claim is made against the heir and, subsidiarily, against the recipient of the gift. The gift is fully recognized within the first year prior to the inheritance and reduced by one tenth within each subsequent year prior to the inheritance.
The claim is void if ten years have passed since the gift was made. Therefore, testators are advised to plan any intended gifts to third parties or a family foundation in advance.
Your attorney for compulsory portion and business succession in Germany
Are you planning a succession for your business? Our attorneys and tax advisors are here to help. Your points of contact for all matters concerning succession and compulsory portions are.
You can contact us most easily by e-mail at (info@winheller.com) or by phone at (+49 69 76 75 77 85 22). Reach out to us today!
Do you need support?
Do you have questions about our services or would you like to arrange a personal consultation? We look forward to hearing from you! Please fill in the following information.
Or give us a call: +49 69 76 75 77 85 22
