Inheritance Law in German-American cases March 16 th 2012 Sofitel San Francisco Bay

1. Inheritance Law in German-American cases March 16th 2012 Sofitel San Francisco Bay Oliver Bolthausen, LL.M.(USA) Rechtsanwalt, FCIArb (UK)

2. General Principles in German law • The estate is subject to the principle of “universal succession”. • The succession is determined either by legal succession or by succession in accordance with a disposition by the decedent (will).

3. Intestacy/Legal Succession (I) • Legal succession comes into effect if the decedent did not make a will. • If there are more relatives a system of different classes of heirs applies.

4. Intestacy/Legal Succession (II) • Classification of Statutory heirs: • 1st class are the children and lineal descendants (grandchild, great-grandchild) of the deceased. • 2nd class are the parents of the decedent and their lineal descendants (siblings, (grand)nephew/niece) • 3rd class are the grandparents of the decedent and their lineal descendants (uncle/aunt, cousin). • 4th class are the great-grandparents of the decedent and their lineal descendants (great uncle/aunt). • 5th and subsequent classes are the remoter ancestors of the decedent prior to the great-grandparents

5. Overview -succession Grandfather Grandmother Grandfather Grandmother Aunt/Uncle Cousin Father Mother Aunt/Uncle Cousin Brother/Sister Nephew/Niece Brother/Sister Nephew/Niece Decedent Daughter/Son Grandchild Great-grandchild 1. Class 3. Class 2. Class 2. Class 3. Class

6. Intestacy/Legal Succession (III) • Treatment of statutory heirs: • Heirs of a foregoing class exclude potential heirs of a higher class. • Among the classes of statutory heirs, the principle of representation per stripes applies.

7. Samples of heirs treatment D  B 1/3 C 1/3 E 1/3 G H D  B 1/3 C 1/3 E 1/3 G H F M D  B 1/3 C  E 1/3 G H 1/6 1/6 F M A  B  С F ½ M  E D  G H ¼ ¼ ½

8. Inheritance between spouses • The inheritance between spouces is regulated spreatly. • The distributive share differs, depending on who else is a heir and depending on the matrimonial property regime.

9. Samples – Inheritance between spouses ¼ ¼ S ½ F M D  Children 1. Class S ¼ BUT: Consider anomalies in property regime! D  ¾ 1/8 1/8 1/8 1/8 S ½ 1/8 1/8 1/8 S ½ + 1/8 E C G H O E C G H  O F M   F M   D  D 

10. Testacy/Succession with Disposition by Decedent • Under German law, a last will can be made as: • individual will • joint will; or • testamentary contract.

11. Will • The decedent has to make a holographic will. • In the U.S., each state has its own inheritance laws and depending on the states, a holographic might be invalid! • In the will, the decedent can name his beneficiaries. In addition he may include a general bequest, meaning that the beneficiary has a contractual civil claim against the heirs.

12. Compulsory /legitimate Portion • If a descendant (children – class 1), the parents (if no children otherwise class 1, or the spouse of the testator are excluded from succession by will or contract of inheritance, they are entitled to payment by the heir of a compulsory portion. • In the US no compulsory portion concept is given.

13. Acceptance of Inheritance • With the application for the Certificate of Inheritance, the heir indicates the acceptance of the inheritance. • The heirs, however, have to prove their title of succession. Hence, the heirs have to apply for a Certificate of Inheritance, which is called “Erbschein” in Germany. This document is issued by a German probate court (“Nachlassgericht”). • Competent court is the one located at the last residence of the decedent. If the decedent did not have his/her last residence in Germany proper jurisdiction is established by the location of assets of the estate.

14. Renouncement of Succession • Within six weeks (six month in case the heirs are living outside of Germany) after knowledge of the death of the decedent, the heirs can declare the renouncement of succession to the German probate court. • If the heirs do not notify the probate court within six weeks (six months), the inheritance is considered accepted. Therefore, the estate should be audited carefully.

15. International Aspects (I) • If the deceased/testator • has another (not German) nationality • Is living outside Germany • His will was consitituted outside Germany • If his estate/inheritance (in total or part) is outside Germany

16. International Aspects (II) • USA - Germany • Inheritance law is state law thus there are 50 different laws • In contrast to Germany (applicable law follows nationality Art. 25 I EGBGB), the U.S. distinguishes between i) personal /movable estate (among other things: cash at bank, bonds and shares) and ii) immovable parts of an estate (real estate). The applicable law is following in case of i) the domicile or in case of ii) the location of the asset.

17. International Aspects (III) • Germany exception for German national - Real estate, (Art. 3 II EGBGB) acceptance of priority of US law at the place of the asset (Consequence e.g. = also no mandatory/compulsory/legitimate portion). • USA is not a party to the Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions, thus form and recognition differs internationally and on US state level • Issues with regards to holographic wills as well as wills constituted without witnesses might occur.

18. International Aspects (IV) • It might be advisable to draft a German will as well as a U.S. will related to any assets located in each country. This can reduce the duration of the probate in the US. • Further since, conflict of laws issues can be avoided. Inheritance/estate law in the U.S is governed under state law, conflict of laws between the 50 different states applies. The decedent should therefore stipulate which state law shall apply. Otherwise the differences among the state laws can cause unwanted results.

19. Case Study (I) Facts: • German decedent with last residence in the U.S. • Heirs/beneficiaries in Germany as well as in the U.S. • Real estate in Germany • Life insurance in the U.S.

20. Case Study (II) Which law applies (US versus Germany)? Initial legal analysis and questions: • Is there a will? • Nationality of the decedent? • (Nationality of the heirs or beneficiaries is not relevant.) • Location of the assets of the estate? (personal versus real estate)

21. Case Study (II) • Scenario I - German will: • The life insurance in the U.S. is regarded as a personal estate therefore U.S. courts will accept the German law. Insurance policies, however, are considered a “non-probate” asset if the policy holder has designated a beneficiary of the policy. If so, the proceeds of the policy are paid to the beneficiary, and probate law does not apply – neither U.S. nor German. • The German will is sufficient for the real estate in Germany. Certificate of Inheritance will be issued.

22. Case Study (III) • Scenario 2 - U.S. will: • U.S. law applies regarding the life insurance which is handled as described above. • Regarding the real estate in Germany a Certificate of Inheritance is required to dispose of real estate. It is issued by a German probate court; proper jurisdiction is determined by the location of the assets of the estate. • The decedent can stipulate that German law shall apply regarding the real estate in Germany. • Typically, a U.S. will does not completely control the disposition for real property located in Germany. A German court might accept the disposition under the will, but the forced heirship rules of German law will also apply (compulsory portion).

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