Tax pitfalls in inheritance

Berlin It depends on the tax bracket. This applies not only to income tax, but also to inheritance tax. Depending on the family relationship between a testator and the persons intended in the will, the financial impact can be significant. This means that the closer the parties are related to each other, the more favorable the tax class.

But anyone who now thinks that taxation is clear in any case is wrong. Because many a thoughtful person receives a legacy instead of an inheritance. And an inheritance does not always follow the intended order.

The consequences of the premature death of a legatee for taxation are shown in a current case of the Federal Fiscal Court. The testator, who died in 1957, had named his wife as the sole heir in the will. However, he had bequeathed a piece of land to his nephew, which legacy was only to be transferred after the death of the heiress. The man had also made provisions in case his nephew died after him but before his wife. His two sons were then to take his place.

In fact, the original heir survived the legatee by a few months and the property passed to the great-nephews. The responsible tax office therefore calculated the inheritance tax to be paid according to tax class III, in which the highest tax rates are to be paid.

One of the two brothers did not agree and complained to the Hessian finance court. In his view, he inherited the inheritance from his father and not from his great-aunt. However, the judges did not follow this argument and dismissed the lawsuit.

Distinguishing between different forms of legacy

The Federal Fiscal Court also followed the assessment of the lower court (Az. II R 2/20). The reason for this is that in the present case it is a so-called aged legacy. This means that the legacy itself came into being with the death of the testator. However, it only became due at a later point in time – after the original sole heir had also died.

At the same time, this means that the heiress is initially also to be seen as a legatee. The nephew who succeeds her in this function would then have received the property intended for him from her and not from his uncle.

With such an admission, the reason for taxation is only the death of the “charged person”. This is the name of the person who has a legacy to fulfill. If the legatee has already died at this point in time and a second legatee is designated for this case, he will receive his legacy from the “encumbered” heir. The relationship between the persons is therefore decisive for the assignment of the tax class.

>> Also read: What is the exemption for inheritance tax?

In inheritance tax law, however, a subsequent legacy is treated differently than an old legacy. Just as in the case of subsequent inheritance, it is basically assumed that the subsequent legatee receives what is intended for him from the previous legatee. The tax class then results from the relationship between the two. In this case, taxation according to the family relationship to the testator is also possible upon request.

Practical tip: Things worth knowing about the legacy

While heirs become the legal successors of a deceased person and thus assume all of their objects, claims and rights, as well as their obligations and debts, legatees only receive the objects intended for them. They do not incur any further obligations as a result. What exactly belongs to the legacy is determined by the will or an inheritance contract. Since the legal succession does not provide for legatees, such a document must be available.

Legatees must assert their claim to the legacy to the heirs. These, in turn, are obliged to hand over or transfer the bequeathed objects. In order to avoid discrepancies, testators should therefore describe them precisely. Otherwise, in case of doubt, the probate court tries to interpret his will.

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