I. Which law is applicable?
Cross-border successions that affect both, Germany and the USA require firstly the determination of the applicable law. Due to the lack of a genuine “international Inheritance Law” the applicable law is determined by the affected states themselves by their conflict laws:
1. USA
Each state of the United Nations of America applies its own conflict law regulations regarding international successions. However, all states apply the principle of scission of the estate regarding intestate successions, as well as, testamentary successions. In general, the rule “Lex rei sitae” is applicable to immovable assets. For movables, the domicile of the decedent at the time of death is the decisive criterion.
1st Case: A German citizen leaves a house in San Francisco. As the house of the deceased is an immovable asset, the rules of the legislation of the place where the property is situated must be applied. Thus, the house is inherited under the legal provisions of the state of California.
2nd Case: A Geman citizen, permanently residing in Miami, bequeathed cash money in New York. Regarding movable assets the legislation of the last habitual residence of the deceased must be applied. Thus, the legislation of the state of Florida is applicable.
With pleasure, I provide you with advice concerning the choice of legislation from an American perspective.
2. Germany
To facilitate cross-border-successions within the European Union, the European Parliament and the Council passed the Regulation of Successions (Regulation No 650/12), applicable to persons deceased on or after 17th, of August 2015. With the application of the EU Regulation of Successions, the applicable law is determined by the last “habitual residence” of the deceased. Unlike the American “domicile” the “habitual residence” does not require an intention to root with the successions regulations on a long term perspective. A different result only arises if the deceased uses his right of choice of law. In this case, the legislation of choice must be applied.
Concerning the applicable law regarding successions that occurred before August 17th, 2015, I will gladly provide you with further information.
II. Matrimonial Property Regime
In general, the separation of property forms the statutory matrimonial property regime. However, nine states have adopted a community property regime: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin (community property states).
In the community property states the surviving spouse is economically secured since he/she has the right to receive half of the marital achievements. Community property is the property acquired during the marriage. The separate property contains all assets the spouses owned prior to the marriage including the revenues deriving from those assets. Is the marriage dissolved by death, the separate property and the remaining half of the marital property constitute the estate.
In the common law states, where the separation of property is relevant, the surviving spouse may choose in case of testamentary provisions: either he/she may accept the testament entirely or he/she rejects the testamentary provisions and claims his/her portion of a legally fixed share of the estate (elective share). The amount of the elective share differs in regard of the different states. The average amount is one-third up to one-half of the estate.
III. Substantive Law
There is no uniform US matrimonial Inheritance law, the legislation of the affected state is decisive.
1. Intestate Succession
In case, the deceased did not leave a will or if the will is invalid, the intestate succession engages. The intestate succession is regulated by the statutes of the states. Additionally, the common law has to be assessed.
Legal heirs may be blood relatives, the surviving spouse, as well as, adopted and illegitimate children. The following order of legal heirs generally engages:
- Children of the deceased and his/her descendants
- Parents and siblings of the deceased
- Further blood relatives
The share of the inheritance varies between the different states and furthermore, depends on the degree of relatedness. In General children of the deceased exclude further successors. As far as the surviving spouse is considered as legal heir, the regulations within the individual states differ significantly.
2. Will and Succession Contract
All federal states require the same formalities: the will must be signed by the testator in front of two witnesses. Subsequently, the will has to be signed by the witnesses. Some federal states accept the handwritten “holographic” will. A further requirement is the ability to establish a will. Most of the federal states require a minimum age of 18 years. The American jurisdiction does not distinguish between legacies and the appointment as a successor. Nevertheless, the laws provide “contributions” that are similar to the German legal institution of “legacy”.
The estate is not administered by the beneficiaries, but a personal representative. The testamentary designation of the personal representative („executor“) is an essential part of the testament.
In comparison to the German regulations, the American law does not recognize Succession Contracts. However, contractual provisions which oblige the testator to the dispose over certain assets or the waiving of disposal are valid. Furthermore, all federal states acknowledge joint testaments, as well as, mutual testaments.
3. Forced Heirship
The United States does not follow a forced heirship regime, except for the state of Louisiana. The legislation contains, however, regulations in favor of the surviving spouse. Children and parents of the deceased are in general excluded from forced heirship claims. Every state permits the disinheritance of the children of the deceased. However, the interests of the children are protected by statutory provisions and a forthcoming judicial practice. In addition, the children and the surviving spouse are granted the “homesteads” property, which grants them the right of usage of the family home or of the capital driving from the latter either for a certain period of time or upon death. Exemption statutes grant the family movable assets or monetary contributions to keep up the household
IV. Trust
Due to substantial estate taxes in the US when transferring assets to descendants, the trust is a famous instrument for the succession planning.
By establishing a trust, a long-term disposition over assets may be facilitated and the assets are protected from execution by creditors. A trust is a legally and economically independent investment fund. The person who establishes the trust (settlor) transfers certain assets by a declaration of trust („deed of trust“) to the specific trust. The trust is administered by a trustee in favor of a beneficiary. The regulations concerning trust are provided by the individual states and can for e.g. be found in the California Probate Code (Division 9) that also contains the provisions on successions.
There are two types of trusts: on the one hand the testamentary trust and the living trust. The testamentary trust states that it comes into existence with the death of the settlor and that all assets shall be granted to the beneficiaries. The living trust, on the other hand, is established during lifetimes and the forwarded assets are administered separately from the other capital.
The main reason to establish a living trust is the avoidance of the probate procedures. The probate procedures require time and cause considerable costs. All assets belonging to the trust in the occurrence of death are exempted from the probate procedures.
V. Proceedings
The American inheritance legislation requires the public execution of the will in front of a probate court.
In a first step, it must be investigated if the deceased left a will. If the result of the investigation is positive, a probate is granted. In a second step, the personal representative is appointed. The personal representative may have been disposed beforehand by will (executor) or he/she may be designated by the court (administrator). The administrator collects the movable estate (personal assets), settles all the obligations, including the inheritance tax and eventually distributes the estate to the legal successors (distributes) or the testamentary beneficiaries (legatees).
In both cases – intestate succession, as well as succession by will – in most states the movable assets are initially transferred to the personal representative (executor or administrator). The distribution in favor of the successor is performed in the subsequent distribution of the estate. Immovable assets, however, are directly transferred to the successor.
V. Succession Taxation
On a national level (federal estate tax) succession taxes and gift taxes are accumulated. In addition gift taxes are levied by the individual states.
The debtor of the succession taxes is primarily the personal representative, alternatively the beneficiaries.
Between Germany and the United States of America exists a convention for the avoidance of double taxation with respect to taxes on estates, inheritances, and gifts (upon 22.9.1982), amended in 1988. The convention applies in the USA solely on the federal level (federal Estate und accession Tax), taxes levied by individual states are not affected by the double taxation convention.
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Rechtsanwalt Torben Swane
Fachanwalt für Erbrecht
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