Bequeathing & inheriting real estate
Owners are often faced with the question of how best to pass on their property to the next generation – by bequeathing it after death or making a gift during their lifetime. Both options involve legal and financial aspects that need to be well thought out. In this guide, you will find out what you should pay attention to in order to transfer your house or apartment to your loved ones in the best possible way.
Clearly regulating wills and succession
Without a will, intestate succession applies. This can lead to results that are not in your best interests – especially in patchwork families. For example, if a spouse dies without a will, their biological children and the surviving partner inherit the property together. This creates a community of heirs in which stepchildren would also have to have a say.
To avoid disputes, owners should draw up a will or an inheritance contract. This can specify exactly who receives the property and how other assets are distributed. However, bear in mind the compulsory portion: close relatives (children, spouse, parents if applicable) have a statutory minimum claim in money even in the event of disinheritance. If in doubt, seek advice from a notary or specialist lawyer to ensure that all formalities are legally effective.
Inherit or give away real estate ?
You can transfer your property to children or other relatives as a gift during your lifetime. This can be useful to avoid high inheritance tax and create a clear situation. Gifts to children are tax-free up to €400,000 (tax-free amount per child every 10 years). Higher values are subject to gift tax – but often less than inheritance tax at a later date, especially as you can use allowances several times.
Important: If you want the property to remain in the family, you can make a gift. You can reserve a right of residence or usufruct so that you can continue to live in the house or receive rental income. However, bear in mind that you are no longer the owner after a gift. It is difficult to reverse the transaction. You should therefore plan carefully and involve all those affected.
Tip: Since 2023, new valuation rules have applied to real estate in the case of gifts and inheritance. The market value is often set higher, which can lead to more tax. An early transfer or the registration of rights of use (e.g. usufruct) can reduce the taxable value.
Inheritance tax on real estate
An inherited property can trigger inheritance tax, depending on the degree of kinship and value. Close relatives have high tax-free allowances (spouses €500,000, children €400,000). If the value of the property exceeds the tax-free amount, tax is due. This is based on the market value of the property at the time of death less debts. If the property is rented out, 90% of the value is usually applied.
Important: If you cannot pay the tax in cash, you may have to sell the property to settle the claim. In some cases, the tax office will grant a deferral, often with interest. To avoid surprises, it is worth building up reserves for possible inheritance tax at an early stage or thinking about making a gift during your lifetime.
Multiple heirs: Dissolve community of heirs
If several people have inherited the property together, they form a community of heirs. All co-heirs only decide unanimously on the sale, letting or renovation. This can be difficult if interests diverge. The following solutions are available in order to remain capable of acting:
- Agreement among the heirs: Ideally, everyone should decide together what will happen to the house. A sale is often agreed in order to divide the proceeds according to inheritance quotas. A professional estate agent can provide neutral assistance with the sale and achieve a fair market price. Alternatively, one co-heir can pay out the shares of the others and sell the property alone.
- Estate distribution agreement: Heirs can use a notarized agreement to settle the distribution of the estate by mutual agreement. For example, one heir receives the property, while the other receives other assets or an equalization payment.
- Avoid a partition auction: If no agreement can be reached, the last resort is a partition auction through the court. In this case, the property is foreclosed, which usually results in significantly lower proceeds and can take a long time. This process is associated with financial disadvantages and is stressful for everyone involved – try to avoid it.
Conclusion: Whether through a will, inheritance contract or gift – make early arrangements for what you want to happen to your property. Clear dispositions prevent family disputes and ensure that your last wishes are implemented. In the event of an inheritance, experts such as estate agents, lawyers and tax advisors can help to ensure that property inheritances are handled smoothly and fairly.
Have you inherited or would you like to bequeath your property? Contact us for a personal consultation. Together we will find the best solution, be it the sale, valuation or transfer of your property!
FAQ – Frequently asked questions about inheriting real estate
The same allowances apply to a lifetime gift as to an inheritance, and they can be used again every 10 years. A gift can thus be used to transfer assets tax-free or at a lower tax rate. However, if the donor dies within 10 years, the gift is partially added back to the inheritance. Inheritance tax is payable once upon inheritance if the value of the property exceeds the heir’s tax-free allowance.
The compulsory portion is a monetary claim that close relatives (children, spouse, parents if applicable) have if they have been excluded from the inheritance by a will. It amounts to half of the statutory inheritance share. If the compulsory portion relates to a property, this may mean that the property has to be sold in order to pay out the compulsory portion – especially if there are not enough other cash assets in the estate.
That depends on your situation. The advantage of a gift is that you can decide during your lifetime who will receive the property and make multiple use of tax-free allowances. You also reduce the estate and potential inheritance tax. However, you are already relinquishing ownership rights during your lifetime. You should protect yourself (e.g. reserve right of residence/ usufruct) and be sure that you retain sufficient assets of your own
Ideally, the community of heirs will agree on a solution by mutual consent: joint sale of the property and division of the proceeds or takeover of the property by one heir against payment of the others. A notary can accompany the dissolution by means of an inheritance settlement agreement. If no agreement can be reached, each co-heir can apply for a partition auction
Inheritance tax is based on the market value of the property at the time of inheritance less debts, as well as the degree of kinship (tax class) of the heir. Each heir has a tax-free allowance (e.g. children €400,000, spouse €500,000). The excess value is taxed at a percentage rate depending on the tax bracket. Important: Homes that the spouse or children have lived in for at least 10 years can remain tax-free.
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