Heirs for unmarried people: So the partner does not go away empty-handed
Created: 10/21/2022 4:13 p.m
By: Wolfgang Hauskrecht
If a partner dies in unmarried couples, inheritance tax is due in full - without a will, the partner inherits nothing.
© Jens Büttner
In Bavaria, too, more and more couples are living together without a marriage certificate.
What has long been socially accepted has massive financial consequences.
If the partner dies, the other gets nothing – or has to pay inheritance tax in full.
Munich – Anna and Julian are a happy couple.
They have been living together for 30 years.
They have two adult children together and want to grow old together.
You save on an account, give yourself presents.
Holidays are paid for by those who have just enough money left over.
Nothing distinguishes Anna and Julian from a married couple - except that they are not married.
What they don't realize is that they are constantly on the verge of tax evasion.
Another thing they never thought about: What if someone dies unexpectedly?
We provide answers to the most important questions that unmarried couples should urgently ask themselves.
Can unmarried couples accumulate a joint fortune?
Yes, but this is a problem in terms of tax law – because they are considered strangers.
Essentially, anything Anna and Julian buy each other is a gift – and taxable.
The tax rate is 30 percent, from six million euros even 50 percent.
With 20,000 euros in ten years, the exempt amount is measly - in contrast to married couples with 500,000 euros.
Example: Anna and Julian finance a property together, each owning half of it.
"The loan is owed by both of them," explains Paul Grötsch, Managing Director of the German Forum for Inheritance Law.
“It would be clean from tax law if everyone paid half of the monthly rate from their account.” If one person in particular pays, as is often the case in practice due to different salaries, this is quickly a hidden gift.
If Julian pays 100,000 euros for Anna in ten years, Anna would have to pay 80,000 euros with 30 percent tax – that’s 24,000 euros.
Jewellery, a trip around the world for a birthday or a car can also be tax-relevant gifts.
An exception is the usual cost of living.
Julian has an accident – and dies.
There is no will.
What does this mean for Anna?
The law of inheritance is inexorable: the statutory succession applies.
“The unmarried person is not provided there – there is no such thing,” explains Grötsch.
"He has no rights and inherits nothing." The assets go to the next of kin.
This can also be uncles, aunts, nephews and nieces - just not Anna.
In the case of married people, on the other hand, the partner is automatically at the top of the line of succession.
And the property?
What will become of Julian's half?
That's gone too.
“I only had one such case,” says Grötsch.
A couple who had been together for many years built a house together.
Then the man died.
There was no will.
"The mother was the sole heir." According to Grötsch, it gets particularly tricky when the mother is no longer legally competent.
"Then suddenly a court-appointed supervisor comes - and it's particularly difficult to clarify with him that you can stay in the house."
Paul Grötsch is Managing Director of the German Forum for Inheritance Law.
© Christian Mueller
Variant: Both have paid off half of the house – but only Julian is registered as the owner.
A disaster for Anna.
"Although she paid half, everything goes to Julian's heirs," says Grötsch.
It is very questionable that Anna can make claims against the heirs for unjust enrichment.
Anna doesn't even have a right to live in the house.
Anna has another problem: with the installments she made donations to Julian – which are taxable.
Grötsch: “The absolute worst case scenario.
Anna gives him half of the financing and possibly unwittingly commits tax evasion.
He dies - she's left with nothing."
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Julian made a will after all – and made Anna the sole heir.
Good for Anna - but also for the Treasury.
Because the inheritance tax hits full.
The exempt amount and tax rates are identical to the gift tax.
This is to prevent inheritance tax being circumvented through gifts.
The exempt amount is also only 20,000 euros.
Anything over that is subject to 30 percent tax.
If the inheritance is more than six million euros, it is even 50 percent (chart).
"Unmarried people pay the full tax burden - just like a stranger." It's quite different for married couples.
"The spouse is the heir who is in the best position for tax purposes," explains Grötsch.
His allowance is 500,000 euros.
If he inherits more, the tax is still much lower than for unmarried people.
Unmarried surviving dependents are also not entitled to the pension allowance of up to 256,000 euros,
the spouse is entitled to.
They are also excluded from tax exemptions.
Example of your own home: In the case of spouses, the home remains completely tax-free – in addition to the allowance – if you live there for at least ten years after the death of your spouse.
Grötsch: "These are huge differences that couldn't be bigger."
How does the partner inherit anything at all?
"It's actually only possible with a will," confirms Grötsch.
Exception: A “contract in favor of third parties” is possible for contracts such as bank deposits, life insurance policies, home savings contracts or securities accounts, which can be limited to death.
To put it simply, a third party, here the partner, is entered as the beneficiary in such contracts.
In the event of death, the contracts or accounts pass to the beneficiary, even if there is no will.
The automatic succession is thus undermined.
However: "This does not have a positive effect on inheritance tax," explains Grötsch.
It will be due in full.
So at least 30 percent.
Are there no tricks to inherit equal rights with married people?
no
Life insurance is the only exception - with a so-called "cross-over insurance".
Both partners must take out insurance for this.
The trick: They favor each other in the event of death.
Anna is therefore a contributor and policyholder, but Julian's death is insured.
Julian does it the other way around.
If Julian dies, Anna receives the death benefit tax-free because nothing is inherited in the legal sense.
If nobody dies by the end of the contract, everyone gets paid out the amount they have saved.
“The absolute catastrophe is when your own death is insured and your partner is used as a beneficiary.
Then the full inheritance tax is due for the partner.”
What options are there in real estate?
Inheritance tax could force Anna to sell the house.
"It is possible not to bequeath the house, but only the usufruct," says Grötsch.
Means: Someone else inherits, for example the children with their high allowances, the partner gets usufruct - i.e. a rent-free right to live for life.
"Then he only has to pay tax on the capital value of the usufruct." Here, a cold rent that is considered real is multiplied by a factor of life expectancy and Anna pays a one-time 30 percent inheritance tax on this sum.
Anna can also opt for annual taxation.
Example: The determined rental value is 2,000 euros per month – 24,000 euros per year.
Anna pays 30 percent tax on this annually, i.e. 7200 euros.
If Anna owns half of the house, the estimated rental value will be correspondingly lower.
The heirs could still sell the house, but the buyer would have to take over the usufruct.
"But you can also regulate it in your will in such a way that a sale is not possible," says Grötsch.
Anna and Julian have three accounts.
Each one in their own name and a joint account.
What happens to the money?
The money in Anna's account belongs to her, Julian's account goes to his heirs.
It's a bit more complicated with a joint account, because there are "And" and "Or" accounts.
In the case of an AND account, the holders can only dispose of them jointly.
"When someone dies, the bank usually blocks the account," explains Grötsch.
With the oder account, the bereaved can continue to dispose of the money.
But that doesn't mean it belongs to him.
"Usually, with a joint account, it is assumed that the assets are divided equally." One half belongs to Anna, the other half to Julian's heirs.
If Anna is appointed as heir, she has to pay inheritance tax – possibly on money she has saved herself.
Anna has power of attorney for the And account, which applies beyond death.
Anna can then continue to access the joint account.
But the same applies here: the money belongs to the rightful heirs.
If that is not Anna, the heir or heirs can revoke the power of attorney - and sue Anna, she spends Julian's share.
Are there other pitfalls with joint accounts?
Yes, the gift tax.
In the event of inheritance, the bank is obliged to report the accounts to the tax office.
If there is a lot of money in the joint account, the tax office could check who paid in how much.
"If it turns out that it was mainly the deceased, Anna would have had to pay gift tax.
Joint accounts are problematic for unmarried people,” warns Grötsch.
Excluded are accounts through which the common livelihood is denied.
The couple has invested in stocks for many years.
The depot only runs on Julian.
Does Anna get nothing?
If there is no will in their favor, then yes.
Even if Anna should have financed most of the shares, the deposit falls under the legal inheritance.
Bad luck for Anna.
What if it's a joint stock account?
Then the same mechanisms apply as with other assets.
If Anna has power of attorney after death, she can continue to dispose of the deposit – but is not automatically the heir.
In the case of shares, this can have consequences for Anna: if she sells shares from the joint portfolio after Julian's death and the price rises afterwards, Anna could be liable to pay damages to the heirs.
If she realizes profits, the heirs have to pay 25 percent withholding tax, which Anna may have to pay.
Grötsch: "Anna should therefore not do anything without consulting the heirs - even if she has power of attorney."
What about the shared household?
Household items belong to whoever bought them.
However, since this can hardly be proven in most cases, it is assumed that normal household items belong to both of them.
According to Grötsch, the burden of proof that the item belonged to the deceased lies with the heirs.
It is best to provide in your will that the household belongs completely to the long-lived partner.
An expensive painting hangs in the living room – household or fortune?
Tricky - with chances for Anna.
"The heirs would have to assert a claim for return and prove that the claim exists," says Grötsch.
Then it's about detailed questions: Who was the art collector in the relationship?
Who deserves more?
Is the painting part of the household at all?
“That is then an individual problem that needs to be argued about.”
The inheritance law expert advises unmarried couples.
Important, according to Grötsch, is a clean separation of assets in order to avoid taxable gifts during one's lifetime.
If that doesn't work, as with real estate, "you have to make clear agreements about who pays what, who owns what, what claims arise in the event of separation - and who inherits what if someone dies." So a will.
"That's important for married couples, for non-marital cohabitations it's absolutely mandatory, otherwise there's just chaos."
Is it wise to write a will yourself?
Legally, you can do it yourself.
"However, a will is almost always relatively complicated," warns Grötsch.
The legal terms are not familiar to laypeople.
"The layman thinks he's writing something - and actually writes something completely different." Example legacy and heritage.
If Julian bequeaths his car to Anna, Anna is not the heiress.
However, you can ask the heir to hand over the car.
With unmarried couples it is often even more complex than with married couples who should get what.
"It usually goes wrong.
That is why it is imperative that you seek advice.”
Is this all fair?
Anyone who does not go into the port of marriage does not deserve its protection, according to an old paraphrase of the legal situation in Germany that is still valid in inheritance tax law.
The question of justice arises above all for unmarried couples, says Grötsch.
"That's problematic.
You are almost forced to get married.
But more and more people don't want that.
However, tax law has not been involved so far.” A change in the legal situation is not in sight.
Would all be well for Anna had they married the day before Julian's death?
Yes.
"There is no deadline like there is for pension entitlements," says Grötsch.
"As long as you are legally competent, it's enough even on your deathbed."