1. Basic principle of the Berlin will
In a Berlin will, spouses appoint each other as sole heirs. The joint children are designated as final heirs after the death of the last surviving spouse (Section 2269 of the German Civil Code (BGB)). This means that upon the first death, the entire estate initially passes to the surviving spouse.
2. Main disadvantage: loss of tax allowances
As the children receive nothing upon the first death, they cannot utilise their personal tax allowances of EUR 400,000 each in accordance with Section 16 of the Inheritance Tax Act. These allowances expire unused, resulting in a significantly higher tax burden upon the second death.
Example based on assets of EUR 2 million and two children:
| Inheritance | Acquirer | Exemption | Tax effect |
|---|---|---|---|
| 1st death | Spouse | 500.000 € | Tax liability: €1.5 million |
| 2nd death | Children | 800.000 € (total) | Tax liability: €1.2 million |
The surviving spouse thus pays approximately €285,000 in inheritance tax, and the children later pay approximately €228,000. This amounts to a total of more than €500,000 in inheritance tax, which in most cases can be completely avoided by alternative succession arrangements – while at the same time providing security for the surviving spouse.
3. Tax-optimised alternatives
The following arrangements can be considered in order to make better use of allowances and avoid tax disadvantages:
- Advance inheritance with bequests to children – partial use of allowances already upon the first death.
- Super-bequests or compulsory portion penalty clauses with asset distribution.
- Anticipated succession (gifts during lifetime) – new allowances every 10 years.
- Usufruct arrangements – ownership is transferred to children in full or to the extent of the allowances. The spouse remains provided for.
4. Conclusion
Review your will or draw one up. Have experts assess not only whether your wishes can be fulfilled, but also what the tax implications are and how they can be structured to preserve as much of your life’s work as possible.
