Our son recently died unexpectedly in Germany. He had recently taken a mortgage on an apartment with a partner to whom he was not married. She is expecting his child.
There was no insurance policy on the mortgage (apparently it’s not mandatory in Germany).
As far as we can tell, that means we inherit his share of the apartment. Our problem is how can we pass this on to his partner in a tax efficient manner and as quickly as possible?
Mr T.F.
This is a desperately sad scenario. To lose a child is bad enough. When they live in another country, it must only be tougher, not least as your son was about to become a father.
It can also make things tricky when it comes to the more prosaic issues like inheritance.
Before we go into some of the detail here, it would be remiss of me not to say that you would be well advised to consult someone specialising in German law – specifically inheritance law.
The fact that your son and his partner were not married, the fact that the child is not yet born and the fact that there is no life insurance policy against the property all have the capacity to make things messier. Worse still, there is no will.
Regular readers will be familiar with my view on wills and their importance. I sense that most people have the view that even to entertain the notion of drawing up a will is almost like putting one foot in the coffin but it’s not. That would be like saying taking out an insurance policy on your car is to consider a crash inevitable. It’s clearly not.
It is just a simple and commonsense way to keep your affairs in order and to make things easier for your family if you are unfortunate enough to die suddenly.
The majority of adults in Ireland have not made a will – the figure appears to be somewhere between six and seven in every 10 people. Almost all will have some assets that need to be allocated after death and all will either have friends or family who they would like to benefit if anything untoward happened them.
Perhaps your son’s case may encourage some people to think again. As a young man, he no doubt thought he had all the time in the world for such things at some point in the future but his failure to draw up a will has potentially serious repercussions for his partner.
Mortgage insurance
Getting back to the practicalities of your case. You took me by surprise when you said that there was no life assurance attached to your son’s mortgage and that it was not mandatory in Germany.
As almost all homebuyers in Ireland will know, it is practically impossible to secure a mortgage in this country unless you also take out a life policy covering the value of the loan so that your lender has the security of knowing they will be repaid in such a worst-case scenario.
Usually, but not always, where a couple is buying the home, the mortgage is designed to pay out when the first of them dies.
While it can grate that you are confronted with yet another bill to pay at a time when you are trying to maximise how much you can draw down to meet the cost ever more expensive homes in Ireland, in real terms the monthly premium is very modest – and even more so if you shop around. All lenders will facilitate a life policy to cover your mortgage but, in my experience, you will pay a higher premium for precisely the same cover.
But I digress. Much to my surprise, in a country known for attention to detail, Germany does not oblige homebuyers to take out such a policy.
That alone puts your son’s partner in a very tricky position. She will now be responsible for paying this mortgage. And, as this is a recent mortgage, the payments are likely to be substantial.
It is very likely that she may have to sell the apartment.
Inheritance
That brings us to the second part of the questions: who inherits your son’s share of the apartment, and indeed any other assets he had.
As this is something of untrodden ground for this column, I reached out to tax and legal authorities in Germany for guidance, including through the German-Irish Chamber of Commerce.
Apparently, the Anglo-Irish concept of joint tenancy and survivorship is not as prevalent in Germany where assets are generally held as tenants in common. This is just one of the things you would need to check with a lawyer in Germany in trying to untangle your son’s affairs.
If it is the case that the property was held by your son and his partner as tenants in common, she will not automatically get his share under survivorship. Had he made a will, I assume your son would have left his share of the property to his partner but he hasn’t.
That being the case, German lawyer Karl-Georg Wellmann of Berlin practice Rath, Wellmann & Feinen says that the “applicable inheritance law is determined by the deceased’s last habitual residence, not nationality. If the deceased’s main place of residence was in Germany, German inheritance law applies.”
The fact that he is an Irish citizen is immaterial.
The real problem for his partner is that, as in Ireland, an unmarried partner has no rights of succession under intestacy.
“Without a will or inheritance contract, the rules of statutory succession apply,” Mr Wellmann notes. “As the deceased was unmarried, their partner will not inherit anything.”
So who does?
“In this case, the heirs are the deceased’s children,” Mr Wellmann says. Legally speaking, it apparently does not matter whether the child is born before or after the death of the parent.
“An unborn child is entitled to inherit provided they are born alive,” he adds.
And this is critical. You son’s child inherits everything as long as he or she is born alive. If they do not survive until birth, it would be you as your son’s parents who would inherit everything. And if the child is born alive and subsequently dies, then it will be his mother who will, in turn, inherit from him.
So, it is all a bit up in the air for now and very much depends on circumstance. But the expectation must be that your son’s child will inherit his estate in its entirety when it is born.
Under German law, Mr Wellmann also says, children must be represented by a “supplementary guardian” (called an Ergänzungspfleger) whose appointment is organised through the family court. In this case, I would presume that the child’s mother would be appointed but that is from my decidedly layman’s position.
I should point out that Mr Wellmann was commenting only on the basis of the limited details you provided in your letter. This is a complex situation and it would be important that you, and your son’s partner each confirm their position with independent legal advice.
Taxation
Once we get past the issue of whom inherits, there will also be the question of inheritance tax.
Assuming your son’s child is born alive and inherits their father’s estate in full, they are entitled to receive assets up to the value of €400,000 tax free.
That may cover your son’s estate but, if not, thereafter, there is a sliding scale. On the next €75,000, your grandchild would be liable to tax at 7 per cent. That rises to 11 per cent for anything over that is more than €75,000 over the tax-free threshold and less than €300,000 above it.
The next €300,000, if relevant, is taxed at 15 per cent, rising to 19 per cent on the subsequent €5.4 million. For those rare view for whom it is relevant, the rate then climbs to 23 per cent on the next €7 million, to 27 per cent on the €13 million beyond that and, finally, to 30 per cent for anything higher.
The same tax rate and bands apply to parents who inherit under German law (although your tax-free threshold would be a more modest €100,000) – if the child was not born alive.
So the threshold – at least for a child – is the same as in Ireland while the tax rate on subsequent amounts is certainly less than our flat 33 per cent rate. Higher rates of tax apply to other relatives or strangers inheriting under a three-band structure broadly similar to ours here.
If the child was not born alive, you could still arrange for your son’s share of the apartment to go to his partner but the tax free threshold on any such transfer would be very modest – around €20,000 as far as I can see – leaving her with a sizeable tax bill.
The bottom line is that, assuming this child is born alive, they inherit everything and you inherit nothing from your son’s estate. But I say again, go get proper legal advice This is a very delicate situation and no one should risk misunderstandings or legal missteps.
Regardless of what happens, your son’s partner has an uphill road ahead in even keeping their apartment in the absence of an insurance policy as she copes with the challenge of being a single mother to a newborn.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com, with a contact phone number. This column is a reader service and is not intended to replace professional advice
