This is part I of the explanations behind the Topics A-Z index, covering the entries from A to D. The glossary is bilingual: the terms an American meets in cross-border asset planning, estate planning, the taxation of retirement and investment income, gift tax, the taxes that arise on death and the settlement of estates, in English and in German, in one alphabetical sequence. German entries carry an explanation in English and one in German.

Each term is treated from both sides, because in almost every case both tax systems have something to say and neither yields to the other automatically. The figures and rules stated are those in force on 15 September 2026. Nothing here is legal or tax advice, and no single entry can settle a case.

Part I. A to D · Part II. E to G · Part III. H to Q · Part IV. R to Z

A · B · C · D · E · F · G · H · I · J · K · L · M · N · O · P · Q · R · S · T · U · V · W · Z

A

Abgabenordnung (AO)

The German Fiscal Code, the general statute governing tax procedure: who is resident, how assessments are
made, what must be disclosed, what the limitation periods are and what happens when a return is wrong. Sections
8 and 9 define residence and habitual abode, and so decide whether an American in Germany is taxed there on
worldwide income. Section 371 contains the self-disclosure that removes criminal liability for an incomplete
return, and section 169 and following set the assessment periods, which run to ten years in cases of
evasion.

Die Abgabenordnung regelt das Besteuerungsverfahren: Wohnsitz und gewöhnlicher Aufenthalt in den §§ 8 und 9
AO, die Anzeige- und Mitwirkungspflichten, die Festsetzungsverjährung der §§ 169 ff. AO, die bei Steuerhinterziehung
zehn Jahre beträgt, sowie die strafbefreiende Selbstanzeige nach § 371 AO. Für US-Staatsangehörige mit Wohnsitz
in Deutschland entscheidet bereits § 8 AO über die unbeschränkte Steuerpflicht, unabhängig von der Aufenthaltsdauer.

Abgeltungsteuer

Germany’s flat tax on private investment income. The rate is 25 per cent, increased by the solidarity
surcharge of 5.5 per cent of that tax, which produces a combined 26.375 per cent, and by church tax where the
taxpayer belongs to a church, which brings the effective burden to roughly 28 per cent. It applies to interest,
dividends and gains on the sale of securities held privately, under section 32d of the German Income Tax Act
(EStG).

An American resident in Germany pays it on the income of a United States brokerage account exactly as on a
German one. The difference is procedural and it matters: a German bank withholds the tax at source and the
matter ends there, whereas a United States broker withholds nothing for Germany, so the income has to be
declared on the Anlage KAP schedule of the German return and the tax assessed afterwards. A saver’s allowance,
the Sparer-Pauschbetrag, of 1,000 euros for a single taxpayer and 2,000 euros for a jointly assessed couple is
deducted first. Where the taxpayer’s marginal rate is below 25 per cent, section 32d(6) EStG permits an election
for ordinary progressive taxation instead, known as the Günstigerprüfung.

Die Abgeltungsteuer beträgt nach § 32d EStG 25 Prozent zuzüglich 5,5 Prozent Solidaritätszuschlag, zusammen
26,375 Prozent, und gegebenenfalls Kirchensteuer auf reduzierter Bemessungsgrundlage. Bei Depots ohne inländische
Zahlstelle unterbleibt der Steuerabzug; die Erträge sind in der Anlage KAP zu erklären. Der Sparer-Pauschbetrag
beträgt 1.000 Euro, bei Zusammenveranlagung 2.000 Euro. Liegt der persönliche Steuersatz unter 25 Prozent, ist
die Günstigerprüfung nach § 32d Abs. 6 EStG zu beantragen.

Abkömmlinge

Descendants: children, grandchildren and further issue, whether born in or outside marriage and whether
natural or adopted as minors. They are the first order of intestate heirs under German law and they exclude
every other relative. Within the order a living child excludes that child’s own children, and a predeceased
child is represented by them. The concept matters for tax as well, because descendants sit in tax class I with
the largest allowances.

Abkömmlinge sind Kinder, Enkel und weitere Nachkommen, eheliche wie nichteheliche und als Minderjährige
adoptierte. Sie bilden die erste Ordnung der gesetzlichen Erbfolge nach § 1924 BGB und schließen alle übrigen
Verwandten aus. Es gilt das Prinzip der Erbfolge nach Stämmen: ein lebendes Kind schließt seine eigenen
Abkömmlinge aus, ein vorverstorbenes Kind wird durch sie ersetzt.

Ablieferungspflicht (Testament)

Anyone holding a will of a deceased person must deliver it to the German probate court as soon as the death
becomes known. The duty applies to family members, to a notary and to any other custodian, it is not optional,
and withholding a will can amount to a criminal offence as well as a source of liability in damages. Americans
holding an original German will at home should send it to the court rather than keeping it and working from a
copy.

Nach § 2259 BGB ist jeder, der ein Testament des Erblassers in Besitz hat, verpflichtet, es unverzüglich nach
Kenntnis vom Erbfall beim Nachlassgericht abzuliefern. Die Pflicht trifft auch Angehörige und Verwahrer im
Ausland. Ihre Verletzung kann als Urkundenunterdrückung nach § 274 StGB strafbar sein und Schadensersatzansprüche
der übergangenen Erben auslösen.

Abschichtung

A way out of a community of heirs without the formalities of a full division: one co-heir withdraws against
compensation and the share accrues to the others. It needs no notarial deed even where the estate contains land,
which is what makes it useful, and it is often the quickest route for an heir abroad who wants to be paid out
rather than to administer German property from another continent. It is a disposal for tax purposes, so the
consequences on both sides have to be checked before it is used.

Die Abschichtung ist das formlose Ausscheiden eines Miterben aus der Erbengemeinschaft gegen Abfindung; sein
Anteil wächst den übrigen Miterben an. Anders als die Übertragung eines Erbteils nach § 2033 BGB bedarf sie
keiner notariellen Beurkundung, auch wenn Grundbesitz zum Nachlass gehört. Für im Ausland lebende Miterben ist
sie häufig der praktikabelste Weg der Auseinandersetzung; ertragsteuerlich liegt ein entgeltlicher Vorgang vor.

Administrative probate

A term used loosely in American practice for the settlement of an estate under the supervision of a probate
court or register of wills, as distinct from a contested judicial proceeding. Germany has no equivalent. Title
to a German estate passes to the heirs by operation of law at the moment of death, without any grant, order or
appointment, and there is no court-supervised administration and no personal representative standing between
the decedent and the heirs. The German probate court, the Nachlassgericht, opens the will and, on application,
issues a certificate of inheritance, but it does not administer anything.

The practical consequence for an American estate with German assets, and for a German estate with American
assets, is that the two systems do not hand off to one another. An American executor holds letters that a German
bank will not act on; German heirs hold a certificate that an American transfer agent has never seen. Each side
normally needs its own instrument.

Adoption (inheritance rights of adopted persons)

The adoption of a minor under German law establishes a full statutory right of inheritance of the adopted
person in relation to the adoptive parents and their relatives, and severs the relationship to the birth family,
so that the adopted person is no longer an intestate heir of the birth parents. A person adopted as an adult
keeps both: full inheritance rights in relation to the adoptive parents and in relation to the birth parents.

For tax the question is separate from the question of succession. An adopted child is in tax class I for
German inheritance and gift tax purposes, with the 400,000 euro allowance, whether the adoption took place in
Germany or abroad, provided the adoption is recognised. A United States adoption decree is generally recognised
in Germany, but recognition is not automatic in every case and should be established before it is relied on in a
return.

Alleinerbe

A sole heir, who takes the whole estate alone and so avoids a community of heirs altogether. It is the
arrangement most American testators assume they are making, and in a German estate it is usually the one that
works best where the heirs live abroad, because no joint decisions, joint signatures or joint bank mandates are
needed. It does not defeat compulsory share claims, which remain as money claims against the sole heir.

Alleinerbe ist, wer als einziger Erbe berufen ist und den Nachlass ungeteilt erwirbt. Eine Erbengemeinschaft
entsteht nicht, sodass Verfügungen ohne Mitwirkung weiterer Beteiligter möglich sind; das ist bei im Ausland
ansässigen Beteiligten regelmäßig der praktikabelste Weg. Pflichtteilsansprüche übergangener Angehöriger bleiben
als Geldansprüche gegen den Alleinerben bestehen.

Altenteil

A bundle of rights reserved by parents who transfer a farm or house to the next generation during their
lifetime: a right of residence, maintenance, care and sometimes a pension in kind. It is the traditional German
form of the lifetime handover, and it is still common in rural transfers. For tax it reduces the value of the
gift, and the reserved rights are valued and capitalised under the Valuation Act rather than taken at face
value.

Das Altenteil bezeichnet die bei der Übergabe eines Hofes oder Hauses vorbehaltenen Versorgungsrechte:
Wohnrecht, Verpflegung, Pflege und Naturalleistungen. Schenkungsteuerlich mindert der kapitalisierte Wert der
Vorbehaltsrechte nach dem Bewertungsgesetz die Bereicherung des Übernehmers. Die Rechte werden im Grundbuch
gesichert, üblicherweise als beschränkte persönliche Dienstbarkeit und Reallast.

Alternate valuation date

An election available on a United States federal estate tax return under section 2032 of the Internal Revenue
Code to value the gross estate as at six months after death rather than at the date of death, available only
where it reduces both the value of the gross estate and the estate tax payable. It is a creature of United
States law alone.

Germany has no counterpart. German inheritance tax is assessed on the value at the date the tax arises, which
is normally the date of death, and a fall in value afterwards does not reduce it. Where an estate holds
securities and the market moves in the months after a death, the two systems can therefore tax the same holding
at two different values, and the credit mechanisms do not repair the difference.

Ancillary probate

A second, subsidiary probate proceeding opened in a state where the decedent held real property but was not
domiciled. An American who dies domiciled in Germany owning a house in Florida will normally require a Florida
ancillary proceeding, conducted under Florida law, before the house can be sold or retitled, whatever has been
done in Germany.

The reverse case does not arise in the same form, because Germany opens no proceeding at all. What the German
side requires instead is proof of who the heirs are, in a form a German land registry will accept, which in
practice means a German certificate of inheritance or a European Certificate of Succession, and for real
property an entry in the Grundbuch.

Anfechtung einer letztwilligen Verfügung

A German will can be set aside where the testator was mistaken about its content or its effect, was induced
by a threat, or overlooked a person entitled to a compulsory share who existed at the time or came into
existence later. The last of these is the one that surprises Americans: a will made before a child is born can
be challenged by that child. The period is one year from knowledge of the ground.

Nach den §§ 2078 ff. BGB kann eine letztwillige Verfügung wegen Inhalts- oder Erklärungsirrtums, Motivirrtums
oder widerrechtlicher Drohung angefochten werden. Praktisch bedeutsam ist § 2079 BGB: die Übergehung eines bei
Errichtung vorhandenen oder später hinzugekommenen Pflichtteilsberechtigten. Die Anfechtungsfrist beträgt nach
§ 2082 BGB ein Jahr ab Kenntnis des Anfechtungsgrundes.

Anlage KAP, Anlage AUS und Anlage R

The schedules of the German income tax return that a cross-border case turns on. Anlage KAP carries
investment income on which no German bank has withheld, which means all income from a United States brokerage
account, together with the election for progressive taxation and the credit for foreign withholding. Anlage
KAP-INV carries fund holdings where no German paying agent was involved. Anlage AUS carries other foreign income
and the foreign tax credit under section 34c of the Income Tax Act, and treaty-exempt income that still affects
the rate. Anlage R and Anlage R-AUS carry pensions and annuities, and an American 401(k) or individual
retirement account distribution is declared on Anlage R-AUS.

Die Anlage KAP erfasst Kapitalerträge, von denen keine deutsche Stelle Abgeltungsteuer einbehalten hat, also
sämtliche Erträge aus US-Depots, ferner die Günstigerprüfung und die Anrechnung ausländischer Quellensteuer. Die
Anlage KAP-INV betrifft Investmentanteile ohne inländische Zahlstelle. Die Anlage AUS dient der Anrechnung nach
§ 34c EStG und der Erfassung freigestellter Einkünfte für den Progressionsvorbehalt. Leistungen aus einem 401(k)
oder einer IRA werden in der Anlage R-AUS erklärt.

Annahme der Erbschaft

Acceptance of a German inheritance, which happens automatically when the six-week or six-month disclaimer
period runs out, and can also happen earlier by conduct: taking possession of estate assets, instructing the
bank, paying a creditor. Once accepted, the inheritance cannot be given back, and the heir is personally liable
for the estate’s debts unless one of the limitation procedures is invoked. An American heir who begins dealing
with a German estate before deciding whether to take it has usually decided.

Die Annahme der Erbschaft tritt nach § 1943 BGB mit Ablauf der Ausschlagungsfrist ein oder vorher durch
ausdrückliche Erklärung oder schlüssiges Verhalten, etwa die Inbesitznahme von Nachlassgegenständen. Sie ist
unwiderruflich und führt zur unbeschränkten persönlichen Haftung des Erben, solange keine Nachlassverwaltung,
Nachlassinsolvenz oder Dürftigkeitseinrede greift.

Annual exclusion (United States gift tax)

The amount a donor may give to each donee each calendar year without using any part of the lifetime
exclusion and without filing a gift tax return. For 2026 it is 19,000 dollars per donee. A married couple may
together give 38,000 dollars to each donee. Gifts to a spouse who is not a United States citizen have their own,
much larger annual figure, 194,000 dollars for 2026, because the unlimited marital deduction is not available to
a non-citizen spouse.

The exclusion is a United States concept and buys nothing in Germany. A gift of 19,000 dollars from an
American parent to a child living in Germany is free of United States gift tax and fully within the German gift
tax base, where it is measured instead against the German allowance of 400,000 euros per parent per child per
ten years. Programmes of annual gifting designed around the American figure therefore tend to be the wrong shape
for a family with a child in Germany, where a single larger transfer inside the German allowance is usually more
efficient.

Anrechnung auf den Pflichtteil

Where a testator made a lifetime gift and directed at the time that it be set against the recipient’s
compulsory share, the value of the gift is deducted from that share. The direction must have been given when the
gift was made; it cannot be added afterwards and it cannot be made in the will alone. It is the principal tool
for reducing a compulsory share claim by lifetime planning, and it is separate from the ten-year rule that
reduces the claw-back of gifts.

Nach § 2315 BGB muss sich der Pflichtteilsberechtigte eine Zuwendung anrechnen lassen, wenn der Erblasser die
Anrechnung bei der Zuwendung angeordnet hat. Die Anordnung ist nur vor oder bei der Zuwendung möglich, nicht
nachträglich und nicht allein im Testament. Sie ist von der Ausgleichung nach § 2316 BGB und vom
Pflichtteilsergänzungsanspruch nach § 2325 BGB zu unterscheiden.

Anwachsung

Where one of several heirs falls away, by disclaimer, death before the testator or unworthiness, and no
substitute has been appointed, that share accrues proportionately to the remaining heirs rather than passing to
the person’s own family or falling into intestacy. The rule catches out testators who assume a deceased
beneficiary’s children take that share. Appointing substitute heirs expressly is the answer.

Fällt ein Miterbe weg, ohne dass ein Ersatzerbe berufen ist, so wächst sein Anteil nach § 2094 BGB den
übrigen eingesetzten Erben im Verhältnis ihrer Erbteile an. Die Abkömmlinge des Weggefallenen erben nur, wenn
sie als Ersatzerben bestimmt sind oder die Auslegungsregel des § 2069 BGB eingreift. Die Anordnung ausdrücklicher
Ersatzerbfolge ist daher regelmäßig geboten.

Anzeigepflicht (duty to notify the German tax office)

Section 30 of the German Inheritance and Gift Tax Act (ErbStG) requires every person who acquires anything by
inheritance or gift to notify the competent German tax office in writing within three months of learning of the
acquisition. In gift cases the donor is under the same duty. The notice is short, but it is a legal obligation
and not a formality, and failure to give it is the ordinary route by which an innocent cross-border transfer
becomes a tax-evasion problem years later.

The usual exemption, for acquisitions evidenced by a German court, notarial or consular document, does not
apply where the acquisition includes real property, business assets or foreign assets. Since almost every
German-American case involves foreign assets, the duty applies in practice to almost all of them. The return
itself, if the tax office asks for one, is governed by section 31 ErbStG, which requires a period of at least one
month to be allowed for it.

Nach § 30 Abs. 1 ErbStG hat jeder Erwerber den Erwerb binnen drei Monaten nach erlangter Kenntnis schriftlich
dem zuständigen Erbschaftsteuerfinanzamt anzuzeigen; bei Schenkungen trifft die Pflicht nach § 30 Abs. 2 ErbStG
auch den Schenker. Die Ausnahme des § 30 Abs. 3 ErbStG für gerichtlich oder notariell beurkundete Erwerbe gilt
nicht, wenn Grundbesitz, Betriebsvermögen, Anteile an Kapitalgesellschaften oder Auslandsvermögen zum Erwerb
gehören, sodass sie in deutsch-amerikanischen Fällen praktisch nie eingreift.

Applicable exclusion amount

The amount that can pass free of United States federal estate and gift tax, expressed through a unified
credit. For 2026 it is 15,000,000 dollars per person, following the One Big Beautiful Bill Act, with a top rate
of 40 per cent above it. The generation-skipping transfer tax exemption is the same figure.

It is available in full only to a United States citizen or a decedent domiciled in the United States. A
decedent who was neither has a credit of 13,000 dollars, equivalent to an exclusion of 60,000 dollars, on United
States situs assets, and that figure is not indexed for inflation. The estate tax treaty between the United
States and Germany improves on that: Article 10(5), added by the 1998 protocol, gives the estate of a person
domiciled in Germany a pro rata share of the full American exclusion, in the proportion that the United States
situs estate bears to the worldwide estate. Claiming it requires disclosure of the worldwide estate to the
Internal Revenue Service, which is a decision with consequences of its own.

Appraisals and valuation

Both systems tax value, and neither accepts the other’s figure. A United States federal estate tax return
requires fair market value, supported by a qualified appraisal for real property, closely held businesses, art
and collectibles. Germany values under its own Valuation Act (Bewertungsgesetz), which prescribes a comparison,
capitalised-income or asset-value method according to the type of property, and which since the reform effective
from 2023 produces markedly higher figures for German real estate than it did before.

Section 198 of the German Valuation Act allows a taxpayer to displace the statutory figure by proving a lower
open market value, normally through a qualified appraisal or an arm’s length sale close to the valuation date.
Where German property has been over-valued by the statutory method, that proof is frequently the largest single
saving available in the matter, and it has to be made in the assessment, not afterwards.

Aufgebotsverfahren

A court procedure by which heirs call on unknown creditors of the estate to come forward within a period, so
that those who do not are confined to whatever is left after the others have been paid. It is one of the tools
by which a German heir who has already accepted can still contain exposure to the estate’s debts, alongside
estate administration and estate insolvency. It is worth considering wherever the decedent’s affairs are not
fully known, which is common when the heirs live abroad.

Im Aufgebotsverfahren nach den §§ 1970 ff. BGB, §§ 433 ff. FamFG fordert das Nachlassgericht auf Antrag des
Erben die Nachlassgläubiger auf, ihre Forderungen binnen einer Frist anzumelden. Ausgeschlossene Gläubiger können
nach § 1973 BGB nur noch auf den Überrest verwiesen werden. Das Verfahren ist besonders dann sinnvoll, wenn die
Verbindlichkeiten des Erblassers nicht vollständig bekannt sind.

Auflage

A direction in a will obliging an heir or legatee to do something, maintain a grave, look after an animal,
apply money to a purpose, without giving anyone a claim to receive anything. No beneficiary acquires a right;
performance can only be demanded by the heirs, a co-obligee or, in the case of a public interest, the competent
authority. It reduces the taxable acquisition of the person burdened where it is capable of valuation.

Die Auflage nach § 1940 BGB verpflichtet den Beschwerten zu einer Leistung, ohne einem anderen ein Forderungsrecht
zu geben. Vollziehung können nach § 2194 BGB die Erben, Miterben und bei öffentlichem Interesse die zuständige
Behörde verlangen. Erbschaftsteuerlich mindert eine bewertbare Auflage nach § 10 Abs. 5 Nr. 2 ErbStG den Erwerb
des Beschwerten.

Auflassung und Auflassungsvormerkung

The Auflassung is the agreement of buyer and seller on the transfer of German land, declared before a notary,
and the Auflassungsvormerkung is the priority notice entered in the land register that protects the buyer
between contract and registration. Neither has an American counterpart, because neither escrow nor title
insurance does this work. An heir selling German property will meet both, and the priority notice is the reason
a German purchase is safe without title insurance.

Die Auflassung ist die nach § 925 BGB vor dem Notar zu erklärende Einigung über den Eigentumsübergang an einem
Grundstück. Die Auflassungsvormerkung nach § 883 BGB sichert den Erwerber im Zeitraum zwischen Beurkundung und
Eigentumsumschreibung gegen Zwischenverfügungen und Insolvenz des Veräußerers. Ein dem amerikanischen title
insurance vergleichbares Instrument ist daneben nicht erforderlich.

Ausgleichung

Where a parent has given a child an advancement during life, that child must bring it into account against
the other children when the estate is divided on intestacy, so that the children end up equal. It operates
automatically for endowments, and for other gifts only where the parent so directed at the time. It is a
division rule between children, not a tax rule, and it is separate from the setting off of gifts against a
compulsory share.

Abkömmlinge, die als gesetzliche Erben berufen sind, haben nach den §§ 2050 ff. BGB Zuwendungen des Erblassers
zur Ausgleichung zu bringen. Ausstattungen sind kraft Gesetzes auszugleichen, sonstige Zuwendungen nur bei
entsprechender Anordnung im Zeitpunkt der Zuwendung. Die Ausgleichung betrifft nur das Verhältnis der Abkömmlinge
untereinander und ist von der Anrechnung nach § 2315 BGB zu trennen.

Auskunftsanspruch

German law answers the question “what is in the estate” with statutory information claims rather than with
discovery. A compulsory share claimant may demand an inventory from the heirs and, at the estate’s expense, a
valuation. A co-heir may demand an account. An heir may demand information from anyone who managed the
decedent’s affairs or lived in the household. Each claim is enforceable in court and, if pressed, by a sworn
statement as to correctness. For an American who suspects assets exist but cannot name them, this is the only
route.

Der Pflichtteilsberechtigte kann nach § 2314 BGB vom Erben ein Nachlassverzeichnis und auf Verlangen die
Wertermittlung auf Kosten des Nachlasses fordern, notfalls in notarieller Form. Miterben schulden einander
Auskunft nach § 2057 BGB, Hausgenossen und Erbschaftsbesitzer nach den §§ 2028, 2027 BGB. Bei Zweifeln an der
Vollständigkeit kann die eidesstattliche Versicherung nach § 260 Abs. 2 BGB verlangt werden.

Ausschlagung (disclaiming a German inheritance)

A German heir takes the estate automatically on death, debts included, and the only way out is to disclaim.
The declaration is made to the probate court in notarially certified form within six weeks under section 1944 of
the German Civil Code (BGB). The period is six months where the decedent’s last residence was abroad or where
the heir is abroad when it begins, which covers most American heirs, but it is short and it runs from knowledge
of the devolution and of its ground, not from any formal notice.

A disclaimer cannot be made selectively and cannot be made after the heir has accepted, expressly or by
conduct. It also has a tax consequence on the American side: a disclaimer that is not a qualified disclaimer
under section 2518 of the Internal Revenue Code within nine months is treated as a gift by the disclaiming
person, so an American heir who disclaims a German estate late, or after dealing with it, may create a United
States gift tax problem while solving a German liability one. See also Thinking about disclaiming
an inheritance.

Die Ausschlagung erfolgt nach § 1945 BGB durch Erklärung zur Niederschrift des Nachlassgerichts oder in
öffentlich beglaubigter Form. Die Frist beträgt nach § 1944 BGB sechs Wochen, bei Aufenthalt des Erben im Ausland
oder letztem Wohnsitz des Erblassers im Ausland sechs Monate. Sie beginnt mit Kenntnis von Anfall und Berufungsgrund.
Eine Teilausschlagung ist nach § 1950 BGB unzulässig, und nach Annahme ist die Ausschlagung ausgeschlossen.

Außensteuergesetz (AStG)

The German statute that reaches across the border. Section 6 imposes the exit tax on departure. Section 15
attributes the income of a foreign family foundation or trust to a German-resident settlor or beneficiaries
whether or not anything is distributed. Sections 7 to 14 tax the retained passive income of a controlled foreign
company. Section 1 governs transfer pricing between related parties. For an American family with a member in
Germany and structures in the United States, this is the statute most likely to produce a German charge nobody
expected.

Das Außensteuergesetz enthält die Wegzugsbesteuerung des § 6 AStG, die Hinzurechnungsbesteuerung der §§ 7 bis
14 AStG und die Zurechnungsbesteuerung ausländischer Familienstiftungen und Trusts nach § 15 AStG. Der BFH hat
mit Urteil vom 3. Dezember 2024, IX R 32/22, entschieden, dass der auf EU- und EWR-Rechtsträger beschränkte
Entlastungsbeweis des § 15 Abs. 6 AStG unionsrechtswidrig ist und auch für Drittstaaten gelten muss. Ein
Referentenentwurf vom 18. November 2025 zur Neufassung ist bislang nicht umgesetzt.

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B

Bank accounts

A German bank will not release a deceased customer’s account against American letters testamentary alone. It
will normally require a German certificate of inheritance or a European Certificate of Succession, or a
notarial will with the court record of its opening, and it will apply its own identification requirements to
every heir. A German bank account is not, however, German situs property for German inheritance tax purposes:
section 121 of the Valuation Act does not list bank deposits or portfolio securities among the German assets
that trigger limited German tax liability, which is the opposite of what is commonly assumed.

In the other direction a United States bank or broker holding the account of a decedent who was not a United
States citizen or resident will usually require an IRS transfer certificate before releasing it, and in the
meantime may freeze the account entirely. An American living in Germany should also expect the German side of
the same relationship to be reported: German financial institutions report accounts held by United States
persons to the German Federal Central Tax Office, which passes them to the Internal Revenue Service under the
FATCA agreement of 2013.

Basis and the step-up at death

United States income tax gives most property acquired from a decedent a new basis equal to its value at
death, under section 1014 of the Internal Revenue Code, so that the gain accrued during the decedent’s lifetime
is never taxed. The rule applies to the assets of a non-resident decedent as well, to the extent they are
subject to United States tax.

Germany has no step-up in basis, and it does not need one in the same way, because Germany does not generally
tax the gain on privately held real estate sold more than ten years after acquisition, nor was there any German
income tax charge at death. But where an heir in Germany receives securities, the acquisition cost of the
decedent carries over, so a later sale is taxed in Germany on the whole historic gain at 26.375 per cent, while
the United States treats the same asset as having a fresh basis. An American heir resident in Germany can
therefore find a sale taxable in Germany and untaxed in the United States, with no United States tax against
which to credit the German tax.

Behindertentestament

A German will drafted so that a disabled child inherits without the inheritance being taken by the authority
that pays for the child’s care. The technique is an appointment as prior heir of a share above the compulsory
share, combined with permanent execution of the will and directions to the executor about what the income may be
spent on. It is settled German practice and the Federal Court of Justice has upheld it. The American
counterpart, a special needs trust, is not recognised in Germany, so a family with a disabled child on both
sides needs both instruments.

Das Behindertentestament kombiniert die Einsetzung des behinderten Kindes als nicht befreiter Vorerbe zu einer
Quote oberhalb des Pflichtteils mit Dauertestamentsvollstreckung und Verwaltungsanordnungen nach § 2216 Abs. 2
BGB. Der BGH hat die Gestaltung mehrfach als nicht sittenwidrig bestätigt. Sie verhindert den Übergang des
Nachlasses auf den Sozialhilfeträger nach § 93 SGB XII. Ein amerikanischer special needs trust wird in
Deutschland nicht anerkannt.

Beneficial ownership reporting

The reporting of the individuals behind a company. Under the Corporate Transparency Act this applied to
United States companies from 2024, but it no longer does: FinCEN’s final rule of 11 August 2026 permanently
confines the obligation to foreign entities registered to do business in the United States, exempts domestic
companies and United States persons, and removes data already filed by entities that are now exempt. A foreign
reporting company still reports, but no longer reports United States persons.

This is separate from the customer due diligence obligations of banks and brokers, which are unchanged, and
from the German transparency register, which continues to require German companies and certain foreign
companies acquiring German real estate to record their beneficial owners.

Beneficiaries of an estate

American practice distinguishes the beneficiary of a will or trust, who has a claim against a fiduciary, from
the fiduciary who holds legal title. German law has no such division in an estate. The heirs own the estate
directly and jointly from the moment of death, and a person who is left a specific item rather than a share is
not an owner at all but a creditor with a claim against the heirs.

The distinction has tax consequences. German inheritance tax is charged on each acquirer separately,
according to that person’s own relationship to the decedent and that person’s own allowance, so the identity and
residence of every beneficiary matters. United States estate tax is charged on the estate as a whole, before
distribution, and the beneficiaries’ circumstances are largely irrelevant to it. An estate with beneficiaries in
both countries is therefore measured twice on two different principles.

Bequests

A bequest, in German law a Vermächtnis, gives its recipient a claim against the heirs for the delivery of a
specific asset or sum. It does not make that person an heir, does not give a share of the estate and does not
carry liability for the estate’s debts. The distinction is unfamiliar to American readers, for whom a specific
bequest under a will is simply one of the things the personal representative distributes. See
A bequest versus an inheritance under German law.

For tax the recipient of a bequest is taxed in Germany like any other acquirer, in the tax class fixed by the
relationship to the decedent, with the corresponding allowance, and the value of the bequest is deducted from
the heirs’ own taxable acquisition.

Berliner Testament (joint spousal will)

A joint will by which spouses appoint one another sole heir and their children as heirs of the survivor. It
is common in Germany, it binds the survivor after the first death, and it is frequently a mistake in a
German-American family. Appointing the surviving spouse sole heir wastes the children’s 400,000 euro allowances
at the first death, taxes the whole estate again at the second, and in a cross-border case may also strand
property in a jurisdiction where it attracts tax it would not otherwise have attracted.

The instrument also sits badly with American practice, where a joint will is unusual and often unenforceable,
and where the same goal is achieved with revocable trusts that Germany does not recognise in the way the drafter
intended. A family with members on both sides is generally better served by separate wills coordinated across
the two jurisdictions than by a single document drafted for one of them.

Beim Berliner Testament setzen sich die Ehegatten gegenseitig zu Alleinerben und die Kinder zu Schlusserben
ein. Steuerlich ist die Gestaltung nachteilig: die Freibeträge der Kinder von je 400.000 Euro bleiben im ersten
Erbfall ungenutzt, und dasselbe Vermögen wird im zweiten Erbfall erneut besteuert. Hinzu kommt die
Bindungswirkung nach § 2271 Abs. 2 BGB. Bei internationalen Familienverhältnissen sind aufeinander abgestimmte
Einzeltestamente regelmäßig vorzuziehen.

Beschränkte Steuerpflicht (limited German tax liability)

Where neither the decedent or donor nor the acquirer is resident in Germany, German inheritance and gift tax
reaches only German situs assets, listed in section 121 of the Valuation Act: German real estate, German
business assets and permanent establishments, shareholdings of at least 10 per cent in German companies, German
registered intellectual property, and claims secured on German land. German bank accounts and portfolio
securities are not on the list.

The personal allowance is not lost in these cases but it is reduced pro rata, under section 16(2) ErbStG, in
the proportion that the assets outside the German tax net bear to the whole acquisition from that person over
the relevant ten-year window. The European Court of Justice held that reduction compatible with the free
movement of capital in case C-394/20, while holding in the same judgment that the denial of a deduction for
compulsory share claims in limited liability cases is not.

Die beschränkte Steuerpflicht nach § 2 Abs. 1 Nr. 3 ErbStG erfasst nur Inlandsvermögen im Sinne des § 121
BewG. Der persönliche Freibetrag wird nach § 16 Abs. 2 ErbStG anteilig gewährt, gemindert im Verhältnis des
nicht der beschränkten Steuerpflicht unterliegenden Vermögens zum Gesamterwerb innerhalb von zehn Jahren. Der
EuGH hat diese Kürzung in der Rechtssache C-394/20 als unionsrechtskonform angesehen, die Versagung des
Pflichtteilsabzugs nach § 10 Abs. 6 ErbStG dagegen beanstandet.

Bestattungskosten

Funeral costs are borne by the heirs and are deductible as an estate liability. For German inheritance tax
the costs of the funeral, the grave monument and the customary care of the grave, together with the costs of
administering the estate, are deductible, and a lump sum is allowed without proof. Where the death occurs in one
country and burial in the other, the cost of repatriation is part of it.

Die Kosten der Bestattung trägt nach § 1968 BGB der Erbe. Erbschaftsteuerlich sind die Kosten der Bestattung,
eines angemessenen Grabdenkmals, der üblichen Grabpflege sowie die Kosten der Nachlassregelung nach § 10 Abs. 5
Nr. 3 ErbStG abzugsfähig; ohne Nachweis wird ein Pauschbetrag von 15.000 Euro je Erbfall gewährt. Überführungskosten
aus dem Ausland gehören dazu.

Betriebsvermögen (German business property relief)

Sections 13a and 13b ErbStG exempt qualifying business property from German inheritance and gift tax, either
at 85 per cent as of right or at 100 per cent by irrevocable election. The 85 per cent relief requires the
business to be held for five years and the payroll over those five years to reach 400 per cent of the starting
payroll; the 100 per cent relief requires seven years, 700 per cent, and administrative assets of no more than
20 per cent. Businesses with five or fewer employees are exempt from the payroll test.

Relief is denied altogether where administrative assets reach 90 per cent of the value of the business, which
catches the family holding company that is in substance a securities portfolio. Above 26,000,000 euros per
acquirer the acquirer must choose between a sliding reduction of the relief under section 13c ErbStG and a means
test under section 28a ErbStG, under which the tax is remitted only so far as it cannot be paid out of half of
the acquirer’s other assets, including assets the acquirer already owned. For a family with a German operating
business and members in the United States, the relief is valuable and fragile, and it interacts badly with
American structures that sit between the family and the business.

Der Verschonungsabschlag beträgt nach § 13a Abs. 1 ErbStG 85 Prozent bei einer Behaltensfrist von fünf Jahren
und einer Mindestlohnsumme von 400 Prozent, bei der Option nach § 13a Abs. 10 ErbStG 100 Prozent bei sieben
Jahren, 700 Prozent und höchstens 20 Prozent Verwaltungsvermögen. Betriebe mit bis zu fünf Beschäftigten sind
von der Lohnsummenprüfung ausgenommen. Erreicht das Verwaltungsvermögen 90 Prozent, entfällt die Verschonung
vollständig.

Beurkundung

Notarial recording, required in Germany for the transfer of land, for a contract of inheritance, for a
compulsory share waiver, for marital property agreements, for the transfer of shares in a limited company and
for a notarial will. The notary reads the instrument aloud to the parties, advises all of them impartially and
records it. The fees are fixed by statute according to value. An American notary public performs none of this
and cannot substitute; the usual routes from abroad are a German consulate or an apostilled power of
attorney.

Die notarielle Beurkundung nach dem Beurkundungsgesetz ist unter anderem für Grundstücksgeschäfte, Erbverträge,
Pflichtteilsverzichte, Eheverträge, GmbH-Anteilsübertragungen und das öffentliche Testament vorgeschrieben. Der
Notar belehrt alle Beteiligten unparteiisch; die Gebühren richten sich nach dem GNotKG und sind nicht
verhandelbar. Eine Beglaubigung durch einen amerikanischen notary public genügt nicht; in Betracht kommen die
Beurkundung vor einem deutschen Konsularbeamten oder eine apostillierte Vollmacht.

Bewertungsgesetz (German Valuation Act)

The statute that fixes what an asset is worth for German inheritance and gift tax. Real estate is valued by
comparison where comparables exist, by capitalised income for let residential and commercial property, and by
asset value where neither applies. The Annual Tax Act 2022, effective for valuation dates from 1 January 2023,
raised the assumed useful life from 70 to 80 years, reduced the capitalisation rates, and increased the value
factors in the asset-value method, with the result that German property is now brought into the tax base at
figures materially above those produced under the old rules.

Two reliefs are worth noting. Residential property that is let is brought in at 90 per cent of value under
section 13d ErbStG, and following the European Court of Justice in case C-670/21 the German tax authorities
extended that discount by decree of 19 June 2024 to property in third countries where information exchange is
assured. Section 198 of the Valuation Act allows the taxpayer to substitute a proven lower open market value.

Grundbesitz wird nach den §§ 176 ff. BewG im Vergleichswert-, Ertragswert- oder Sachwertverfahren bewertet.
Das JStG 2022 hat für Bewertungsstichtage ab dem 1. Januar 2023 die Gesamtnutzungsdauer von 70 auf 80 Jahre
verlängert, die Liegenschaftszinssätze abgesenkt und einen Regionalfaktor eingeführt, was zu erheblich höheren
Werten führt. Zu Wohnzwecken vermietete Grundstücke werden nach § 13d ErbStG mit 90 Prozent angesetzt; der
Nachweis eines niedrigeren gemeinen Werts ist nach § 198 BewG möglich.

Bezugsberechtigung

The designation of a beneficiary under a German life insurance policy. The proceeds pass to the named person
outside the estate, so they are not available to the heirs and, in principle, not to the estate’s creditors
either. They are nevertheless a taxable acquisition for German inheritance tax in the beneficiary’s own tax
class. A revocable designation can be changed at any time; an irrevocable one cannot, and it is a completed gift
when made.

Die Bezugsberechtigung aus einer Lebensversicherung führt dazu, dass die Versicherungsleistung nach § 331 BGB
am Nachlass vorbei unmittelbar dem Bezugsberechtigten zufällt. Erbschaftsteuerlich liegt gleichwohl ein Erwerb
von Todes wegen nach § 3 Abs. 1 Nr. 4 ErbStG vor. Zu unterscheiden sind das widerrufliche und das unwiderrufliche
Bezugsrecht; letzteres ist bereits im Zeitpunkt der Einräumung eine vollzogene Schenkung.

Bindungswirkung

The binding effect of a joint will or a contract of inheritance. Once the first spouse has died, the survivor
can no longer change the dispositions that were made reciprocally, and a contract of inheritance binds from the
moment it is made. This is the principal risk of the German joint will for a family with American connections:
circumstances change, a child emigrates, assets move across the Atlantic, and the survivor is left unable to
respond. Separate wills, or an express reservation of the right to alter, avoid it.

Wechselbezügliche Verfügungen in einem gemeinschaftlichen Testament werden nach § 2271 Abs. 2 BGB mit dem Tod
des Erstversterbenden bindend; der Erbvertrag bindet nach § 2289 BGB bereits mit Abschluss. Eine spätere Anpassung
ist dann nur über einen Änderungsvorbehalt, die Anfechtung nach § 2078 BGB oder die Zustimmung aller Beteiligten
möglich. Bei internationalen Familienverhältnissen ist die Bindung regelmäßig nachteilig.

Bundeszentralamt für Steuern (BZSt)

The federal tax office that handles the international side: it receives the reports German banks make about
accounts held by United States persons and forwards them to the Internal Revenue Service under the FATCA
agreement, it runs the exchange of information under the Common Reporting Standard, it holds the register of
church tax affiliations that banks query each autumn, and it processes refunds of German withholding tax to
non-residents. An American in Germany will not usually deal with it directly, but it is the channel through
which the German side of a financial life becomes visible in the United States.

Das Bundeszentralamt für Steuern nimmt die FATCA-Meldungen deutscher Finanzinstitute über Konten von
US-Personen entgegen und leitet sie an den Internal Revenue Service weiter, führt den automatischen
Informationsaustausch nach dem gemeinsamen Meldestandard durch, verwaltet die Kirchensteuerabzugsmerkmale für die
Regelabfrage der Kreditinstitute und erstattet Kapitalertragsteuer an beschränkt Steuerpflichtige nach § 50c
EStG.

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C

Capital gains

Germany taxes the gain on privately held securities at the flat 26.375 per cent, with no holding period
exemption, under section 20(2) EStG. Losses on the sale of shares may be set only against gains on the sale of
shares, a restriction now before the Federal Constitutional Court as 2 BvL 3/21, with assessments carrying a
provisional note in the meantime. The former cap on losses from derivatives was repealed by the Annual Tax Act
2024 with retroactive effect for open cases. Gains on privately held real estate are taxed only if the property
is sold within ten years of acquisition, under section 23 EStG, and not at all if it was occupied by the owner
in the year of sale and the two preceding calendar years.

Under Article 13(5) of the income tax treaty, a German resident’s gain on shares is taxable only in Germany.
The exception is United States real property: Article 13(1) and (2) preserve the American right to tax gains on
real property situated in the United States, and that expression includes a United States real property
interest, so shares in a company whose value rests on American land remain within the American net. A United
States citizen living in Germany is taxed by both countries on everything, subject to the saving clause, and
relies on the foreign tax credit and the treaty’s re-sourcing rule to avoid paying twice.

Center of vital interests

The second tie-breaker in Article 4(2) of the income tax treaty, applied when a person has a permanent home
available in both countries. It asks where the person’s personal and economic relations are closer, weighing
family, social relations, occupation, the place from which property is administered, and political and cultural
activities together. It is a question of fact, decided on the whole picture, and it is where most genuinely dual
cases are resolved. The order of the tests is permanent home, then centre of vital interests, then habitual
abode, then nationality, then agreement between the two tax administrations.

The estate tax treaty has its own domicile rules and its own tie-breakers in Article 4, which are not the
same, so a person may be resolved to one country for income tax and to the other for estate tax. See the firm’s
article on determining fiscal domicile under Article 4.

Charitable giving

A deduction for a gift to charity is generally confined to charities of the donor’s own country. A United
States income tax charitable deduction is available only for gifts to domestic organisations, and the United
States estate tax charitable deduction under section 2055 is likewise limited, though broader for transfers at
death. Germany allows a deduction for gifts to German and European Economic Area bodies that meet German
requirements, and exempts transfers to them from inheritance and gift tax under section 13 ErbStG.

Neither treaty supplies a general cross-border charitable deduction, so the usual answer for a family that
gives on both sides of the Atlantic is to give from each side to bodies recognised there, or to use an
intermediary recognised in both. Giving from the
wrong side of the border is one of the more avoidable ways of paying more than necessary.

Church tax (Kirchensteuer)

A tax levied by the recognised churches in Germany and collected by the state, at 8 per cent of income tax in
Bavaria and Baden-Württemberg and 9 per cent elsewhere. It applies to investment income as well, where it is
levied on a reduced base so that the combined burden on investment income comes to roughly 27.8 to 28 per cent.
Banks and brokers query the taxpayer’s church affiliation with the Federal Central Tax Office each autumn and
withhold automatically unless the taxpayer files a blocking notice, in which case the income must be declared
and assessed instead.

Americans arriving in Germany are frequently registered for church tax without appreciating it, because
church affiliation is recorded at the residents’ registration office on arrival. The tax is avoided only by a
formal declaration of leaving the church, which has effects beyond tax and takes effect prospectively.

Die Kirchensteuer beträgt 8 Prozent der Einkommensteuer in Bayern und Baden-Württemberg und 9 Prozent in den
übrigen Ländern. Auf Kapitalerträge wird sie nach § 51a EStG auf eine ermäßigte Bemessungsgrundlage erhoben. Die
Kreditinstitute fragen die Kirchensteuerabzugsmerkmale jährlich zwischen dem 1. September und dem 31. Oktober
beim Bundeszentralamt für Steuern ab, sofern kein Sperrvermerk vorliegt. Die Zugehörigkeit wird bereits bei der
Anmeldung beim Einwohnermeldeamt erfasst.

Claims against an estate

A German heir succeeds to the decedent’s debts as well as assets, personally and without limit, unless steps
are taken. The protections are estate administration (Nachlassverwaltung), estate insolvency
(Nachlassinsolvenz) and the plea of insufficiency of the estate, each of which confines the creditors to the
estate. They must be invoked; they do not operate automatically. Disclaiming within the six-week or six-month
period is the other route.

American practice is the reverse. The estate is a separate fund, creditors present claims to the personal
representative within a statutory non-claim period, and beneficiaries take only what is left. An American heir
of a German estate who assumes the German position works the same way, and who therefore does nothing while the
disclaimer period runs, can become personally liable for debts that exceed the estate.

Common Reporting Standard

The multilateral system under which more than one hundred countries exchange information on financial
accounts automatically. Germany participates. The United States does not. The United States operates instead its
own bilateral system under FATCA, which for Germany rests on the intergovernmental agreement of 31 May 2013.

The asymmetry is the point. German banks report the accounts of United States persons to the German Federal
Central Tax Office, which passes them to the Internal Revenue Service, and Germany receives a narrower set of
data in return and nothing at all through the Common Reporting Standard. An American in Germany should assume
the German side of the relationship is fully visible to the American authorities, and should not assume the
converse.

Community of heirs (Erbengemeinschaft)

Where a German decedent leaves more than one heir, they take the estate jointly as an Erbengemeinschaft. No
heir owns any particular asset; each owns an undivided share of the whole. Acts of disposal require unanimity,
ordinary administration a majority, and any co-heir may demand division at any time. The arrangement has no
American equivalent and it is the single most common source of delay in a German estate with heirs living
abroad, because every signature must be obtained, identified and, for land, notarised.

Each co-heir is nevertheless taxed separately on that heir’s own share, in that heir’s own tax class and
against that heir’s own allowance. Section 20(3) ErbStG makes the undivided estate liable for the tax of all the
participants until it is divided, which is why German tax offices are content to wait and why distributions to
heirs abroad are often held back until the tax position is clear.

Mehrere Erben bilden nach § 2032 BGB eine Gesamthandsgemeinschaft. Verfügungen über einzelne Nachlassgegenstände
sind nach § 2040 BGB nur gemeinschaftlich möglich, Maßnahmen ordnungsgemäßer Verwaltung nach § 2038 BGB
mehrheitlich. Jeder Miterbe kann nach § 2042 BGB jederzeit die Auseinandersetzung verlangen. Bis zur Teilung
haftet der Nachlass nach § 20 Abs. 3 ErbStG für die Erbschaftsteuer aller Beteiligten.

Court proceedings

Contested succession in Germany runs through the ordinary civil courts and, for matters concerning the
certificate of inheritance, through the probate court. There is no jury, costs follow the event on a statutory
scale calculated from the value in dispute, and pre-trial discovery of the American kind does not exist. Claims
to the compulsory share, challenges to a will for lack of capacity or form, and disputes among co-heirs are the
usual subjects.

An American party should expect the German process to be documentary, comparatively fast and considerably
less expensive than its American counterpart, and should expect that the evidence which would be assembled
through discovery in the United States must instead be obtained, where it can be obtained at all, through the
statutory rights to information that German law gives heirs and compulsory-share claimants.

Covered expatriate

A United States citizen who renounces citizenship, or a long-term permanent resident who gives up a green
card, becomes a covered expatriate if the average annual net income tax for the five preceding years exceeds an
indexed threshold, or net worth reaches 2,000,000 dollars, or the person cannot certify five years of United
States tax compliance. A covered expatriate is treated under section 877A as having sold all property at fair
market value on the day before expatriation, and deferred compensation and specified tax-deferred accounts have
their own rules.

The consequence that outlives the expatriation is the section 2801 tax. A United States citizen or resident
who receives a gift or bequest from a covered expatriate pays a tax of 40 per cent on it, and pays it as
recipient, with no time limit after the expatriation. The final regulations took effect on 14 January 2025 and
Form 708 now exists, with the first returns due on 15 June 2027 for amounts received in 2025. An American in
Germany contemplating renunciation should treat the position of American family members who may later inherit as
part of the decision, not as a detail.

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D

Death certificate

A German death certificate (Sterbeurkunde) is issued by the registry office of the place of death. For use in
the United States it normally requires an apostille under the Hague Apostille Convention of 1961, to which both
countries are party, and a certified translation. An American death certificate used in Germany requires the same
treatment in reverse, and German authorities will usually want a recent certified copy rather than the original
issued at the time.

Where a person dies in one country and is registered in the other, both registries may need to be served, and
the German registry will register a death abroad only on application. Banks, insurers and land registries on
both sides will not begin work without it.

Designated beneficiary of a bank account

The American device of a payable-on-death or transfer-on-death designation passes the account outside the
will and outside probate. Germany has a related institution, the contract for the benefit of a third party on
death under section 331 of the Civil Code, which a German bank will implement, but the effect is not the same.
The beneficiary takes the money, and the heirs may then have a claim against that beneficiary under the law of
gifts, because the underlying gift itself is not automatically valid merely because the payment instruction
is.

Neither device saves any tax. The German beneficiary is taxed as an acquirer under section 3(1) number 4
ErbStG in the tax class fixed by the relationship to the decedent, and an American transfer-on-death account is
in the gross estate for United States estate tax purposes. What these designations save is time and process, not
tax, and in a cross-border estate they can cause trouble by removing assets from the fund that the fiduciary
needs in order to pay the tax.

Dividends

United States source dividends paid to a person resident in Germany are subject to United States withholding
tax at a statutory 30 per cent, reduced to 15 per cent for a portfolio shareholder by Article 10(2)(b) of the
income tax treaty. The reduction is not automatic: it is claimed by giving the paying broker a Form W-8BEN,
which is valid from signature until the end of the third following calendar year and requires a taxpayer
identification number.

Germany then taxes the same dividend at 26.375 per cent and credits the 15 per cent American withholding
against it, so the two do not stack, but the German return has to be made for the credit to be obtained. A
United States citizen resident in Germany is in a different position again, because the saving clause in Article
1(4) preserves full American taxation; that person pays German tax at 26.375 per cent, claims a United States
foreign tax credit, and relies on the re-sourcing rule in Article 23(3)(c), which deems the income to arise in
Germany for the sole purpose of relieving double taxation.

Domicile

The most dangerous word in this field, because it means three different things. For United States federal
estate and gift tax it means physical presence in the United States combined with an intention to remain
indefinitely, and it decides whether the 15,000,000 dollar exclusion or the 60,000 dollar figure applies. For
the estate tax treaty with Germany it has its own definition in Article 4, with its own tie-breakers. For German
inheritance tax the concept is not domicile at all but Inländereigenschaft, which turns on a dwelling or
habitual abode in Germany, on German nationality within five years of departure, or on the acquirer’s residence
in Germany.

A person can be domiciled in the United States for American purposes, resident in Germany for German
purposes, and assigned to one or the other by treaty, all at once and with different results for income tax and
for estate tax. Article 4(3) of the estate tax treaty then adds a rule of its own: a person who was a national
of one country and not of the other, and who had been domiciled in the other for less than ten years, is deemed
for treaty purposes to have remained domiciled in the country of nationality. For an American who moves to
Germany that cuts favourably, because an American citizen who dies within ten years of arriving is treated as
domiciled in the United States and Germany’s claim to tax the worldwide estate on the decedent’s own residence
falls away. It cuts the other way for a German national who emigrates to the United States, who may stay within
German worldwide inheritance tax for ten years rather than the five the domestic statute suggests. The rule
applies to persons who are nationals of one country only, not to dual German and American citizens, and it does
not displace Germany’s separate right, preserved by Article 11(1)(b), to tax an heir who is resident in Germany.
See the estates of American citizens who lived in Germany for less than ten years.

Donor’s liability for German gift tax

Section 20(1) ErbStG makes the donor as well as the donee a debtor for German gift tax. The two are jointly
and severally liable, and the German tax office may look to either. An American parent who makes a gift to a
child living in Germany is therefore not merely the occasion of a German tax; that parent is personally liable
for it, in Germany, on a gift of American assets made in the United States.

Section 30 ErbStG places the three-month duty to notify on the donor as well. Neither obligation is displaced
by the estate and gift tax treaty, which does not remove Germany’s right to tax by reference to the acquirer’s
residence. American families who make substantial annual gifts to a child studying or working in Germany
frequently discover both points several years late.

Doppelbesteuerungsabkommen (DBA)

The German term for a double taxation treaty. Two are in force with the United States and they must not be
confused: the convention on income and capital of 29 August 1989, amended by the protocol of 1 June 2006, and
the convention on estates, inheritances and gifts of 3 December 1980, amended by the protocol of 14 December
1998. Each has its own residence definition and its own tie-breakers, so a person may be allocated to one
country for income tax and to the other for inheritance tax.

Zwischen Deutschland und den Vereinigten Staaten bestehen zwei Abkommen: das DBA über Einkommen und Vermögen
vom 29. August 1989 in der Fassung des Protokolls vom 1. Juni 2006 und das DBA über Nachlass-, Erbschaft- und
Schenkungsteuern vom 3. Dezember 1980 in der Fassung des Protokolls vom 14. Dezember 1998. Beide enthalten
eigene Ansässigkeitsregeln und eigene Tie-Breaker, sodass die Zuordnung für Ertrag- und Erbschaftsteuer
auseinanderfallen kann.

Double-taxation treaty

There are two, and confusing them is a standing source of error. The convention on income and capital was
signed on 29 August 1989 and substantially amended by the protocol of 1 June 2006, in force from 28 December
2007. The convention on estates, inheritances and gifts was signed on 3 December 1980 and amended by the
protocol of 14 December 1998. They have different residence rules, different tie-breakers and different
purposes.

The income treaty caps American withholding on portfolio dividends at 15 per cent under Article 10, exempts
interest from source taxation under Article 11, assigns gains on shares to the country of residence under
Article 13, assigns pensions to the country of residence under Article 18, and assigns social security
exclusively to the country of residence under Article 18(5). The estate and gift treaty determines domicile in
Article 4, allocates the right to tax particular classes of property in Articles 5 to 8, and provides the pro
rata exclusion and the additional marital deduction in Article 10. See the firm’s article on
fiscal domicile under Article 4.

Dreimonatseinrede

For the first three months after accepting, a German heir may refuse to satisfy any creditor of the estate,
which buys time to find out what the estate actually contains before deciding whether to invoke one of the
procedures that limit liability. For an heir in the United States, trying to establish the position of a German
estate from abroad, that breathing space is short and it begins to run on acceptance, not on discovery.

Nach § 2014 BGB kann der Erbe die Berichtigung einer Nachlassverbindlichkeit bis zum Ablauf von drei Monaten
nach Annahme der Erbschaft verweigern, längstens jedoch bis zur Errichtung des Inventars. Die Einrede dient dazu,
dem Erben Zeit für die Prüfung der Nachlasslage und für die Entscheidung über haftungsbeschränkende Maßnahmen zu
verschaffen.

Dual residence

A person with a home available in both countries is resident in both under the domestic law of each, and the
conflict is resolved by the treaty tie-breakers. Article 4(2) of the income tax treaty applies, in order:
permanent home, centre of vital interests, habitual abode, nationality, and finally agreement between the two
tax administrations. There is no 183-day test at this stage; the 183-day rule in the treaty sits in Article 15
and governs employment income only.

Being assigned to one country by treaty does not end the obligation to file in the other. A United States
citizen remains taxable in the United States on worldwide income whatever the tie-breaker says, because of the
saving clause, and a person tie-broken to the United States who still has a German dwelling remains within
German reporting obligations. See determining fiscal domicile under Article 4.

Dürftigkeitseinrede

Where the estate is not large enough to justify the cost of formal estate administration or estate
insolvency, the heir may still confine creditors to the estate by pleading its insufficiency. It is the cheapest
of the three routes to limited liability and often the only proportionate one for a small German estate with an
heir abroad, but it must be raised, and it does not operate by itself.

Reicht der Nachlass nicht zur Deckung der Kosten einer Nachlassverwaltung oder eines Nachlassinsolvenzverfahrens,
kann der Erbe nach § 1990 BGB die Befriedigung der Nachlassgläubiger insoweit verweigern, als der Nachlass nicht
ausreicht. Die Haftung beschränkt sich damit auf den Nachlassbestand. Die Einrede muss erhoben werden; sie wirkt
nicht von Amts wegen.

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Part I. A to D · Part II. E to G · Part III. H to Q · Part IV. R to Z

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