This is part III of the explanations behind the Topics A-Z index, covering the entries from H to Q. 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

H

Habitual abode (gewöhnlicher Aufenthalt)

One of the two German connecting factors for tax residence, in section 9 of the German Fiscal Code (AO). A
person has a habitual abode in Germany where the circumstances show the stay is more than temporary, and a
continuous stay of more than six months always qualifies, short interruptions being disregarded and the finding
applying retroactively from the first day.

The other factor, section 8 AO, is a dwelling kept in circumstances indicating it will be retained and used,
and it has no minimum number of days at all. Either alone produces unlimited German tax liability on worldwide
income. An American who keeps an apartment in Germany while spending most of the year in the United States can
therefore be a German tax resident under domestic law without approaching any day count, and will depend on the
treaty tie-breakers rather than on a headcount of nights.

Den gewöhnlichen Aufenthalt hat nach § 9 AO, wer sich unter Umständen aufhält, die erkennen lassen, dass der
Aufenthalt nicht nur vorübergehend ist; ein zusammenhängender Aufenthalt von mehr als sechs Monaten gilt stets
als gewöhnlicher Aufenthalt, wobei kurzfristige Unterbrechungen unberücksichtigt bleiben. Die Feststellung wirkt
auf den Beginn des Aufenthalts zurück. Wohnsitz nach § 8 AO und gewöhnlicher Aufenthalt begründen jeweils für
sich die unbeschränkte Steuerpflicht.

Handschriftliches Testament

A will written and signed entirely in the testator’s own hand, with place and date, which German law fully
recognises and which needs no witnesses and no notary. It is the commonest form of German will. A typed will
signed before witnesses, the standard American form, is not valid as a German holographic will, though it will
usually be saved as to form by the Hague Convention of 1961 on the form of testamentary dispositions.

Das eigenhändige Testament nach § 2247 BGB muss vollständig handschriftlich geschrieben und unterschrieben
sein; Ort und Datum sollen angegeben werden. Zeugen sind nicht erforderlich. Ein maschinenschriftliches, vor
Zeugen unterzeichnetes Testament nach US-Muster ist als eigenhändiges Testament unwirksam, wird aber formwirksam
regelmäßig über das Haager Testamentsformübereinkommen von 1961 anerkannt.

Hausrat

Household goods and personal effects. They are part of the estate, but the surviving spouse takes them ahead
of the other heirs on intestacy where there are no descendants, and takes what is needed for a suitable
household even where there are. German inheritance tax exempts household effects up to 41,000 euros for acquirers
in tax class I, and other movables up to 12,000 euros, with a single 12,000 euro figure covering both for classes
II and III.

Der sogenannte Voraus des § 1932 BGB gibt dem überlebenden Ehegatten neben Verwandten der zweiten Ordnung den
gesamten Hausrat, neben Abkömmlingen das zur Führung eines angemessenen Haushalts Erforderliche. Erbschaftsteuerlich
bleiben Hausrat bis 41.000 Euro und andere bewegliche körperliche Gegenstände bis 12.000 Euro für Erwerber der
Steuerklasse I nach § 13 Abs. 1 Nr. 1 ErbStG steuerfrei; für die Steuerklassen II und III gilt ein gemeinsamer
Betrag von 12.000 Euro.

Heirs

German heirs are universal successors. They take the estate as a whole at the moment of death, assets and
debts together, without any grant and without any intermediary, and if there is more than one they hold it
jointly until it is divided. They may be named by will or determined by the statutory order of intestacy, and
the will may appoint an heir to a share only, a person left a particular asset being a legatee rather than an
heir.

Nothing in this resembles an American beneficiary, who has a claim against a fiduciary, takes only after
creditors and has no personal liability for the decedent’s debts. The single most consequential difference is
the debts: an American who is named heir to a German estate becomes personally liable for its liabilities unless
the estate is disclaimed within the period, or one of the limitation procedures is invoked.

Holding structures for United States real estate

A German-resident individual who buys American real estate directly is exposed to United States estate tax on
it at death, because real property is United States situs property, against an exclusion of only 60,000 dollars
or the treaty’s pro rata figure. Holding it through a foreign corporation removes it from the American estate
tax base, because the shares of a foreign company are not United States situs property, but at the cost of
corporate rates, the branch profits tax and the loss of the step-up in basis.

Germany adds its own considerations. A foreign corporation holding assets for a German-resident family can
attract attribution under the Foreign Tax Act, German real estate transfer tax issues arise on share transfers,
and a structure that is efficient for American estate tax may be treated as a sham or as a distribution for
German purposes. There is no structure that is right in the abstract; the answer turns on the size of the
holding, the family’s residence at the time and the intended holding period, and it should be settled before
purchase rather than unwound afterwards.

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I

Income in respect of a decedent

Income the decedent had earned but not received at death: a final salary payment, accrued interest, and above
all the balance of a traditional individual retirement account or a 401(k). It does not receive a step-up in
basis, and the recipient pays United States income tax on it as the decedent would have done, with a deduction
for the estate tax attributable to it under section 691(c).

For a German-resident beneficiary this is the point at which the two systems press hardest. The same
retirement account is subject to United States income tax on distribution, is in the United States estate tax
base if the decedent was American, is in the German inheritance tax base if either the decedent or the
beneficiary was German resident, and is taxed again in Germany as other income when it is drawn. The credits
available do not line up, because they operate between different taxes in different years.

Information requests

German law gives heirs and compulsory-share claimants statutory rights to information rather than discovery.
An heir may demand an inventory of the estate, a compulsory-share claimant may demand an inventory and a
valuation under section 2314 of the Civil Code, and a co-heir may demand an account. A person in possession of
the estate must answer, and the claim is enforceable in court.

Banks, insurers and the land registry will give information to a person who proves entitlement, normally by
the certificate of inheritance. There is no general right to search for assets, and there is no German
equivalent of an American subpoena in aid of a probate proceeding. For an American heir who suspects assets
exist but cannot name them, the statutory information claim against whoever holds the estate is usually the only
route.

Inheritance taxes in Germany

Charged on each acquirer separately, at rates fixed by the relationship, against allowances that renew every
ten years. Liability is worldwide where either the decedent or the acquirer was resident in Germany, and confined
to German situs assets otherwise. The return follows a compulsory notification within three months, and the
undivided estate is liable for the tax of all participants until it is divided.

What Americans most often get wrong is the direction of the liability. It is not the German assets that
attract German tax; it is the German residence of any person on either side of the transfer. An American who
dies in Ohio leaving a portfolio in Ohio to a daughter in Hamburg produces a full German inheritance tax
liability on the whole of that daughter’s share. See inheritance taxes under German
law.

Inlandsvermögen (German situs assets)

The category of German assets that attracts German inheritance and gift tax where nobody involved is resident
in Germany, defined by section 121 of the Valuation Act. It covers German agricultural and forestry property,
German real estate, German business assets and permanent establishments, shareholdings of at least 10 per cent in
German companies, German registered intellectual property, assets let to a German business, and claims secured
on German land.

It does not cover German bank accounts, German portfolio securities, German insurance policies or
shareholdings below 10 per cent. That omission is regularly misstated in American material, and it matters: a
non-resident American heir of a non-resident American decedent takes a German brokerage account free of German
inheritance tax, and takes a German apartment subject to it.

Inlandsvermögen im Sinne des § 121 BewG umfasst inländisches land- und forstwirtschaftliches Vermögen,
inländischen Grundbesitz, inländisches Betriebsvermögen und Betriebsstätten, Anteile an inländischen
Kapitalgesellschaften bei einer Beteiligung von mindestens 10 Prozent, im Inland eingetragene Schutzrechte,
einem inländischen Gewerbebetrieb überlassene Wirtschaftsgüter sowie durch inländischen Grundbesitz gesicherte
Forderungen. Guthaben bei inländischen Kreditinstituten und Wertpapierdepots gehören nicht dazu.

Intestate succession rules

German intestacy proceeds by orders of relatives. Descendants take first and exclude everyone else,
per stirpes. In the absence of descendants, parents and their descendants take, then grandparents and theirs. A
surviving spouse married under the statutory regime of Zugewinngemeinschaft takes a quarter alongside
descendants under section 1931 of the Civil Code, increased by a further quarter under section 1371 in place of
an actual equalisation of accrued gains, so one half in total, the children sharing the other half.

The order is not the same as that of any American state, there is no surviving-spouse elective share in the
American sense, and there is no representation beyond the applicable order. Unmarried partners take nothing on
intestacy and fall into tax class III if provided for by will, with a 20,000 euro allowance and rates from 30 per
cent. See do domestic partners have any inheritance rights.

Investment funds and the German Investment Tax Act

Germany taxes fund holdings under the Investment Tax Act (InvStG), and it does so wherever the fund is
established, so a German resident holding United States mutual funds or American exchange-traded funds is fully
within it. Each year the holder is taxed on a deemed minimum return, the Vorabpauschale, computed as 70 per cent
of a published base rate applied to the value at the start of the year, reduced by distributions and capped at
the actual rise in value. The base rate was 2.53 per cent for 2025 and 3.20 per cent for 2026.

A partial exemption then applies: 30 per cent for equity funds, 15 per cent for mixed funds, 60 per cent for
real estate funds and 80 per cent for funds investing in foreign real estate. The consequence for an American in
Germany is a German tax charge in years when nothing has been sold and no American tax is payable, so that the
foreign tax credit has nothing to work against, followed by an American charge on disposal in a year when the
German tax has already been paid. The mismatch is structural and is not cured by either treaty.

Investmentsteuergesetz (InvStG)

The German statute taxing holdings in investment funds, wherever the fund is established, so American mutual
funds and exchange-traded funds held by a German resident fall squarely within it. It imposes the annual deemed
minimum return and grants the partial exemption that depends on the fund’s equity content. See Investment funds and the German Investment Tax Act and Vorabpauschale.

Das Investmentsteuergesetz erfasst Investmentanteile unabhängig vom Sitz des Fonds, also auch US-amerikanische
Fonds und ETFs im Depot eines in Deutschland Ansässigen. Besteuert werden Ausschüttungen, die Vorabpauschale nach
§ 18 InvStG und Veräußerungsgewinne, gemindert um die Teilfreistellung nach § 20 InvStG. Seit dem 1. Januar 2025
unterliegen Investmentanteile unter den Voraussetzungen des § 19 Abs. 3 InvStG auch der Wegzugsbesteuerung.

IRA and 401(k) distributions

Under Article 18(1) of the income treaty a pension is taxable only in the country of residence, so a
distribution from an American retirement account to a resident of Germany is taxed by Germany, not by the United
States, except that a United States citizen remains taxable by the United States under the saving clause and
relies on the foreign tax credit. Germany taxes it as other income under section 22 number 5 EStG at the ordinary
progressive rate, which reaches 42 per cent at 69,879 euros and 45 per cent at 277,826 euros for 2026, and not at
the flat 26.375 per cent investment rate.

How much is taxed changed in 2025. For payments before 1 January 2025 the Federal Fiscal Court held in its
decision of 25 June 2025, X R 23/22, that only the excess of the payment over the contributions is taxed. From
2025 the Annual Tax Act 2024 amended section 22 number 5 EStG so that contributions relieved from tax abroad
count as tax-favoured, with the result that a distribution from an account funded with pre-tax contributions is
now fully taxable in Germany. The practical difficulty is proof: establishing decades of contribution history to
the satisfaction of a German tax office, and apportioning an account that mixes pre-tax and after-tax money. A
separate question, whether contributions to a traditional account remain deductible after a move from the United
States, is pending before the Federal Fiscal Court as I R 66/23, with no decision expected before 2027.

IRS transfer certificate

Form 5173, the certificate confirming that United States estate tax on the assets of a decedent who was
neither a citizen nor domiciled in the United States has been paid or provided for. American banks, brokers and
transfer agents generally require it before releasing or retitling assets, and until it is produced the account
stays frozen.

It is required where the estate has a Form 706-NA filing obligation, that is where United States situs assets
exceed 60,000 dollars. Where there is no filing obligation the Internal Revenue Service issues correspondence
confirming that no certificate is needed rather than issuing one, and institutions will normally accept that. It
is not required for property administered by an executor appointed and acting in the United States. Obtaining
one takes many months, and it is the single most common cause of delay in a German estate holding American
securities.

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J

Jahressteuergesetz

The annual German tax act, which is where most of the changes that matter in a cross-border case have
arrived. The 2022 act raised German real estate values for inheritance tax with effect from 2023. The 2024 act
made distributions from foreign retirement accounts funded with pre-tax contributions fully taxable in Germany
from 2025, extended the exit tax to investment fund holdings, and repealed the cap on losses from derivatives. A
glossary entry is only ever accurate as at a date for this reason.

Die Jahressteuergesetze enthalten die laufenden Änderungen des Steuerrechts. Das JStG 2022 hat die
Grundbesitzbewertung für Zwecke der Erbschaftsteuer ab dem 1. Januar 2023 deutlich verschärft. Das JStG 2024 hat
§ 22 Nr. 5 Satz 1 EStG dahin geändert, dass im Ausland steuerlich geförderte Beiträge zu einer vollen Besteuerung
der Leistungen führen, die Wegzugsbesteuerung auf Investmentanteile erstreckt und die Verlustverrechnungsbeschränkung
für Termingeschäfte rückwirkend aufgehoben.

Joint ownership and joint accounts

The American joint tenancy with right of survivorship has no true German equivalent. German co-ownership in
fractional shares does not carry survivorship, and German joint bank accounts of the Oder-Konto type give each
holder the right to draw the whole but do not pass the balance on death; the decedent’s half falls into the
estate.

Both systems tax the arrangement, and differently. German law presumes each holder of a joint account is
entitled to half, so a deposit by one spouse can be a taxable gift of half to the other at the moment it is
made, which for an American couple with unequal wealth and a German account is a real and frequently overlooked
exposure. United States estate tax includes the whole of a joint account in the estate of the first to die
except so far as the survivor’s contribution can be proved, and where the survivor is not a United States
citizen the unlimited marital deduction does not apply to relieve it.

Judicial probate

A contested proceeding, as distinct from the administrative grant of authority. In Germany the contested
questions are who the heirs are, whether a will is valid in form and whether the testator had capacity, and they
are decided by the probate court in the certificate of inheritance proceeding or by the civil courts. Claims to
the compulsory share are ordinary civil claims.

The German process is documentary, is decided by a judge without a jury, allows no pre-trial discovery, and
carries costs on a statutory scale that follow the event. An American party accustomed to the cost and duration
of contested probate litigation in the United States generally finds the German equivalent faster and cheaper,
and finds the absence of discovery the hardest adjustment.

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K

Kapitalerträge

Investment income in the German sense: interest, dividends, distributions from funds, the deemed minimum
return on fund holdings, and gains on the sale of securities held privately. It is taxed separately from other
income at the flat rate, after the saver’s allowance, and it is declared on the Anlage KAP where no German bank
has withheld. There is no German equivalent of the American preferential rate for qualified dividends and
long-term gains, and no holding period after which a gain becomes exempt.

Einkünfte aus Kapitalvermögen nach § 20 EStG umfassen Zinsen, Dividenden, Investmenterträge einschließlich der
Vorabpauschale sowie Gewinne aus der Veräußerung von Wertpapieren im Privatvermögen. Sie unterliegen dem
gesonderten Steuersatz des § 32d EStG nach Abzug des Sparer-Pauschbetrags. Eine Haltefrist, nach deren Ablauf
Veräußerungsgewinne steuerfrei wären, besteht seit 2009 nicht mehr.

Kapitalertragsteuer

German withholding tax on investment income, deducted at source by a German paying agent and discharging the
liability. For a resident it is the flat tax; for a non-resident it applies to German dividends and certain other
German income, at 25 per cent plus the solidarity surcharge, reduced by treaty to 15 per cent for an American
portfolio shareholder, who reclaims the excess from the Federal Central Tax Office. A United States broker
withholds nothing for Germany, which is why income from an American account has to be declared and assessed
instead.

Die Kapitalertragsteuer wird nach den §§ 43 ff. EStG von der inländischen auszahlenden Stelle einbehalten und
hat bei unbeschränkt Steuerpflichtigen nach § 43 Abs. 5 EStG abgeltende Wirkung. Beschränkt Steuerpflichtige
unterliegen dem Steuerabzug auf deutsche Dividenden; nach Art. 10 Abs. 2 Buchst. b DBA-USA ist der Quellensteuersatz
auf 15 Prozent begrenzt, die Erstattung erfolgt über das Bundeszentralamt für Steuern nach § 50c EStG. Ausländische
Depotstellen nehmen keinen Steuerabzug vor.

Kirchensteuer

See Church tax. The point to note for an American arriving in Germany is that church affiliation is recorded
on registration at the residents’ office, that banks query it automatically each autumn, and that the tax is
levied on investment income as well as on employment income unless a blocking notice is filed with the Federal
Central Tax Office.

Körperschaftsteuer

German corporation tax, at 15 per cent plus the solidarity surcharge, with municipal trade tax on top, giving
a combined burden of roughly 30 per cent depending on the municipality. It matters in a cross-border estate
because an American structure interposed between a family and German assets, or a German company holding
American ones, is taxed here, and because a corporation that is managed from Germany is German-resident whatever
its place of incorporation.

Die Körperschaftsteuer beträgt nach § 23 KStG 15 Prozent zuzüglich Solidaritätszuschlag; zusammen mit der
Gewerbesteuer ergibt sich je nach Hebesatz eine Gesamtbelastung von etwa 30 Prozent. Unbeschränkt körperschaftsteuerpflichtig
ist nach § 1 KStG eine Gesellschaft mit Sitz oder Geschäftsleitung im Inland. Eine nach US-Recht gegründete
Gesellschaft, die tatsächlich aus Deutschland geleitet wird, ist daher in Deutschland unbeschränkt steuerpflichtig.

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L

Last Will and Testament

Germany recognises two forms: a will written and signed entirely in the testator’s own hand, with date and
place, and a will made before a notary. A typed will signed before witnesses, which is the standard American
form, is not valid as a German will. The Hague Convention of 1961 on the form of testamentary dispositions,
to which Germany is party, nevertheless saves a will valid in form where it was made or where the testator was
national or resident, so an American will is generally formally valid in Germany.

Formal validity is not the end of the matter. A will valid in form may still fail in substance if German
succession law governs, because German law does not permit a spouse, children or parents to be disinherited, and
because German law will not give effect to an American revocable trust in the way the drafter intended. An
American in Germany who wishes American law to govern must make an express choice of law under Article 22 of the
European Succession Regulation. See types of testamentary dispositions.

Lebensversicherung im Erbfall

A German life policy with a named beneficiary pays outside the estate, so the money is not available to the
heirs and in principle not to the estate’s creditors. It is nevertheless taxed as an acquisition on death in the
beneficiary’s own tax class. Where no beneficiary is named, the proceeds fall into the estate. An American policy
on the life of a person who was neither a citizen nor domiciled in the United States is outside the American
estate tax base, which is one of the few clean points in this field.

Bei benannter Bezugsberechtigung fällt die Versicherungsleistung nicht in den Nachlass, sondern erwirbt der
Bezugsberechtigte sie unmittelbar nach § 331 BGB. Erbschaftsteuerlich liegt ein Erwerb nach § 3 Abs. 1 Nr. 4
ErbStG vor. Ohne Bezugsberechtigung gehört die Leistung zum Nachlass. Leistungen aus einer US-Lebensversicherung
auf das Leben eines Nichtansässigen unterliegen nicht der US-Nachlasssteuer.

Legacies

A legacy, or Vermächtnis, is a direction in a will that a particular person receive a particular asset or
sum. The legatee is not an heir, takes no share of the estate, bears no liability for its debts and acquires
only a claim against the heirs for delivery. Title does not pass on death; it passes when the heirs perform, and
for land that means a notarial transfer and registration in the Grundbuch.

German inheritance tax nevertheless charges the legatee at the date of death, in the legatee’s own tax class
and against the legatee’s own allowance, and allows the heirs to deduct the legacy from their own acquisition. A
legatee abroad therefore has a tax liability before receiving anything, and has to rely on the heirs to
perform.

Leibrente

An annuity for life. Germany taxes it not in full but at a proportion fixed by the age at which payments
begin, or for statutory and comparable pensions by the year in which they began. The rule matters to Americans
because United States social security received by a German resident is taxed in Germany on this basis, and
because a private American annuity received in Germany is taxed only on its income element.

Leibrenten werden nach § 22 Nr. 1 Satz 3 Buchst. a EStG nur mit dem Ertragsanteil beziehungsweise, bei Renten
der Basisversorgung, mit dem kohortenabhängigen Besteuerungsanteil erfasst. Leistungen der US-amerikanischen
social security an einen in Deutschland Ansässigen unterliegen nach Art. 18 Abs. 5 DBA-USA ausschließlich der
deutschen Besteuerung und werden nach diesen Grundsätzen erfasst.

Limitation on benefits

Article 28 of the income tax treaty, comprehensively rewritten by the 2006 protocol. It denies treaty
benefits to persons who are resident in one country only in order to obtain them, through a series of tests:
qualified person status, publicly traded companies, pension funds, the conduct of an active trade or business,
derivative benefits, and discretionary relief from the competent authority.

It rarely troubles an individual, who is normally a qualified person by residence alone. It troubles
structures. A company or trust interposed between a German family and American assets, or the reverse, may find
the treaty rate on dividends denied and the statutory 30 per cent applied, and the failure is usually discovered
when the withholding appears rather than when the structure is set up.

Living trust

The American revocable trust does most of the work of estate planning in the United States: it avoids
probate, keeps the arrangement private and, being revocable, has no gift tax consequence during the settlor’s
life. It is included in the settlor’s gross estate for federal estate tax at death.

Germany does not recognise it. Germany is not a party to the Hague Trusts Convention, and a German court
faced with a revocable trust will characterise the arrangement under German categories rather than give effect
to the division between legal and beneficial ownership. For tax, funding a foreign asset-holding vehicle is a
taxable gift under section 7(1) number 8 ErbStG where the settlor is German resident, taxed in tax class III at
30 or 50 per cent against an allowance of 20,000 euros, and distributions during its existence are taxable in
the hands of a German-resident beneficiary under section 7(1) number 9. An American who moves to Germany holding
a revocable trust, or who settles one while resident there, therefore risks a German tax charge on an
arrangement that has no American tax consequence at all.

Lohnsteuer

German wage tax, withheld by the employer and credited against the income tax finally assessed. It is not a
separate tax. An American employed in Germany is within it from the first day of residence, and the withholding
takes no account of American tax, so the foreign tax credit has to be managed through the two annual returns
rather than at source.

Die Lohnsteuer ist nach den §§ 38 ff. EStG eine Erhebungsform der Einkommensteuer; sie wird vom Arbeitgeber
einbehalten und auf die festgesetzte Einkommensteuer angerechnet. Die Höhe richtet sich nach den elektronischen
Lohnsteuerabzugsmerkmalen und der Steuerklasse. Eine Berücksichtigung ausländischer Steuern findet beim
Lohnsteuerabzug nicht statt.

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M

Marital deduction

United States estate and gift tax allows an unlimited deduction for transfers to a spouse, which defers tax
to the second death. It is not available where the recipient spouse is not a United States citizen, because
there would be no assurance of taxing the property later. The substitutes are a qualified domestic trust and,
for lifetime gifts, the annual figure of 194,000 dollars for 2026.

The estate tax treaty with Germany supplies a better answer in many cases. Article 10(6) gives an additional
marital deduction equal to the lesser of the value of the qualifying property and the applicable exclusion
amount, available where both spouses were domiciled in Germany or the United States and, if both were domiciled
in the United States, at least one was a German national. Claiming it requires the executor to waive the
domestic marital deduction irrevocably, which means giving up the qualified domestic trust. Germany, for its
part, simply gives the surviving spouse a 500,000 euro allowance and a further 256,000 euro pension allowance,
and taxes the rest.

Marital property regimes

Which regime governs a marriage decides what is in the estate before any question of succession arises.
Germany’s statutory regime is Zugewinngemeinschaft, a separation of property during the marriage with an
equalisation of accrued gains at its end. American states are either common law or community property, and
California, Texas and six others are community property states.

An American couple who marry in a common law state and move to Germany do not automatically become subject to
the German regime; the applicable regime is decided by the conflict rules, since 2019 by the European regulation
on matrimonial property regimes for couples marrying after that date. The result decides the size of the estate,
the surviving spouse’s intestate share, the computation of compulsory shares, and the German inheritance tax
base, because the equalisation claim itself is exempt from German inheritance tax under section 5 ErbStG. Getting
the regime wrong, or leaving it undetermined, distorts every figure downstream.

Medallion signature guarantee

A stamp required by American transfer agents to authenticate a signature on a transfer of securities,
available only from participating American banks and brokers. It is not a notarisation, and an apostilled German
notarial certification is not a substitute for it.

For an heir or executor living in Germany it is a practical obstacle rather than a legal one, and a
significant one: no German institution can issue it, and American institutions will generally issue it only to
their own customers. The usual solutions are to act through an American bank with which the estate already has a
relationship, to use a broker’s overseas service where one exists, or to arrange the transfer through an
American fiduciary who can obtain it.

Miterben

Co-heirs, who hold the estate jointly and undivided until it is divided. No co-heir owns any particular
asset; each owns a share of the whole. Disposals require unanimity, ordinary administration a majority, and any
co-heir may demand division at any time. Where the co-heirs live in different countries this is the principal
source of delay, because every signature must be obtained, identified and, for land, notarised. See Erbengemeinschaft.

Mehrere Erben bilden nach § 2032 BGB eine Erbengemeinschaft zur gesamten Hand. Über einzelne Nachlassgegenstände
können sie nur gemeinschaftlich verfügen, § 2040 BGB; Maßnahmen ordnungsgemäßer Verwaltung können nach § 2038
BGB mehrheitlich beschlossen werden. Jeder Miterbe kann jederzeit die Auseinandersetzung verlangen. Bei im Ausland
ansässigen Miterben ist die Beschaffung formgerechter Erklärungen der praktische Engpass.

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N

Nachlass

The estate: everything the decedent owned and owed, passing as a whole to the heirs at death. It is not a
separate legal person and not a taxpayer, which is why Germany has no fiduciary income tax return. Until the
estate is divided it is a separate fund for liability purposes, and section 20(3) of the Inheritance and Gift Tax
Act makes it liable for the inheritance tax of all the participants until division.

Der Nachlass ist das nach § 1922 BGB als Ganzes übergehende Vermögen des Erblassers einschließlich der
Verbindlichkeiten. Er ist weder rechtsfähig noch eigenes Steuersubjekt; eine der amerikanischen fiduciary income
tax entsprechende Besteuerung des Nachlasses kennt das deutsche Recht nicht. Bis zur Auseinandersetzung haftet
der Nachlass nach § 20 Abs. 3 ErbStG für die Steuer aller Beteiligten.

Nachlassgericht (German probate court)

A division of the local court with a limited role: it takes custody of wills, opens them after death and
notifies those concerned, issues the certificate of inheritance on application, receives disclaimers, and
appoints an estate administrator or curator where one is needed. It does not supervise the settlement of the
estate, does not appoint a personal representative and does not approve distributions.

An American accustomed to a probate court that controls the process from grant to final account should expect
none of that. The corollary is that nobody is watching: there is no court to ensure that debts are paid before
distribution, that co-heirs deal fairly with one another or that tax is provided for, and the consequences of
getting those things wrong fall on the heirs personally.

Das Nachlassgericht ist eine Abteilung des Amtsgerichts. Es verwahrt und eröffnet Testamente, erteilt den
Erbschein, nimmt Ausschlagungen entgegen, ordnet Nachlasspflegschaft und Nachlassverwaltung an und führt das
Aufgebotsverfahren durch. Eine Aufsicht über die Abwicklung des Nachlasses, eine Bestellung von
Nachlassabwicklern von Amts wegen oder eine Genehmigung von Verteilungen kennt das deutsche Recht nicht.

Nachlassinsolvenz

Estate insolvency, opened by the probate court on the application of the heir or a creditor where the estate
cannot meet its debts. It separates the estate from the heir’s own assets and confines the creditors to the
estate. The heir is obliged to apply once insolvency or over-indebtedness is apparent, and failing to do so
exposes the heir to liability in damages towards the creditors.

Das Nachlassinsolvenzverfahren nach den §§ 315 ff. InsO wird auf Antrag des Erben, eines Nachlassgläubigers
oder des Nachlassverwalters eröffnet. Mit der Eröffnung beschränkt sich die Haftung nach § 1975 BGB auf den
Nachlass. Der Erbe ist bei Zahlungsunfähigkeit oder Überschuldung nach § 1980 BGB zur unverzüglichen Antragstellung
verpflichtet; unterlässt er sie, haftet er den Gläubigern auf Schadensersatz.

Nachlasspflegschaft

Where the heirs are unknown or it is not yet certain whether they accept, the probate court appoints a curator
to secure and manage the estate. It is the usual answer where the decedent had relatives abroad who have not yet
been traced, or where German assets need to be protected while American heirs decide. The curator acts for the
unknown heirs, not for the creditors, and the appointment ends when the heirs are established.

Ist der Erbe unbekannt oder ist ungewiss, ob er die Erbschaft angenommen hat, bestellt das Nachlassgericht nach
§ 1960 BGB einen Nachlasspfleger zur Sicherung und Verwaltung des Nachlasses. Der Nachlasspfleger vertritt die
unbekannten Erben, nicht die Gläubiger. Die Pflegschaft endet mit der Ermittlung und Annahme durch die Erben. Bei
im Ausland lebenden Beteiligten ist sie häufig das Mittel, um den Nachlass zu sichern.

Nachlassverbindlichkeiten

The estate’s liabilities: the decedent’s own debts, and the obligations arising from the death itself,
legacies, directions, compulsory share claims, funeral costs and the costs of administering the estate. They are
deductible for German inheritance tax. The heirs are liable for all of them, and the distinction between the two
kinds matters, because only the decedent’s own debts can be limited by the procedures that confine liability to
the estate.

Nachlassverbindlichkeiten sind nach § 1967 Abs. 2 BGB die vom Erblasser herrührenden Schulden sowie die den
Erben als solchen treffenden Verbindlichkeiten, insbesondere Vermächtnisse, Auflagen, Pflichtteilsansprüche und
die Kosten der Bestattung. Erbschaftsteuerlich sind sie nach § 10 Abs. 5 ErbStG abzugsfähig. Die
Haftungsbeschränkung nach den §§ 1975 ff. BGB erfasst sie insgesamt, nicht aber Eigenverbindlichkeiten des
Erben.

Nachlassverwaltung

Estate administration ordered by the probate court on the application of the heir or a creditor. It takes the
estate out of the heir’s hands, puts it in the hands of an administrator, and confines the creditors to it,
protecting the heir’s own assets. It is the formal route to limited liability where the estate is solvent but its
extent is uncertain, which is the usual position when the heirs are abroad and the decedent’s affairs are not
fully known.

Die Nachlassverwaltung nach den §§ 1975, 1981 BGB wird auf Antrag des Erben oder eines Nachlassgläubigers
angeordnet und ist eine Nachlasspflegschaft zum Zweck der Gläubigerbefriedigung. Mit ihrer Anordnung beschränkt
sich die Haftung des Erben auf den Nachlass; die Verwaltungs- und Verfügungsbefugnis geht auf den Nachlassverwalter
über. Dieser hat nach § 31 Abs. 5 ErbStG auch die Erbschaftsteuererklärung abzugeben.

Nachlassverzeichnis

An inventory of the estate. A compulsory share claimant may demand one from the heirs, and may require that it
be drawn up by a notary at the estate’s expense, which produces a considerably more searching document than one
the heirs prepare themselves. An heir may also file an inventory with the court to preserve the right to limit
liability. For an American beneficiary who cannot see the German assets, the notarial inventory is the most
effective instrument available.

Der Pflichtteilsberechtigte kann nach § 2314 BGB ein Verzeichnis der Nachlassgegenstände verlangen und die
Aufnahme durch einen Notar auf Kosten des Nachlasses fordern; der Notar ermittelt dabei eigenständig. Der Erbe
kann nach den §§ 1993 ff. BGB ein Inventar beim Nachlassgericht einreichen, um die Möglichkeit der
Haftungsbeschränkung zu erhalten. Die Inventaruntreue nach § 2005 BGB führt zur unbeschränkten Haftung.

Nießbrauch

A usufruct: the right to use property and take its income, while ownership passes to someone else. It is the
standard German device for transferring assets to the next generation during life while keeping the income, and
it reduces the value of the gift by the capitalised value of the reserved right. The American tax treatment of
the same arrangement is entirely different, and a reserved usufruct over property in the United States can pull
the whole asset back into the American estate tax base.

Der Nießbrauch nach den §§ 1030 ff. BGB gewährt das Recht, die Nutzungen einer Sache zu ziehen. Bei der
vorweggenommenen Erbfolge mindert der nach § 14 BewG kapitalisierte Wert des vorbehaltenen Nießbrauchs die
schenkungsteuerliche Bereicherung. Nach US-Recht führt ein vorbehaltenes Nutzungsrecht an in den Vereinigten
Staaten belegenem Vermögen dagegen nach Section 2036 IRC zur vollen Erfassung im Nachlass.

Nonresident alien

A United States tax term with two different meanings that are often conflated. For income tax it means a
person who is neither a citizen nor a lawful permanent resident and who fails the substantial presence test, and
it decides whether the person is taxed on worldwide income or only on United States source income. For estate
and gift tax the question is not residence but domicile, and the two can diverge: a person may be a resident for
income tax and not domiciled for estate tax, or the reverse.

The consequences of the estate tax classification are severe. A non-domiciled decedent has an exclusion of
60,000 dollars against United States situs assets rather than 15,000,000 dollars, and while the estate treaty
with Germany substitutes a pro rata share of the full figure, that relief must be claimed on Form 706-NA and
requires disclosure of the worldwide estate.

Notary (Notar)

A German notary is a public officer, legally trained, who drafts and authenticates instruments and advises
all parties impartially. Notarisation is compulsory for the transfer of land, for share transfers in a GmbH, for
marital property agreements, for compulsory-share waivers and for a notarial will, and the fees are fixed by
statute according to the value of the transaction and are not negotiable.

An American notary public is not the same thing and cannot substitute. Where a German notarial act is
required and the party is in the United States, the usual routes are execution before a German consular officer,
or a power of attorney certified by an American notary with an apostille, which a German notary will then accept
for most purposes though not for every one. The distinction is the source of a good deal of avoidable delay in
cross-border estates.

Der Notar ist Träger eines öffentlichen Amtes und betreut die Beteiligten unparteiisch. Die Beurkundung ist
unter anderem bei Grundstücksgeschäften, Erbverträgen, Pflichtteilsverzichten, Eheverträgen und
GmbH-Anteilsübertragungen vorgeschrieben; die Gebühren richten sich nach dem GNotKG und sind nicht verhandelbar.
Aus dem Ausland kommen die Beurkundung vor einem deutschen Konsularbeamten oder eine im Ausland beglaubigte und
apostillierte Vollmacht in Betracht.

Nottestament

An emergency will, valid for three months only. German law allows a will before the mayor of the
municipality, before three witnesses where death is imminent and a notary cannot be reached, and at sea. It
lapses if the testator survives the three months. It is worth knowing about because a family dealing with a
sudden illness abroad sometimes has no other option, and because a will made this way and then relied on years
later is void.

Die Nottestamente der §§ 2249 bis 2252 BGB umfassen das Bürgermeistertestament, das Drei-Zeugen-Testament bei
naher Todesgefahr und das Seetestament. Sie gelten nach § 2252 BGB als nicht errichtet, wenn seit der Errichtung
drei Monate verstrichen sind und der Erblasser noch lebt. Ein später gleichwohl vorgelegtes Nottestament ist
unwirksam.

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O

Oder-Konto

A German joint account on which either holder may draw the whole balance. It does not carry survivorship:
on a death the decedent’s half falls into the estate and the survivor does not simply keep it. German law
presumes the holders are entitled in equal shares, so a deposit made by one spouse can be a taxable gift of half
to the other at the moment it is made, which for an American couple with unequal wealth and a German account is
a real and frequently overlooked exposure. See Joint ownership and joint accounts.

Beim Oder-Konto ist jeder Kontoinhaber nach § 428 BGB einzeln verfügungsberechtigt; im Innenverhältnis wird
nach § 430 BGB hälftige Berechtigung vermutet. Ein Recht des Überlebenden auf den gesamten Saldo besteht nicht,
der Anteil des Verstorbenen fällt in den Nachlass. Zahlt ein Ehegatte allein erhebliche Beträge ein, kann darin
nach der Rechtsprechung des BFH eine freigebige Zuwendung der Hälfte an den anderen liegen.

Öffnungsklausel

The taxpayer’s escape from the statutory valuation of German real estate. Section 198 of the Valuation Act
allows proof that the open market value is lower than the figure the statutory method produces, normally by a
qualified appraisal or by an arm’s length sale close to the valuation date. Since the valuation rules were
tightened with effect from 2023, this is frequently the largest single saving available in a German estate, and
it has to be claimed in the assessment rather than afterwards.

Nach § 198 BewG kann der Steuerpflichtige einen niedrigeren gemeinen Wert nachweisen, als er sich nach dem
Vergleichs-, Ertrags- oder Sachwertverfahren ergibt. Der Nachweis erfolgt durch ein Gutachten des Gutachterausschusses
oder eines zertifizierten Sachverständigen oder durch einen im gewöhnlichen Geschäftsverkehr zeitnah erzielten
Kaufpreis. Seit der Verschärfung der Bewertung durch das JStG 2022 ist dies häufig die wirksamste
Entlastung.

Offshore account disclosure and correction

An American who has lived in Germany without filing United States returns, or without reporting German
accounts, has routes back. The Streamlined Foreign Offshore Procedures are available to a taxpayer whose failure
was not wilful and who meets a non-residency requirement, and they carry no miscellaneous offshore penalty;
delinquent international information return procedures cover a taxpayer who has filed returns but missed forms;
and a voluntary disclosure practice exists for wilful cases. Each has conditions, and eligibility must be
established before anything is filed, because a filing made in the wrong programme cannot be withdrawn.

The German side has its own institution, the self-disclosure under section 371 of the Fiscal Code, which
exempts from punishment only if it is complete for all relevant years and made before discovery, and only if the
tax and interest are paid within the period set. Partial disclosure fails entirely. The two corrections must be
coordinated, because information flows between the two authorities under FATCA and a disclosure on one side can
close the window on the other.

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P

Patientenverfügung

A German advance healthcare directive, setting out which treatments the person consents to or refuses if
capacity is lost. It binds the treating physician and the person’s representative where it covers the situation
that has arisen. It must be in writing and signed. An American healthcare proxy or living will is not what a
German hospital expects to see, and a person with a life in both countries should hold the matching instrument in
each, drafted so that neither revokes the other.

Die Patientenverfügung nach § 1827 BGB legt schriftlich fest, ob der Betroffene in bestimmte Untersuchungen
und Behandlungen einwilligt oder sie untersagt. Trifft sie auf die konkrete Behandlungssituation zu, ist sie für
Betreuer, Bevollmächtigten und behandelnden Arzt verbindlich. Sie wird regelmäßig mit einer Vorsorgevollmacht
verbunden. Eine US-amerikanische health care proxy wird in deutschen Kliniken nicht ohne Weiteres akzeptiert.

Pensions and annuities

Article 18(1) of the income tax treaty assigns pensions and similar remuneration for past employment to the
country of residence alone. A German resident drawing an American pension is taxed by Germany; an American
resident drawing a German pension is taxed by the United States. Article 18A deals with pension plans and the
deductibility of contributions to a plan in the other country, which is of real value to an American seconded to
Germany.

Germany taxes these receipts at the ordinary progressive rate as other income, not at the flat investment
rate, and applies the cohort-based taxable proportion used for annuities under section 22 number 1 EStG where
the payment qualifies as one. A United States citizen resident in Germany remains taxable in the United States
under the saving clause and relies on the foreign tax credit. German statutory pension payments to an American
resident, and American social security payments to a German resident, are governed by the separate rule in
Article 18(5).

PFIC

A passive foreign investment company is a foreign corporation of which 75 per cent or more of gross income is
passive, or 50 per cent or more of assets produce passive income. Essentially every non-American mutual fund,
UCITS and exchange-traded fund meets the test. The default regime under section 1291 allocates excess
distributions and disposal gains over the holding period, taxes each prior year at the highest ordinary rate and
adds an interest charge. Form 8621 is filed for each holding.

The election out, a qualifying electing fund election, requires information European funds do not supply, so
it is usually unavailable, and the mark-to-market election is open only to marketable stock. The result for an
American living in Germany is a genuine deadlock: European funds are PFICs, and European rules on packaged
investment products prevent most German retail investors from buying American funds at all. Holding American
funds through an American broker, where that remains possible, avoids the PFIC problem entirely but brings the
German Investment Tax Act charge instead.

Pflichtteil (compulsory share)

The claim in money that a spouse, child or, where there are no descendants, parent has against the heirs when
excluded from succession by a will, equal to half the value of the intestate share. It is a debt, not a share,
and it gives no right to any particular asset and no say in the administration of the estate. It is accompanied
by a right to an inventory and a valuation at the estate’s expense under section 2314 of the Civil Code.

Lifetime gifts are added back under section 2325, in full for the year before death and reducing by a tenth
for each further year, so the exposure runs for ten years, and for gifts to a spouse the ten years do not begin
until the marriage ends. The claim is barred three years after the end of the year in which the claimant learned
of the death and the disposition. It can be waived in advance only by notarial contract. For deductibility, note
that the European Court of Justice held in case C-394/20 that denying the deduction of compulsory-share claims in
limited liability cases is contrary to European law. See forced heirship.

Der Pflichtteil nach den §§ 2303 ff. BGB steht Abkömmlingen, dem Ehegatten und, wenn keine Abkömmlinge
vorhanden sind, den Eltern zu und beträgt die Hälfte des Werts des gesetzlichen Erbteils. Er ist ein
Geldanspruch gegen den Erben, kein Anteil am Nachlass. Er verjährt nach den §§ 195, 199 BGB in drei Jahren ab
Kenntnis von Erbfall und beeinträchtigender Verfügung. Ergänzend besteht der Pflichtteilsergänzungsanspruch nach
§ 2325 BGB.

Pflichtteilsentziehung

Taking away the compulsory share itself, which German law permits only on narrow statutory grounds: an
attempt on the life of the testator or a close family member, a serious deliberate criminal offence against them,
malicious breach of a statutory duty of maintenance, or a custodial sentence of at least a year where allowing
the person to share would be unreasonable. The ground must be stated in the will and must have existed when the
will was made. A notarial waiver is the reliable alternative.

Die Entziehung des Pflichtteils ist nur unter den Voraussetzungen des § 2333 BGB zulässig, etwa bei einem
Nachstellen nach dem Leben des Erblassers, einem schweren vorsätzlichen Verbrechen gegen ihn oder nahe Angehörige,
böswilliger Verletzung der Unterhaltspflicht oder rechtskräftiger Freiheitsstrafe von mindestens einem Jahr. Der
Grund muss nach § 2336 BGB im Zeitpunkt der Errichtung bestehen und in der Verfügung angegeben werden.

Pflichtteilsergänzungsanspruch

The claw-back of lifetime gifts into the compulsory share. A gift made within a year of death counts in full;
thereafter it loses a tenth for each further year, so it drops out entirely after ten. For gifts to a spouse the
ten years do not begin until the marriage ends, so a transfer between spouses is never safe from the claim during
the marriage. Nor does the period begin where the donor reserved a usufruct or a right of residence, which is
what defeats most attempts to plan around it.

Nach § 2325 BGB werden Schenkungen des Erblassers dem Nachlass hinzugerechnet. Nach § 2325 Abs. 3 BGB wird die
Schenkung im ersten Jahr vor dem Erbfall voll, danach für jedes weitere Jahr um ein Zehntel vermindert
berücksichtigt; bei Schenkungen an den Ehegatten beginnt die Frist nicht vor Auflösung der Ehe. Behält sich der
Schenker den Nießbrauch oder ein Wohnrecht vor, beginnt die Frist nach der Rechtsprechung des BGH ebenfalls
nicht zu laufen.

Pflichtteilsstrafklausel

A clause in a joint will providing that a child who claims the compulsory share after the first death is
reduced to the compulsory share again after the second. It is standard in German joint wills and it is designed
to discourage claims against the surviving spouse. It works only where the child stands to receive materially
more by waiting, which in a family whose wealth is largely in the United States it often does not.

Die Pflichtteilsstrafklausel bestimmt, dass ein Abkömmling, der nach dem ersten Erbfall den Pflichtteil
verlangt, auch nach dem Tod des Überlebenden auf den Pflichtteil gesetzt wird. Sie ist in gemeinschaftlichen
Testamenten verbreitet und soll den überlebenden Ehegatten vor Liquiditätsabflüssen schützen. Ihre Wirkung
hängt davon ab, dass das Abwarten für den Abkömmling wirtschaftlich vorteilhafter ist.

Pflichtteilsverzicht

A notarial agreement between the testator and a person entitled to a compulsory share, by which that person
gives up the claim, usually in return for payment. It is the only reliable way to remove a compulsory share in
advance, and it is the standard instrument in a business succession and in second marriages. It is also worth
considering in a German-American family where the wealth is largely illiquid and a compulsory share claim would
force a sale.

Der Pflichtteilsverzicht nach § 2346 Abs. 2 BGB wird zwischen Erblasser und Pflichtteilsberechtigtem notariell
beurkundet und kann gegenständlich oder der Höhe nach beschränkt werden. Die vereinbarte Abfindung unterliegt
nach § 7 Abs. 1 Nr. 5 ErbStG der Schenkungsteuer. Er ist das einzige sichere Mittel, den Pflichtteilsanspruch im
Voraus auszuschließen, und in Unternehmensnachfolgen und Zweitehen die Regelgestaltung.

Portability

The election on a United States federal estate tax return that allows a surviving spouse to use the unused
exclusion of a predeceased spouse, so that a married couple can shelter 30,000,000 dollars in 2026. It must be
elected on a timely filed Form 706 even where no tax is due, and it is lost if the return is not filed.

It is available only where the deceased spouse was a United States citizen or domiciliary, and the unused
exclusion of a non-domiciled spouse is not portable. Germany has no equivalent at all: each acquirer’s allowance
is personal, cannot be transferred and cannot be carried forward, which is why leaving everything to a surviving
spouse is efficient in the United States and wasteful in Germany.

Portfolio interest exemption

Section 871(h) of the Internal Revenue Code exempts most United States source interest paid to a non-resident
individual from the 30 per cent withholding tax, provided the obligation is in registered form and the holder
certifies foreign beneficial ownership. Interest received by a 10 per cent shareholder, contingent interest and
certain related-party interest are excluded.

For a German resident the exemption is largely academic, because Article 11(1) of the income tax treaty
already gives an exclusive taxing right to Germany, so the American withholding is nil in any event. It matters
where the treaty is unavailable, for example where a structure fails the limitation on benefits article, and it
matters in the estate tax context for a different reason: bank deposits and portfolio debt obligations held by a
non-domiciled decedent are outside the United States estate tax base, while American shares are inside it.

Postmortale Vollmacht

A power of attorney expressed to survive the death of the person who gave it, so that the holder can deal
with German banks and other institutions immediately, without waiting for a certificate of inheritance. In a
German estate with heirs in the United States it is often the single most useful document there is, because it
removes the several months the certificate takes. It should be notarially certified, and for land dealings it
must be.

Die über den Tod hinaus wirkende Vollmacht erlischt nach § 672 BGB im Zweifel nicht mit dem Tod des
Vollmachtgebers. Sie ermöglicht dem Bevollmächtigten den sofortigen Zugriff auf Konten und die Abwicklung
laufender Angelegenheiten, ohne dass ein Erbschein abgewartet werden muss. Für Grundbuchgeschäfte ist nach § 29
GBO die öffentliche Beglaubigung erforderlich. Die Erben können die Vollmacht widerrufen.

Powers of attorney

A German Vorsorgevollmacht authorises another person to act in financial and personal matters if capacity is
lost, and avoids the appointment of a court-supervised carer. A Patientenverfügung sets out treatment wishes. An
American durable power of attorney and health care proxy do the same work in the United States, but a German
bank or land registry will usually not act on one, and for land transactions the power must be notarially
certified.

Anyone with assets or family on both sides should hold matching instruments in both jurisdictions, drafted so
that neither revokes the other. The same applies while an estate is being settled: an heir in the United States
will almost always need to give a notarially certified and apostilled power of attorney to someone in Germany,
and obtaining it after the need arises is what turns a three-month step into a nine-month one.

Probate

In the United States the court process by which a will is proved, a personal representative is appointed and
the estate is administered under supervision. In Germany, nothing of the sort exists. Title passes by operation
of law at death; the probate court’s role is limited to opening the will, issuing the certificate of inheritance
and receiving disclaimers.

The consequence for a cross-border estate is that the American process cannot reach the German assets and the
German position cannot satisfy an American institution. Each country’s assets are dealt with under that
country’s procedure, and the coordination is done by the advisers rather than by any court. Avoiding American
probate through a revocable trust, which is standard American planning, does not shorten the German side and can
lengthen it, because Germany does not recognise the trust.

Progressionsvorbehalt

Where Germany exempts foreign income under a treaty, section 32b EStG nevertheless takes that income into
account in fixing the rate applied to the income Germany does tax. The exempt income is not taxed, but it pushes
the rest into a higher band. Rental income from an American property, and salary for work performed in the
United States, are the usual examples, and they are declared on the Anlage AUS or Anlage N-AUS.

It does not apply to American social security received by a German resident, because Article 18(5) gives
Germany the exclusive right to tax that income, so there is nothing for Germany to exempt. It is also worth
noting that the effect runs only one way: the exempt income raises the German rate and can never reduce it below
what German income alone would produce.

Nach § 32b EStG werden nach einem Abkommen steuerfreie Einkünfte bei der Ermittlung des auf das übrige
Einkommen anzuwendenden Steuersatzes berücksichtigt. Erfasst werden insbesondere in den Vereinigten Staaten
belegene Vermietungseinkünfte und dort ausgeübte nichtselbständige Arbeit. Auf US-amerikanische Leistungen der
social security findet der Progressionsvorbehalt nicht statt, weil Deutschland nach Art. 18 Abs. 5 DBA-USA das
ausschließliche Besteuerungsrecht hat und die Einkünfte nicht freistellt.

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Q

Qualified domestic trust (QDOT)

The vehicle through which property may pass to a surviving spouse who is not a United States citizen with the
benefit of the marital deduction. Estate tax is not avoided but deferred: it is charged on distributions of
principal during the spouse’s life and on the balance at the spouse’s death. At least one trustee must be a
United States citizen or domestic corporation, and where the trust holds more than 2,000,000 dollars a bank must
serve as trustee or security must be given.

For a German-American couple there is usually a better answer. Article 10(6) of the estate tax treaty
provides an additional marital deduction of up to the applicable exclusion amount where the domicile and
nationality conditions are met, and taking it requires an irrevocable waiver of the domestic marital deduction,
so the two are alternatives rather than a combination. Germany, for its part, disregards the qualified domestic
trust entirely and may treat its funding as a taxable transfer to a foreign asset-holding vehicle.

Quotenvermächtnis

A legacy expressed as a fraction of the estate rather than as a specific asset or sum. The recipient is still
not an heir and acquires only a money claim against the heirs, but the amount moves with the value of the
estate. It is often the right instrument where a beneficiary abroad should share in the value of German assets
without becoming a co-heir and without having to sign for every step of the administration.

Das Quotenvermächtnis wendet dem Bedachten einen Bruchteil des Nachlasswerts als schuldrechtlichen Anspruch
zu, ohne ihn zum Erben zu machen. Der Bedachte wird nicht Mitglied der Erbengemeinschaft und haftet nicht für
Nachlassverbindlichkeiten. Für im Ausland ansässige Bedachte ist es häufig die praktikablere Gestaltung als eine
Erbeinsetzung, weil Mitwirkungshandlungen bei der Verwaltung entfallen.

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The other parts

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

The firm’s longer treatments of these subjects are collected on the Articles and Guides page, and worked examples on the Case Studies page.