Berlin will: Avoid tax disadvantages with ‘directed disclaimer’?

The Berlin will is popular among married couples for jointly settling their estate. However, this type of will has tax disadvantages for children that are difficult to ‘correct’ after the death of one spouse. One way to avoid tax disadvantages for children after the death of a spouse is to make a directed disclaimer.

The Berlin will: tax disadvantages for children

Spouses can jointly arrange their estate in a will (‘joint will’).

In a Berlin will, spouses appoint each other as sole heirs. Children do not inherit anything upon the death of the first parent, but only when the second parent dies. This provides financial security for the surviving spouse. However, this arrangement also means that children cannot benefit from the inheritance tax allowance in relation to the parent who died first, because this inheritance is excluded by the will. Since the assets of both parents are ‘pooled’ with the last surviving parent, the children may also face a higher tax burden in the second inheritance if the combined assets of both parents exceed certain thresholds for the tax rate.

Amending your will in old age

For families with children, the Berlin will – at least in a modified form – is often a suitable solution.

However, in old age, it may be advisable to adapt the joint will during your lifetime to changed circumstances so that the children receive something in addition to the spouse or only the children inherit (Sylter will).

However, such an adjustment must be made during the lifetime of both spouses. This is because, in any case, the Berlin will cannot be changed after the death of one partner unless a reservation of the right to make changes is included in the will.

Tip! You can find out more about the tax aspects of joint wills in our article ‘Berlin wills vs. Sylt wills: strategies for tax-free asset transfers’.

After the death of a partner: Controlling disclaimer ‘saves’ tax advantages

However, there are ways to ‘save’ tax benefits for children even if a Berlin will exists and one partner has already passed away: One option is for the surviving spouse to renounce the inheritance.

But beware! A renunciation can only be made within six weeks of becoming aware of the inheritance and the reason for being appointed as an heir. If renunciation is an option, legal advice should be sought immediately after the death.

But what are the consequences of renouncing inheritance?

The spouse who would have become an heir under the Berlin will does not become a testamentary heir. By renouncing the inheritance in favour of others, he or she waives his or her right to inherit.

With a directed disclaimer, the estate is therefore ‘diverted’ to other persons as heirs, and the surviving spouse thus intervenes in the succession. The persons who become heirs – usually the children – can then claim the statutory allowances for inheritance tax.

Who takes the place of the spouse?

However, in such cases of disinheritance, it is often unclear who will inherit from the spouse who died first. It must be determined by interpretation whether the will contains a substitute heir clause.

However, many Berlin wills do not contain any provisions on what should happen if the surviving spouse renounces the inheritance – i.e. who should directly replace the spouse as heir(s).

If a substitute heir or substitute heirs are named in a Berlin will, these persons take the place of the disinheriting spouse.

If no substitute heir has been designated, some legal literature assumes that, in the absence of a substitute heir, statutory succession applies, according to which the spouse (only decisive for testamentary succession) would become a co-heir alongside all children.

However, several higher courts have (rightly) rejected this legal opinion:

Both the Higher Regional Court of Düsseldorf (OLG Düsseldorf, decision of 17 July 2023, ref.: 3 Wx 91/23) and the Higher Regional Court of Brandenburg (OLG Brandenburg, decision of 14 February 2023, ref.: 3 W 60/22) are of the opinion that the appointment of the children as final heirs is also to be regarded as a tacit appointment of substitute heirs if the longer-living spouse renounces the inheritance. Thus, the will continues to regulate the succession conclusively; there is no room for statutory succession. The consequence is that only the final heirs appointed in the will (usually the children) become the heirs of the first parent to die.

However, interpreting a will is always a matter of individual cases, so the specific consequences of renouncing an inheritance must be examined in advance.

Will the spouse who made the decisive decision come away empty-handed?

In the event of an effective renunciation, the renouncing spouse will therefore receive nothing. For financial security, it may be advisable for the spouse to agree contractually with the children on a settlement to be paid by them before declaring the renunciation.

Conclusion

In its classic form, the Berlin will often has tax disadvantages for the children.

Once the first person has died, it is often not possible to amend a Berlin will because there is no provision for amendment.

With a directed disclaimer, the surviving spouse can ensure that the children become heirs in the first instance of inheritance and can make use of their inheritance tax allowance.

However, the surviving spouse generally loses all rights to the estate. A directed renunciation therefore only makes sense – especially for the parent generation – if the renouncing spouse has sufficient assets of their own or receives adequate compensation.

The main difficulty usually lies in the fact that the period between the death and the end of the six-week renunciation period is very short and cannot be extended.

A renunciation should always be made after seeking legal advice on the consequences. In any case, it is preferable for both spouses to optimise the will for tax purposes during their lifetime, taking into account the interests of the longer-living spouse.