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Domestic estate assets and a foreign executor
With increasing age, people are drawn to the warmer and sunnier south to escape the "tatty weather" of northern Germany. If the place of residence is moved abroad and there are still assets in Germany at banks and savings banks (“Bank”), e.g. accounts and deposits, the following must be taken into account for the inheritance regulation:
Provided, an executor has been appointed in a will or a notarial inheritance contract for the settlement of the estate, care must be taken to ensure that the executor appointed by the testator is a natural person or a legal entity with its (residential) seat in Germany This will help to avoid complications and delays in taking possession of the estate’s assets by the executor.. The appointment of a foreign executor may be obvious for the testator (now) residing abroad due to his new social contacts over there. Nevertheless, an executor resident in Germany should be preferred for the settlement of the estate. This is because, in the case of a foreign executor,
- the executor would have to legitimise himself vis-à-vis the domestic bank or savings bank with a certificate of executorship possibly issued under foreign law;
- the certificate of executorship under foreign law may contain different or limited powers compared to a certificate of executorship under German law and in this respect it may be necessary to apply for a foreign law certificate of executorship at the competent German court;
- the Bank is liable for any inheritance tax debts in Germany to the extent of the amount of the estate assets paid out abroad to the foreign executor pursuant to section 20 para 6, 2nd sentence of the German Inheritance Tax Regulations (“Erbschaftsteuergesetz”). Therefore, the Bank may demand from the foreign executor, as a precondition before releasing the estate’s assets, to submit to the Bank a tax clearance certificate issued by the German Tax Authorities. .
It is obvious that discussions with Banks about the acceptance of the executor's certificate issued under foreign law and the procurement of a tax clearance certificate from the German Tax Authorities can take a lot of time, during which the existing estate assets remain beyond the access of the executor and a distribution to the heirs. Especially, in the case of assets held in custody, this loss of time can lead to considerable asset losses, e.g. due to falling securities or foreign exchange rates. This would be even more unfortunate as the estate assets are subject to inheritance tax at the valuation at the time of the inheritance. If, until the payment of the estate assets to the executor, price losses have occurred on securities or foreign exchange belonging to the domestic estate assets, a potentially painful financial gap may arise for the heirs.
Provided, the testator resident abroad appoints a domestic executor, the delays described could probably be avoided as in case of a pay out of domestic estate assets to a domestic executor the aforementioned liability of the releasing Bank does not apply by law. The release and disbursement of the domestic estate assets to the executor could therefore be carried out much more quickly, which in turn helps to avoid exchange rate losses and thus losses for the estate assets.