U.S. heir · German assets · inheritance tax
U.S. person inherits from Germany: German inheritance tax and treaty rules
If an heir lives in the United States or is a U.S. citizen and receives property from Germany, German inheritance tax can apply. The heir's U.S. residence alone does not determine the result. Important factors include the decedent's residence, the type of inherited property, German tax liability under Section 2 ErbStG and the separate Germany–U.S. estate-and-gift-tax treaty.
Section 2 ErbStG
A U.S.-resident heir can still be subject to German inheritance tax
The first step is to determine whether unlimited or limited German inheritance tax liability applies.
If the decedent qualified as a German resident within the meaning of Section 2 ErbStG at the time of death, Germany generally taxes the heir's entire acquisition. The fact that the heir lives in the United States does not by itself prevent German taxation.
If neither the decedent nor the heir is subject to unlimited German inheritance tax liability, Germany can still tax certain German-situs property.
Two basic cases
Unlimited and limited German inheritance tax liability
Decedent lived in Germany
If the decedent had a German residence or habitual abode, Germany generally taxes the entire acquisition of the U.S. heir, including German and foreign bank accounts, securities, real estate and business interests.
Decedent and heir live abroad
If no unlimited German tax liability exists, Germany generally taxes only German-situs property as defined in Section 121 BewG. The exact classification of each asset then becomes critical.
German citizens abroad
A German citizen who moved abroad can remain within the German inheritance tax net
Section 2 ErbStG contains an extended rule for German citizens. A German citizen who has moved abroad and no longer maintains a German residence can generally continue to be treated as a German resident for inheritance tax purposes for up to five years after departure.
This domestic five-year rule must be distinguished from the special ten-year rule in Article 4(3) of the Germany–U.S. estate-and-gift-tax treaty. The two provisions serve different purposes and should not be conflated.
Asset types
What property does the U.S. person inherit from Germany?
The German tax result depends heavily on whether unlimited German tax liability exists or Germany can tax only German-situs property.
German real estate
Real property located in Germany is classic German-situs property. Germany can generally tax it even where both the decedent and the heir live in the United States.
German bank account
A German bank account is not automatically German-situs property merely because the bank is located in Germany. Under unlimited tax liability, however, the account is included in the worldwide acquisition.
German brokerage account
Even where the account is maintained by a German broker, the location of the account must be distinguished from the German tax classification of the underlying assets.
Interest in a German GmbH
Certain interests in German corporations can constitute German-situs property. The 10-percent threshold under Section 121 BewG is particularly important.
German business property
German business or permanent-establishment property can remain subject to German inheritance tax even where all relevant persons live abroad.
Foreign assets
If unlimited German tax liability applies, U.S. accounts, U.S. real estate and other foreign assets can also form part of the German taxable acquisition.
A German bank or brokerage account does not automatically create German-situs property
Under limited tax liability, Section 121 BewG determines which assets Germany may tax. The location of the bank, broker or investment account by itself is not enough.
Bank accounts, securities portfolios and corporate interests should therefore be tested individually before assuming that they fall within Germany's limited inheritance tax jurisdiction.
Section 16 ErbStG
German personal allowances generally also apply to a U.S. heir
Where unlimited German inheritance tax liability applies, the personal allowance depends on the family relationship. The heir's residence in the United States does not by itself reduce the allowance.
€500,000
The personal allowance for spouses and registered partners is generally €500,000.
€400,000
Children generally receive a personal allowance of €400,000.
generally €200,000
The allowance for grandchildren is generally €200,000, subject to special rules where the intermediary child has already died.
Limited tax liability
The allowance can be reduced proportionally in a German-situs-only case
For limited German inheritance tax liability, Section 16(2) ErbStG provides for a proportional reduction of the personal allowance. Assets outside Germany's limited taxing jurisdiction can be taken into account in this calculation.
A U.S. heir should therefore not automatically assume that the full €400,000 child allowance is available merely because the German taxable asset is, for example, a single property.
Germany–U.S.
There is a separate treaty for estate, inheritance and gift taxes
Germany and the United States have a separate convention covering estate, inheritance and gift taxes in addition to their income tax treaty. This special treaty must be reviewed in cross-border inheritance cases.
The treaty determines treaty residence, assigns taxing rights for particular classes of property and contains rules designed to prevent double taxation.
- Article 4: treaty residence
- Article 5: immovable property
- Article 6: permanent-establishment property
- Article 8: certain partnership interests
- Article 9: other property
- Article 11: tax credits
- Article 12: estates and trusts
Treaty residence
U.S. citizenship can play a special role under the estate-and-gift-tax treaty
The treaty uses its own residence concept. On the U.S. side, U.S. citizenship can be relevant to treaty residence. This can create dual-residence issues for U.S. citizens who also have a German residence connection.
Article 4 contains tie-breaker rules using factors such as permanent home, center of vital interests, habitual abode and citizenship.
Article 4(3) also contains a special ten-year rule for certain citizens. This should not be confused with Germany's domestic five-year rule under Section 2 ErbStG.
The heir's U.S. status alone generally does not create U.S. estate tax on a German decedent's estate
U.S. federal estate tax generally depends on the status of the decedent and the nature and situs of estate assets — not merely on the fact that the heir is a U.S. citizen or U.S. resident.
A U.S.-citizen child inheriting German property from a parent who was solely German therefore does not, merely because of the child's U.S. citizenship, cause the estate itself to become subject to U.S. estate tax.
U.S. side
The U.S. heir can still have U.S. reporting and future tax issues
At the federal level, an inheritance is generally not treated as ordinary income merely because the recipient inherits property. However, a U.S. heir can have information-reporting obligations and later U.S. tax consequences relating to inherited foreign assets.
Foreign inheritance reporting
Larger inheritances from foreign persons or foreign estates can trigger specific U.S. information-reporting requirements.
Foreign accounts
If German bank or brokerage accounts are inherited and retained, FBAR and potentially other U.S. reporting rules can become relevant.
Future income
Interest, dividends, rental income and later gains from inherited assets can subsequently be subject to ongoing U.S. taxation.
The detailed U.S. tax treatment belongs to the U.S. side of the case and should be analyzed separately. We cover those U.S. issues in greater depth on taxrep.us.
Valuation
German valuation rules apply for German inheritance tax
The taxable acquisition is determined under the German Valuation Act. This remains true even where the heir lives in the United States and different valuations are prepared for U.S. purposes.
Real estate
German real estate is valued under the special German real property valuation rules.
Business interests
Privately held GmbH or other business interests can require a separate valuation under German rules.
Foreign currency
Where assets are denominated in U.S. dollars, relevant values must be translated into euros for German tax purposes.
Estate liabilities
Debts and estate expenses can reduce the German tax base
Deductible estate liabilities under Section 10 ErbStG must be taken into account when calculating the taxable acquisition. These can include debts of the decedent and certain costs directly connected with the inheritance.
In cross-border estates, it must be determined to what extent foreign liabilities can be allocated to property subject to German inheritance tax.
Typical scenarios
U.S. person inherits property from Germany
Child in New York inherits from mother in Munich
The mother was German-resident. Germany generally taxes the child's entire acquisition even though the child lives exclusively in the United States. The child allowance is generally €400,000.
U.S. decedent leaves German real estate to a U.S. child
Neither the decedent nor the heir is German-resident. German real estate is nevertheless German-situs property and can be subject to limited German inheritance tax.
U.S. child inherits a German bank account
If both decedent and heir live in the United States, the account does not automatically constitute German-situs property merely because the bank is located in Germany.
U.S. heir receives 30% of a German GmbH
An interest of this size in a German corporation can constitute German-situs property even where neither party is German-resident. Valuation and possible business-property relief should also be reviewed.
German father moved to Florida two years ago
If the father is a German citizen and left Germany only two years before death, Germany's domestic five-year rule can still treat him as a German resident for inheritance tax purposes. Germany can then generally tax the worldwide acquisition.
U.S. citizen with prior German residence
Where dual residence is possible, Article 4 of the estate-and-gift-tax treaty must also be reviewed. Domestic tax liability alone does not determine the treaty result.
Process
How the cross-border inheritance should be analyzed
Persons
Determine residence, citizenship and migration history of the decedent and heir.
Assets
Identify all assets and liabilities by jurisdiction and asset class.
Germany & treaty
Analyze Section 2 ErbStG, German-situs property, treaty residence and asset allocation.
U.S. coordination
Review U.S. estate tax, reporting, foreign accounts and future U.S. taxation separately.
Documentation
Documents typically required
Decedent
Death certificate, final residence, citizenship, date of departure and prior German residence where relevant.
Heir
Residence, citizenship and family relationship to the decedent.
Estate
Complete inventory including bank accounts, securities, real estate, business interests and other assets.
Liabilities
Loans, mortgages, unpaid taxes and other estate debts.
Succession documents
Will, inheritance agreement, German certificate of inheritance or U.S. probate documents where available.
Valuation records
Real estate values, company records, bank statements and brokerage balances as of the date of death.
Common mistakes
Issues frequently overlooked by U.S. heirs
“The heir lives in the U.S., so there is no German tax”
The decedent's German residence alone can be sufficient to bring the entire acquisition into the German inheritance tax base.
Treating every German account as German-situs property
For limited tax liability, Section 121 BewG determines which assets Germany may actually tax.
Automatically using the full allowance
For limited tax liability, Section 16(2) ErbStG can reduce the personal allowance proportionally.
Confusing the heir's U.S. citizenship with U.S. estate tax
U.S. estate tax generally depends on the decedent and the relevant property, not simply on the heir's citizenship.
Using the income tax treaty
Estate, inheritance and gift taxes are covered by a separate Germany–U.S. treaty.
Looking only at the tax bill
The U.S. heir can also face U.S. information reporting for a foreign inheritance and inherited foreign accounts.
Further guidance
Related topics
Frequently asked questions
U.S. person inherits from Germany
Does a U.S.-resident heir have to pay German inheritance tax?
Does it matter that the heir is a U.S. citizen?
Does a U.S.-resident child get the German €400,000 allowance?
Is German real estate always taxable in Germany?
Is a German bank account automatically German-situs property?
Does the inheritance become subject to U.S. estate tax merely because the heir is a U.S. citizen?
Is there a Germany–U.S. treaty for inheritance tax?
How is double taxation relieved?
Can the U.S. heir have U.S. reporting obligations?
Germany–U.S. tax advice
Do you live in the United States and inherit property from Germany?
We review German inheritance tax liability, personal allowances, German-situs property, real estate and business interests, treaty residence and asset allocation under the Germany–U.S. estate-and-gift-tax treaty. Where needed, we coordinate the German analysis with U.S. reporting and follow-on tax issues.
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