Move to the U.S. · inheritance tax · estate planning
Moving from Germany to the U.S.: what happens to German inheritance tax?
Moving from Germany to the United States does not automatically end German inheritance and gift tax exposure. German citizens can generally continue to qualify as German residents for inheritance and gift tax purposes for up to five years after leaving Germany. At the same time, moving one's permanent home to the U.S. can create exposure to the U.S. federal estate and gift tax system. The separate Germany–U.S. estate-and-gift-tax treaty adds its own residence rules, including a special ten-year provision.
Section 2 ErbStG
German citizens generally remain within the German inheritance tax system for five years after departure
Under Section 2(1) No. 1(b) ErbStG, a German citizen can continue to qualify as a German resident for inheritance and gift tax purposes while he or she has not been permanently abroad for more than five years and no longer maintains a residence in Germany.
If a German citizen dies within this period after moving to the United States, Germany can therefore generally continue to tax the worldwide estate.
The same principle can apply to gifts made while this extended German residence status remains in effect.
Three phases
The move should be analyzed across several time periods
German residence
As long as a German residence or habitual abode exists, the normal unlimited German inheritance and gift tax rules apply.
Extended German residence
German citizens can generally remain German residents for inheritance and gift tax purposes for up to five years after giving up the German residence.
Limited tax liability
After unlimited German tax liability ends, Germany can still tax certain German-situs assets under Section 121 BewG.
Keeping a German residence can override the five-year question
The five-year rule is primarily relevant where the German residence has actually been given up. If an apartment or house remains available for the taxpayer's use in Germany, a German tax residence can continue to exist independently of the five-year extension.
A move to the U.S. should therefore not be analyzed solely by reference to municipal deregistration. The actual availability and use of German accommodation must be reviewed under tax residence principles.
After five years
Germany can still tax German-situs property
Expiration of the five-year period does not mean that Germany necessarily drops out of a later inheritance altogether.
If unlimited German tax liability no longer applies, limited inheritance tax liability can remain under Section 2(1) No. 3 ErbStG for German-situs property within the meaning of Section 121 BewG.
German real estate
Real estate located in Germany generally remains within the German inheritance tax net.
German business assets
Certain German business and permanent-establishment assets can continue to qualify as German-situs property.
Certain GmbH interests
Interests in German corporations can also constitute German-situs property if the statutory requirements are met.
Germany–U.S. Estate & Gift Tax Treaty
The German five-year rule and the treaty ten-year rule are two different concepts
Germany and the United States have a separate treaty governing estate, inheritance and gift taxes.
The treaty uses its own residence concept and includes a special rule in Article 4(3) for certain citizens who have moved to the other contracting state within a period of up to ten years.
- Section 2 ErbStG: German domestic tax liability
- Article 4 Treaty: separate treaty residence
- Article 4(3): special ten-year rule
- Articles 5–9: allocation by asset class
- Article 11: tax-credit relief
- domestic law and treaty law must be tested separately
Article 4 Treaty
A move to the U.S. does not necessarily shift treaty residence immediately in every case
For treaty purposes, the first step is to determine whether the individual is considered resident in one or both contracting states.
If dual residence exists, Article 4 applies criteria such as permanent home, center of vital interests, habitual abode and citizenship.
For certain individuals who are citizens exclusively of one contracting state, Article 4(3) provides an additional special ten-year rule. This can be particularly important in the first years following a move from Germany to the United States.
Five years under German law ≠ ten years under the treaty
The German five-year rule determines whether a German citizen continues to qualify as a German resident under domestic inheritance and gift tax law.
The treaty's special ten-year rule addresses a separate treaty-residence issue and can affect which contracting state is treated as the relevant residence state for treaty purposes. One rule does not replace the other.
U.S. Estate & Gift Tax
The move can simultaneously bring the U.S. estate tax system into play
For a person who is not a U.S. citizen, U.S. federal estate tax generally places significant weight on the concept of domicile. This is not the same as U.S. income tax residency.
A person who moves his or her permanent home to the United States and lives there with the relevant intention to remain can become U.S.-domiciled for estate and gift tax purposes.
Once U.S. domicile exists, the U.S. estate tax system can generally reach the worldwide estate, including assets that continue to be held in Germany.
Tax residency
The green card test and substantial presence test primarily determine U.S. income tax residency.
Domicile
For estate tax, actual residence and the intention regarding permanence are central.
Worldwide estate
Once U.S. domicile exists, the worldwide estate can generally fall within U.S. federal estate tax jurisdiction.
A green card and U.S. estate-tax domicile are not the same thing
Obtaining a green card is highly relevant to tax planning but does not, by itself, conclusively determine estate-tax domicile.
Conversely, U.S. domicile can arise without a green card depending on the actual facts and circumstances. For substantial estates, domicile should be analyzed and documented separately rather than inferred merely from the income tax return.
Assets after the move
The composition of the estate determines the future double-tax analysis
German real estate
German real property remains especially relevant to German inheritance tax even after a long-term move and falls under Article 5 of the treaty.
U.S. real estate
U.S. real property has a strong situs connection on the U.S. side and is also covered by the treaty's real-estate rule.
Brokerage & bank assets
Financial assets must be separated from real estate and business property and analyzed under the applicable treaty allocation rules.
GmbH & U.S. companies
Business interests can fall under different treaty rules depending on entity type, ownership percentage and structure.
IRA & 401(k)
For retirement assets, inheritance tax and later income taxation of distributions must be analyzed separately.
U.S. trust
Trust structures can create additional German inheritance, gift and income tax issues.
Article 11 Treaty
Where both countries tax, the treaty often uses a tax-credit mechanism
A move to the United States can create a period during which both countries have broad taxing claims over the same estate.
The treaty coordinates this overlap through specific credit provisions in Article 11. Which tax is credited depends particularly on the decedent's treaty residence and the relevant asset class.
For a mixed estate containing German real estate, U.S. real estate, securities and company interests, an asset-by-asset analysis is therefore required.
Gifts after departure
Lifetime transfers also need to be timed carefully
The departure rules do not apply only to a later death. Gifts made during the German five-year period can continue to fall within unlimited German gift tax liability.
At the same time, the U.S. gift tax system can become relevant once U.S. domicile has been established.
The timing of a major gift immediately before or after the move can therefore materially affect tax liability, treaty classification and filing obligations.
Gift before the move
Germany generally has a clear unlimited gift tax connection. The U.S. side depends on the donor's status at that time and on the asset transferred.
Gift after the move
The German five-year rule, U.S. domicile and treaty residence must be considered together.
Personal allowances
Moving abroad does not eliminate German allowances — but later tax exposure can change
As long as unlimited German inheritance or gift tax liability exists, the normal German personal allowances generally apply.
€500,000
The personal allowance for a spouse is generally €500,000.
€400,000
Children generally have a €400,000 allowance in relation to each parent.
Ten-year aggregation
Multiple acquisitions from the same person within ten years are aggregated for German inheritance and gift tax purposes.
Limited tax liability
After the German five-year period, personal allowances can operate differently
If unlimited German tax liability has ended and only limited tax liability remains for German-situs assets, Section 16(2) ErbStG becomes particularly relevant.
The personal allowance can be reduced proportionally where the transfer includes both German-taxable property and substantial foreign assets outside the German tax base.
Pre-immigration planning
Inheritance and gift tax should be considered before the move to the U.S.
For individuals with substantial assets, the period before departure is often the best opportunity to analyze the future Germany–U.S. estate structure.
Determine residence
Establish when the German residence actually ends and which German ties will remain.
Inventory the assets
Map real estate, brokerage accounts, companies, retirement assets and trusts by country and ownership structure.
Model the timing
Compare an inheritance or gift before departure, during the first five years and after that period.
Coordinate treaty & U.S.
Model U.S. domicile, treaty residence, estate tax and German inheritance tax together.
Examples
Typical inheritance tax cases after a move to the United States
German citizen moves to Florida and dies two years later
If the German residence was fully given up, the individual can nevertheless continue to qualify as a German resident under Section 2 ErbStG because of German citizenship. Germany can therefore generally tax the worldwide estate.
German citizen moves permanently to Texas but keeps an apartment in Munich
If the Munich apartment remains available as a tax residence, unlimited German inheritance tax liability can continue for that reason alone. The five-year rule is then not the only relevant connecting factor.
German citizen has lived exclusively in the U.S. for seven years
The general five-year extended German residence rule has normally expired. German-situs property such as German real estate can nevertheless remain subject to limited German inheritance tax.
U.S. domicile arises shortly after the move
The U.S. can then generally begin to consider the worldwide estate, while Germany may still tax worldwide assets during its five-year period. The treaty becomes particularly important.
Gift to a child three years after departure
For a German citizen, Germany can continue to tax the worldwide gift because of the extended German residence rule. The U.S. gift tax side must be reviewed in parallel.
German citizen dies nine years after moving
Even if the domestic German five-year rule no longer applies, German-situs property and the treaty's separate residence and allocation rules can remain relevant.
Special cases
Other German departure rules may also need to be reviewed
In unusual cases, the German Foreign Tax Act can become relevant in addition to Section 2 ErbStG. This may be the case in particular where an individual moves to a low-tax jurisdiction while retaining substantial economic interests in Germany.
For an ordinary move to the United States, this is not automatically the central issue. However, unusually low personal taxation or special asset structures can justify a separate review.
Documentation
Documents that matter for departure and estate planning
Departure date
Deregistration, U.S. entry date, start of U.S. residence and termination of the German residence.
Residence
Rental and ownership arrangements in Germany and the U.S., together with actual use.
Citizenship
German citizenship and any additional citizenships.
U.S. status
Visa, green card, length of stay and facts relevant to potential U.S. domicile.
Asset overview
Worldwide real estate, accounts, brokerage assets, companies, retirement plans and trust structures.
Prior gifts
Gifts made during the previous ten years, including date, recipient and value.
Common mistakes
Issues frequently overlooked when moving from Germany to the U.S.
“I deregistered, so German inheritance tax no longer applies”
German citizens can generally remain German residents for inheritance and gift tax purposes for up to five years after leaving Germany.
Keeping an apartment in Germany
If a German tax residence remains, ordinary unlimited German inheritance tax liability can continue.
Mixing up the five- and ten-year rules
The five-year rule under Section 2 ErbStG and the treaty's special ten-year rule serve different functions.
Treating U.S. income tax residency as estate-tax domicile
The U.S. residence concepts are not identical.
Assuming Germany disappears after five years
German-situs property can continue to be subject to limited German inheritance tax.
Starting estate planning only after death
Many cross-border structuring and gifting issues are easier to address before the move to the United States.
Further guidance
Related topics
Frequently asked questions
Moving from Germany to the U.S. and inheritance tax
Does German inheritance tax exposure end when I move to the United States?
What is the German five-year rule?
What happens after the five years expire?
Why is there also a ten-year rule?
Can Germany tax the entire estate after the move?
When does the U.S. begin taxing the worldwide estate?
Does a green card automatically create U.S. estate tax on worldwide assets?
What happens to German real estate after the move?
What about gifts shortly after the move?
When should estate planning be carried out?
Germany–U.S. tax advice
Are you moving from Germany to the United States and want to plan your estate?
We review the German five-year rule, continuing German residences and German-situs assets, treaty residence under Article 4, potential U.S. estate-tax domicile, and the consequences for real estate, brokerage accounts, business interests, retirement assets and trusts. This allows inheritance and gift scenarios before and after the move to be compared on a coordinated Germany–U.S. basis.
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