Trust · German inheritance tax · Gift tax · Section 15 AStG
U.S. trusts and German inheritance tax
U.S. trusts do not fit neatly into the German tax system. For German inheritance and gift tax purposes, it must be determined separately whether assets were effectively transferred to the trust, what rights the settlor and beneficiaries hold, whether distributions constitute taxable gifts and when property passes to a beneficiary upon termination of the trust. In addition, Section 15 AStG can create ongoing German attribution taxation during the life of the trust.
German classification
The word “trust” does not answer the German tax question
A trust is an institution of common-law systems. German civil and tax law does not contain a directly equivalent legal form. The specific structure must therefore be analyzed based on the trust agreement and the applicable foreign law.
Important questions include whether the trust assets have genuinely and permanently been separated from the settlor, which powers the trustee holds and whether beneficiaries already have fixed or enforceable rights to trust property or income.
The U.S. classification as revocable or irrevocable and as a grantor or non-grantor trust is factually important, but it does not automatically determine the German tax treatment.
Four tax phases
A U.S. trust must be analyzed over its entire life cycle
Creation & funding
Were the assets permanently removed from the settlor's control?
Ongoing taxation
Is trust income attributed to German taxpayers under Section 15 AStG?
Distributions
Does a payment to a beneficiary trigger German gift tax?
Termination
When and to whom does the legally bound trust property actually pass?
Creation & transfer of assets
Funding a trust can trigger German gift tax
Section 7(1) No. 8 ErbStG can apply to transfers of assets to certain foreign pools of assets or similar structures. For a U.S. trust, the first question is therefore whether the trust property has genuinely become legally and economically independent from the settlor.
If the settlor retains such extensive powers of control that the trustee cannot in substance dispose freely of the assets vis-à-vis the settlor, the property can continue to be attributed to the settlor.
Effective separation
The more permanently the property is removed from the settlor's control, the more likely the trust is to be treated as a separate pool of assets.
Broad withdrawal rights
If the settlor can revoke the trust at any time or effectively reclaim the assets freely, this weighs against a final separation of the trust property.
Other retained powers
Even without a formal revocation right, broad powers to direct, substitute assets or withdraw property can affect the German analysis.
Extensive control by the settlor can mean that the trust assets remain attributable to the settlor
The German Federal Fiscal Court held that assets of a foreign pool of assets can remain attributable to the founder where the founder retains such extensive powers of control that the structure cannot actually and freely dispose of the assets vis-à-vis the founder.
Section 7(1) No. 9 ErbStG
Trust distributions can independently trigger German gift tax
If a person receives property or income from a foreign trust while the trust continues to exist, Section 7(1) No. 9 sentence 2 ErbStG can apply. The provision treats acquisitions by certain intermediate beneficiaries of a foreign pool of assets as taxable gifts.
German case law has developed this area in several decisions. The result does not depend solely on whether a payment economically comes from original trust principal or from current trust income.
Distributions from a U.S. trust to an intermediate beneficiary
The BFH confirmed that distributions from a U.S. trust to an intermediate beneficiary can be subject to German gift tax. The taxable amount was not limited to original trust principal and could also include distributed income generated by the trust assets.
Principal distribution
A distribution of part of the legally bound trust principal can constitute an acquisition under Section 7(1) No. 9 ErbStG.
Income distribution
A distribution of current or accumulated trust income can also be relevant for German gift tax.
Intermediate beneficiary
Not every possible beneficiary is automatically an intermediate beneficiary
The BFH refined its earlier case law in 2021. In particular, a person can qualify as an intermediate beneficiary where that person has proprietary rights or contractual claims to trust property or income independently of a specific distribution decision.
With a purely discretionary trust, it can therefore be decisive whether the beneficiary has any independent enforceable claim against the trustee or trust property or merely belongs to a class of persons whom the trustee may choose to benefit.
Enforceable right
A legally enforceable right to trust property or income strongly points toward intermediate-beneficiary status.
Possible benefit only
Merely belonging to a class of possible discretionary beneficiaries does not necessarily suffice.
U.S. trust law matters
Whether an independent legal right exists must be determined under the trust agreement and the applicable U.S. law.
The beneficiary's legal position must be determined under foreign law
The BFH described an intermediate beneficiary as a person who has proprietary rights or contractual claims to the property or income of the foreign pool of assets independently of a particular distribution resolution. The relevant foreign law must actually be established.
Termination & remainder
On termination, the timing of the actual transfer is crucial
If a trust terminates or reaches an end date provided for in the trust agreement, the remaining property can pass to a remainderman or other final beneficiary.
For German inheritance or gift tax, the relevant question is when the beneficiary actually obtains a legally protected property position under the applicable foreign law. A mere expectation of receiving trust property in the future does not necessarily constitute the taxable acquisition.
Section 15 AStG
German attribution taxation can arise in addition to inheritance and gift tax
The trust analysis does not end with inheritance and gift tax. Foreign family foundations and comparable foreign pools of assets can fall within Section 15 AStG. This can include foreign trusts.
Trust income can then, under certain conditions, be attributed to German-resident founders or persons entitled to distributions or remainder interests even where the trust itself earns the income and makes no distribution.
- ongoing trust income
- German tax residence of settlor or beneficiary
- trust as a comparable foreign pool of assets
- attribution can arise without an actual distribution
- separate analysis from inheritance and gift tax
Current law
Section 15 AStG already exists under current German law
German attribution taxation for foreign family foundations is not a new concept. Section 15 AStG already contains rules under current law for attributing income of foreign family foundations and comparable foreign pools of assets.
A U.S. trust can therefore already require an analysis of whether trust income must be attributed on an ongoing basis to a German-resident settlor, beneficiary or other qualifying person.
Settlor
Depending on the structure, the founder's position can be relevant for ongoing attribution of income.
Beneficiary
Persons entitled to distributions or remainder interests can potentially fall within the personal scope of the rules.
Underlying companies
Where the trust holds controlled foreign companies, Germany's CFC rules can also become relevant.
Proposed reform of Section 15 AStG: still distinguish draft from current law
On November 18, 2025, the German Federal Ministry of Finance published a draft for a comprehensive revision of the attribution-taxation rules for foreign family foundations under Section 15 AStG. The proposal also concerns comparable foreign pools of assets and is therefore particularly relevant to U.S. trust structures.
As long as proposed amendments have not entered into force, current Section 15 AStG and the proposed reform must be analyzed separately.
2025 BMF draft
Proposed changes particularly relevant to U.S. trusts
Relief mechanism for U.S. structures
The proposal would expand the relief mechanism beyond the existing framework and is particularly relevant to third-country structures such as U.S. trusts.
Redefined relevant persons
The relevant family and beneficiary group would be restructured and could include indirect distribution and remainder rights.
Controlled underlying companies
Where a foundation or comparable pool of assets controls foreign companies, the general German CFC rules would become more closely integrated into the Section 15 framework.
Multi-layer structures
Multi-level foreign foundation and comparable asset-pool structures would be addressed more expressly.
Correction for later distributions
The draft provides for a specific correction mechanism for income already attributed, aimed at preventing later distributions from being taxed again in full.
Availability of tax information
Relief under the proposed rules can depend, among other factors, on whether sufficient tax information is available from the foreign jurisdiction.
Article 12 Treaty
The estate-and-gift-tax treaty contains a special rule for trusts
The separate Germany–U.S. convention covering estate, inheritance and gift taxes contains a specific provision for estates and trusts in Article 12.
The provision should be reviewed in particular where property does not pass directly from the decedent to the German beneficiary but instead remains, temporarily or permanently, within a trust or estate.
Article 12 does not replace the prior German classification of the trust or the beneficiary's legal position.
BFH case law
Four central questions from German trust case law
Has the property genuinely been separated from the settlor?
Where the settlor retains extensive control, the trust assets can continue to be attributed to the settlor.
Are distributions subject to gift tax?
Distributions from a U.S. trust to intermediate beneficiaries can be subject to German gift tax, including distributions economically derived from trust income.
Who is an intermediate beneficiary?
The key issue is whether the person has independent proprietary rights or contractual claims to trust property or income.
What does the applicable U.S. law provide?
The beneficiary's rights and the legal binding of the assets cannot be determined solely using German concepts. The relevant foreign law must be established.
Practical analysis
The trust agreement is the central document
A reliable German trust analysis generally cannot be performed without the complete trust documentation. In addition to the original trust agreement, amendments, restatements, letters of wishes, powers of appointment and trustee resolutions can be decisive.
Settlor Rights
Revocation, withdrawal rights, substitution of assets, trustee replacement and other retained powers.
Beneficiary Rights
Fixed payment rights, discretionary distributions, withdrawal rights and remainder interests.
Trustee Powers
The extent of the trustee's independent discretion and any restrictions imposed by the settlor or a protector.
Typical scenarios
U.S. trusts with a German tax connection
U.S. grandmother leaves a trust for a grandchild in Germany
The analysis includes the grandchild's legal position, the timing of any taxable acquisition, later distributions and possible ongoing attribution under Section 15 AStG.
U.S. citizen moves to Germany with an existing trust
The previous U.S. grantor-trust treatment is not sufficient. Germany must independently analyze asset ownership, income taxation and Section 15 AStG.
German beneficiary receives annual distributions
In addition to German income tax, Section 7(1) No. 9 ErbStG can trigger gift tax. Prior Section 15 AStG income attribution must be reviewed separately.
Trust terminates and property passes to a German remainderman
The taxable acquisition date depends on when the beneficiary actually obtains a legally protected position under the applicable trust law.
Documentation
Documents required for a German trust analysis
Trust Agreement
Complete trust agreement, including all amendments and restatements.
Settlor & Beneficiaries
Identity, residence, citizenship and family relationships of the relevant persons.
Asset History
Contributions, development of the trust assets and significant transactions since creation.
Distribution History
All distributions to German and other beneficiaries, including dates and amounts.
U.S. Tax Returns
Form 1041, grantor statements and other U.S. trust or beneficiary tax documents where available.
Legal Opinion
For difficult structures, an opinion on the relevant U.S. trust law can be necessary.
Common mistakes
Issues frequently misclassified with U.S. trusts in Germany
Adopting U.S. grantor-trust status
The U.S. income-tax classification does not automatically determine German ownership or income attribution.
Treating the beneficiary as the owner
A possible beneficiary is not automatically the owner of trust property.
Reviewing distributions only for income tax
Trust payments can also trigger German gift tax under Section 7(1) No. 9 ErbStG.
Ignoring Section 15 AStG
Trust income can potentially be attributed in Germany even where no distribution is made.
Failing to establish foreign law
The beneficiary's legal position can only be determined based on the trust agreement and the applicable U.S. law.
Treating the BMF draft as current law
The 2025 proposed revision of Section 15 AStG must be distinguished from current law unless and until changes enter into force.
Further guidance
Related topics
Frequently asked questions
U.S. trusts and German inheritance tax
Is a U.S. trust automatically subject to German inheritance tax?
Is a revocable trust attributed to the settlor for German purposes?
Are distributions from a U.S. trust subject to German gift tax?
Does this also apply to distributions of trust income?
Is every beneficiary an intermediate beneficiary?
What does Section 15 AStG mean for a U.S. trust?
Is the proposed revision of Section 15 AStG already current law?
Does U.S. grantor-trust classification determine the German tax result?
What role does the Germany–U.S. treaty play?
Germany–U.S. tax advice
Are you a settlor or beneficiary of a U.S. trust with a German tax connection?
We review the German classification of the trust, inheritance and gift tax on funding and distributions, the legal position of beneficiaries, Article 12 of the Germany–U.S. estate-and-gift-tax treaty and potential ongoing attribution taxation under Section 15 AStG.
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