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Distribution of the inheritance in a community of heirs

Many families have been broken up by a community of heirs. This arises automatically if there are several heirs and no provisions have been made in the will. However, the heirs can dissolve the community at any time and distribute the assets. However, there are special features to consider, which the Federal Fiscal Court recently had to deal with in its ruling of May 15, 2024 (II R 12/21).

In the case in question, the parents had died shortly after each other and left their two children, two brothers, the family home that they used themselves, among other things. The brothers had agreed in advance that one of them would move into their parents' property. The period between the inheritance and the final distribution of the inheritance was three years.

Family homes and assets can be valued differently for tax purposes.

The transfer of the family home to a child is exempt from inheritance tax in the event of death, provided the child moves in immediately. However, as both children had inherited the family home in the case in question, but only one of them would be living there, the question arose as to the amount of the tax exemption. The Inheritance Tax Act provides for a special feature in that a so-called preferential transfer is possible. This is the case if one heir receives the family home as part of the division of the estate and the other receives a corresponding amount of other assets from the estate in return. In this case, the person who takes over the family home receives the full tax exemption and the beneficiary of the other heir is transferred to them.

However, the tax office rejected the transfer of benefits as the division of the estate between the siblings did not take place within six months and only one of the brothers met the requirements for tax exemption. The Federal Fiscal Court does not share this view. In its opinion, there is no deadline for the division of the estate, nor does it consider it necessary for the other brother to actually want to use the family home in order for the preferential transfer to take place.

 

However, in order to ensure family peace, it is advisable to allocate assets individually to the heirs in advance by means of a will, so that no community of heirs is created in the first place.