Which countries' inheritance laws apply?

Question

My mother, a German national with a green card passed away recently. Her husband (my dad) of 59 years is an American citizen (born in US). My mother spent the majority of her adult years in the United States. She kept a bank account in Germany. The German cousin who has access to the bank in Germany has informed us that German law requires that 50% goes to the surviving spouse and the other 50% is divided amongst the surviving children. None of my siblings or I would contest it, in any way, if all the funds went to my father. But my father, good man that he is, wants to follow the applicable laws.

The questions are: which laws are applicable? U.S. laws? German laws? Some mix thereof? My mother did not leave a will; the U.S. based assets are in a trust. What kind of an attorney should we seek out to make sure that things are done in accordance with the relevant laws? What questions should we be asking of such an attorney? The total value of the funds in the German bank account are not so large that attorneys are clamoring for the business. :-)

Answer 1

German law applies

As your mother was a German national, German law applies to all her property worldwide.

US state law applies

As your mother was a permanent resident of a US state, its law applies.

Conflict of Laws

It is unlikely (read impossible) that you will be able to comply with both laws simultaneously. You, therefore, have a conflict of laws problem that can only be resolved by the courts.

In most cases where this particular conflict occurs, the local courts will accept that they have jurisdiction, and will also accept the court of nationality's determination that the applicable law is that where the property is - i.e., they will ‘accept the renvoi', and apply their own law to the inheritance of the property.

You will need to apply to the German court who will probably decide that the US portion be dealt with using US state law and the German portion be dealt with using German law. You then need to take that decision to your state court who will probably acquiesce. Probably.

Fortunately, as the US and Germany have a tax treaty, you will only need to pay inheritance tax once.

Answer 2

It is complicated. The US (state) law and the German law both have rules on conflict of laws. I can only deal with the German part:

The deciding law is the Regulation (EU) No 650/2012 for the applicable law in matters of succession. The deceased did not choose a law. Art. 21 § 1 says:

Unless otherwise provided for in this Regulation, the law applicable to the succession as a whole shall be the law of the State in which the deceased had his habitual residence at the time of death.

So the succession is ruled according to the law of the US. As the inheritance law differs between the states in the US, Art. 36 § 1 is relevant:

Where the law specified by this Regulation is that of a State which comprises several territorial units each of which has its own rules of law in respect of succession, the internal conflict-of-laws rules of that State shall determine the relevant territorial unit whose rules of law are to apply.

I suspect this will lead to the law of the state the deceased lived.

So probably the law of the US state is applicable. This has its own conflict of laws regulations. If it relegates to the German law, the German law accepts this (renvoi, Art. 34) and is applicable.

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This stands only for the law of succession. In German family law 25% of the inheritance of a spouse (without marriage settlement) passes over as an aspect of the matrimonial property regime (Zugewinnausgleich, § 1371 BGB), the other 25% as succession. It is controversial if the regime of the Regulation (EU) No 650/2012 applies to the first 25% (BeckOGK/Kuhn, 1.11.2020, BGB § 1371 Rn. 18; the decision of the EuGH, 1.3.2018 – C-558/16 hints to a yes). If it does not, the applicable law depends on the exact circumstances of the marriage (Art. 15 I (old version), 14 I EGBGB; the new Council Regulation (EU) 2016/1103 only applies to spouses who marry on or after 29 January 2019). The interaction of the two applicable laws might be complicated.

Answer 3

It would have been super beneficial if your mom had had a will in the shape of a Berliner Testament, which puts the spouse as the only inheritor and disowns everyone who could inherit in the 2nd degree (parents, siblings, uncles). Every child that requests their Pflichtteil (obligational part) will usually only get a diminished part from the later dying spouse - and not more.

However, German law also allows to voluntarily not take an inheritance. This is called Erbausschlagung, and if you don't inherit, the next in the Erbfolge is in line to inherit up to the 3rd degree. This can lead to distant relatives inheriting. I had done this twice on the estate of my maternal grandparents, who died with quite some debts (which in Germany are inheritable), so my mother, my siblings, and I filed that declaration with the court in a joined filing via a notary.

All of the children can file a (joint) declaration with the German courts to declare they don't want to inherit, and then also declare the same for any children. After the direct descendants, parents and siblings of the deceased follow in the Inheritance line, but the surviving spouse gets 3/4th now. Only if all others in the line to the 3rd degree declare they don't want to inherit, the surviving spouse gets the full inheritance.

However, it might often be easier (and possibly safer) to take the inheritance pro forma and then give/gift/sell it to the surviving spouse. At times, buildings are sold to the surviving spouse of the parents for an obligatory 1€ to get around the Erbfolge and keep the house together under the control of one person.

Answer 4

Each country will apply its own choice of law rules.

The U.S. rule is that everything other than real estate and business assets not owned by an entity (especially leasehold rights and business licenses), is governed by the law of the place where the decedent was domiciled at death. The main probate proceeding is conducted there.

Real estate and select non-entity owned business assets are handled by a probate proceeding in the state where they are located, which is called an ancillary probate. The ancillary probate proceeding, in general, defers to findings of fact and decent controlled matters (like the content of a will) but matters that a decedent couldn't override by a will would ordinarily be governed by the law where the real estate is located.

If the German asset were located in a U.S. state, an ancillary probate would probably not be necessary and the substance of the distribution would be governed by the place of domicile.

I don't know German probate choice of law rules but the answer from @K-HB suggests that Germany may actually defer to U.S. substantive probate laws in this case.

The easiest solution would probably be to probate all non-German assets in the place of domicile in the U.S. and to probate the German bank account under German succession laws without regard to the U.S. assets, rendering the German proceeding small, simple and plain vanilla. If the account isn't large, imploring people who receive shares under German law contrary to the decedent's intent to make gifts that bring the overall or ultimate aggregate distribution in line with the decedent's intent may be possible, or may just not be worth the trouble to reconcile.

In the U.S., pretty much any probate lawyer will have to do. I happen to do probate law (in Colorado) and have some international experience, but I'm the rare exception in that regard and finding someone with both German and U.S. law knowledge would be very hard and very expensive.

In Germany, this matter would most often by handled by a notary, who in Germany is a legally trained professional with a defined territory sometimes shared with several other notaries in the same district (who buys that franchise from the previous owner) who is a bit of a hybrid between a transactional lawyer acting as a more or less neutral third-party in business deals and other transactions, and a county clerk in the U.S. and the Secretary of State in the U.S. and a probate registrar in U.S. states with the Uniform Probate Code. Unlike a U.S. notary, they don't just verify signatures, they draft documents and maintain public records which are really only quasi-public records. Normally someone more analogous to a U.S. attorney or a British barrister would only be involved in the event of contested litigation over the estate such as a will contest or an allegation of embezzlement by a fiduciary (which is a fight you probably can't afford in an estate like this one even if there are good grounds to litigate one). You would want a notary whose district includes a bank office of the bank where the account is located in Germany.

All European lawyers and notaries are much more familiar with international law than 98% of U.S. lawyers, because international situations naturally come up more often there.

Answer 5

Since nobody wants to go to court, and the husband is a good man who wants to follow the law, we can tell him that he is entitled to 100% by one law and 50% by another law, both perfectly valid and applicable laws. So he can take 100% with a reasonably good conscience. He could also take 75% with an excellent conscience.