Many wealthy testators in particular wish to be free to decide what happens to their assets after their death. However, if you want to disinherit your relatives, the right to a compulsory portion in Germany and in most other countries represents a considerable restriction. This is an unsatisfactory outcome for many testators. It is therefore often asked what strategies are available in cases involving foreign countries to avoid or reduce compulsory portion claims.
1 Should I move my assets abroad?
In the past, the acquisition of real estate in countries that do not have a compulsory portion law was often recommended as a strategy to avoid a compulsory portion. This made it possible to split the estate in accordance with Article 3a (2) EGBGB (old version), in which the law of location was to be applied with regard to the foreign assets. This meant that the foreign assets were not included in the calculation of the compulsory portion.
With the introduction of the EU Succession Regulation, the transfer of assets abroad no longer leads to a reduction in the compulsory portion. Since 2015, the law of the country in which the deceased either had their last habitual residence or whose law they chose has been applicable to all assets.
Under current law, a reduction in the compulsory portion can only occur if the law of habitual residence or the chosen law provides for such a division of the estate. An example of this would be if the deceased was habitually resident in England and owned property in Florida. After the deceased's habitual residence, English law is applicable (Article 21(1) of the EU Succession Regulation), which refers to the law applicable there in accordance with Article 34(1) of the EU Succession Regulation with regard to the real estate in Florida, as the English conflict of laws rules consider the law governing the location of the immovable property to be decisive.
Under current law, a transfer of assets can therefore only lead to a minimisation of the compulsory portion in rare cases.
2. can I avoid the compulsory portion by moving?
Not every country recognises a right to a compulsory portion or right of inheritance, e.g:
- England
- Wales
- Scotland
- Northern Ireland
- Ireland
- Australia
- USA, e.g. Florida and other states such as California, only recognise a compulsory portion entitlement for minor and disabled children and the spouse, who receive a right of residence and maintenance upon application.
- Canada, e.g. Ontario and other federal states
- South Africa
- Sweden does not recognise a compulsory portion for spouses
- Finland does not recognise a compulsory portion for spouses
- Poland only recognises an entitlement to a compulsory portion for those unable to work and minors
- People's Republic of China
Moving to one of these countries appears to be a suitable way of escaping the right to a compulsory portion. However, it should first be noted that it is not enough to simply move your place of residence. Rather, the legislator has set high hurdles for so-called „compulsory portion shopping“ in order to avoid such behaviour. For example, a new habitual residence within the meaning of Article 21(1) of the EU Succession Regulation must be established in the relevant state. This requires the testator to relocate the entire centre of their life and want to remain permanently in the country in question. In addition, they should establish social ties there, have sufficient knowledge of the country's language and also transfer a large part of their assets there.
As long as there was no wish to spend the rest of one's life in another country anyway, a move for the purpose of avoiding a compulsory portion seems disproportionate and unrealistic.
In addition, this approach harbours the risk that German courts will view a move as a violation of public policy (Article 35 of the EU Succession Regulation). This means that, from the perspective of the German courts, circumventing the right to a compulsory portion may violate the German legal system. As a result, it may be possible to enforce a right to a compulsory portion. However, a violation of the German legal system must be ruled out if the testator has actually moved their centre of life to the country in question.
However, if the testator is determined, for whatever reason, to relocate his or her habitual residence to a so-called „compulsory portion paradise“, it should be noted that many countries that do not recognise the right to a compulsory portion or emergency inheritance set other hurdles for inheritances. For example, inheritance tax rates are often significantly higher in countries without a compulsory portion.
To summarise, it can be said that relocation can certainly be a way of avoiding the compulsory portion, but in view of the high hurdles involved, a reckless move to a „compulsory portion paradise“ is not advisable.
3 What else can I do to avoid the compulsory portion??
If German law applies, early gifts should always be considered. It should be noted here that a claim to a supplementary compulsory portion can be asserted in the case of gifts in accordance with Section 2325 (1) BGB. Pursuant to Section 2325 (3) BGB, the gift is taken into account in full within the first year prior to the death of the deceased and by one tenth less for each additional year prior to the death of the deceased. After ten years, the gift is not taken into account at all. It is therefore advisable to transfer your assets to others at an early stage if German law applies. It should be noted, however, that early gifts are not taken into account for spouses.
Another method of reducing or completely preventing compulsory portion claims is to deliberately organise the estate in a complex manner. The creation of complicated split estates can have a deterrent effect on potential disputes over compulsory portions. The testator can achieve a split estate by distributing their assets, for example, in foundations, companies and real estate in countries that still recognise a split estate.
4. can I agree a waiver of inheritance or compulsory portion with my family members?
In principle, waiving an inheritance or compulsory portion is one of the best ways to avoid unwanted compulsory portion claims. It should be noted that a waiver of inheritance or compulsory portion generally requires the participation and consent of the beneficiaries of the compulsory portion.
Whether such a waiver agreement can be agreed is assessed very differently in the various legal systems. While waiver agreements are an important instrument for organising the estate in German law and in many other European countries, other legal systems consider the need to provide for relatives to be so important that such an agreement is not permitted. These legal systems include countries such as:
- Belgium: Only objectively limited waiver in the case of lifetime gifts to direct heirs (Art. 918 CC) and in the case of divorce by mutual consent (Art. 1287 para. 2 CCP)
- Greece: Art. 368 ZGB with exceptions
- Luxembourg: Art. 1130 para.2 CC
- Netherlands: Art. 4:4 para. 2 BW
- Portugal: Art. 2170 CC
- Spain: Art. 816 CC
- Lithuania: Inadmissible due to lack of legal regulation
If the law of the deceased's habitual residence does not provide for the possibility of waiving the compulsory portion, the law of the nationality that provides for such a possibility can be chosen.