US-Trust in German Law of Succession
The US trust is unknown to German law. Against this background, questions of all kinds arise. How is a trust treated in German probate proceedings? How are the persons involved qualified? What steps must be taken to get access to the trust assets? These questions will be answered in this article.
What is a trust?
A trust is an investment fund that is transferred to an administrator and is intended to benefit a third party. It is a fiduciary legal relationship in which the trustee/administrator holds the assets. The trustee acts as administrator, but is bound in the internal relationship to the rights and obligations granted to him by the settlor of the trust.
The trust does not have to pursue charitable purposes. Rather, the trust can also serve private interests. The person who sets up the trust is called the "settlor" or "trustor" an the administrator is the "trustee". A trust is not always set up in a tripartite constellation. One person can also take more than one role.
Trusts come in many ways. For example, there are American and Anglo-Saxon trusts. In this article we will discuss the American trust, focusing on the trust established by will ("testamentary trust").
How does a testamentary trust work?
A testamentary trust is established by will. This means that the usual arrangements and conditions for the establishment of a trust are made in the last will and testament. The requirements for the validity of a trust are governed by the law of the respective American state. In general, a trust can only be created by a "trust deed / declaration of trust". In a testamantory trust, the will and the declaration of trust coincide, so that they constitute one document. Therefore, the trust must be set up in writing and notarized by the trustor.
If a trust is set up, it becomes a separate estate and is not part of the trustee's personal assets. Therefore, creditors cannot enforce the trust if the trustee is a debtor. A trust can be used to secure assets for a beneficiary over a longer period of time. During this time, a testamentary trust may incur costs due to the supervision of a probate court.
Something different applies to a "living trust". In a living trust, the trustor acts as trustee during his lifetime. From the US-American point of view, it becomes a special fund and not part of the estate. This has the advantage that the trust assets are not subject to the American probate procedure, but are to be transferred to the beneficiaries named in the trust after the settlor's death, bypassing the estate.
How are a trust and the persons involved treated in Germany?
A trust is treated differently in Germany. In a decision, the Berlin Court of Appeal has commented on the characterization of a trust under German property law.
According to case law and the predominant opinion in the literature, no trust can exist in respect of assets in Germany. In Germany, it applies that there can be no split property. However, this is precisely what would exist under the usual constellation of trusts. According to this, the trustee can dispose of the assets in his own person in relation to others within the scope of his powers. The beneficiary, however, is the person to whom the property is later to be transferred. In this respect, the Berlin Court of Appeal considers that there is a "split legal personality" which is prohibited.
Therefore a reinterpretation (§ 140 BGB) must be made. This law serves to "save" void legal transactions. One looks at the will of the person who carried out the legal transaction and asks what he really wanted. And if the real will then corresponds to another and possible legal transaction, this is applied to the present constellation.
The role of the trustee and his representatives can be reinterpreted into the role of an executor of the will. On the other hand, the beneficiaries are usually to be regarded as heirs, as they are the ones who are economically entitled to the assets.
However, this only applies to the standard case. In some constellations there may be deviations, for example if the trustee is also one of the beneficiaries. Under certain circumstances, however, the structure of the trust can also be reinterpreted as a pre- and post-inheritance if the beneficiary is to be replaced by other beneficiaries later on.
In Germany, a certificate of inheritance will be required in many cases, for example if real estate in Germany has been inherited through a testamentary trust. Also, banks in Germany will not be able to easily check the succession and the entitlement to accounts and securities accounts in the case of a disposition by way of a US trust and will not allow a disposition due to the uncertainty regarding the legal situation if a bank power of attorney is not simultaneously available.
Even if the testator was an American citizen and had his last residence in the USA, an inheritance certificate can be applied for in Germany. This results from Art. 64 in connection with Art. 10 of the EU Inheritance Law Regulation.
The certificate of inheritance is defined in §§ 2353 ff. BGB. If only part of the assets are located in Germany, a limited certificate of inheritance (§ 352c paragraph 1 FamFG) can be applied for. This is then only valid for this property.
The application for a certificate of inheritance does not have to be made by the heir himself. He can be represented, for example by a lawyer. The competent court is generally determined according to the last residence or last stay of the testator. If both are missing, each court in whose district the estate is located has local jurisdiction, § 343 paragraph 3 FamFG.
According to § 352 (3) sentence 3 FamFG, the court can demand an affidavit on certain statements in the application. This must be done by the heir himself, representation is not permitted. However, since the affidavit must be submitted to a German court or notary public, the question arises as to whether foreign German authorities can also accept these affidavits.
In the previously quoted procedure, the Berlin Court of Appeal has made a precise statement on this issue.
In fact [...] the obligation of § 2376 Abs. 2 BGB to prove certain statements by affidavit proves to be a formal requirement, so that the application is usually made for a notary or court transcript. The content of the application results from §§ 2354, 2355, 2357 BGB. In this connection, according to § 1 Para. 2 BeurkG in conjunction with § 10 Para. 1 No. 1 KonsG, consular officials are authorized to certify affidavits in accordance with § 10 Para. 2 KonsG (Strübing, ZErb 2008, 178, 187; cf. in summary Bindseil, DNotZ 1993, 5 ff ). In this respect, the Local Court did not raise any objections either; rather, it did not consider the submitted copy of the will provided with an apostille to be sufficient." (translated by the author)
It follows from this that affidavits can be made on oath instead of also before a German consulate abroad. That this also applies to declarations made in lieu of oath in order to obtain a certificate of inheritance is clarified in § 12 No. 2 Variant 1 KonsG. An overview of German consulates in the USA can be found here.
It is problematic that in principle only consular officials can accept this declaration if they are qualified to hold the office of judge, § 19 paragraph 1 KonsG. If they do not have this, they must be specially authorized by the Foreign Office, § 19 paragraph 2 sentence 1 No. 3 KonsG. Therefore it must always be ensured that the opposite party is also authorized to carry out the activity.
In the previous proceedings it seemed difficult for the local court to confirm the authenticity of the documents submitted. If necessary, the documents can therefore be legalized before the consular officer. Legalization is regulated in § 13 of the Consular Act and, according to paragraph 2, has the effect of confirming the authenticity of the submitted documents.
The cost of taking an affidavit before a consular officer is calculated according to § 25 KonsG in connection with § 1 AKostG, § 1 AKostV and Appendix 1 to § 1 AKostV No. 160.2 and is determined according to the estate value.
The costs for the legalization of documents are calculated according to § 25 KonsG in connection with § 1 AKostG, § 1 AKostV and Annex 1 to § 1 AKostV No. 230 ff. and can range from 25 Euro to 85 Euro.
Is a restriction of the heir noted in the certificate of inheritance due to the trust?
In many cases, the trustee can be considered the executor of the will. Such a limitation would have to be noted in the certificate of inheritance, § 352b FamFG.
However, this does not apply to cases where only a supervising execution of the will has been ordered (§ 2208 (2) BGB). The Higher Regional Court of Cologne argued that the execution of the will only had to be recorded in the certificate of inheritance if the heirs were to be restricted in their power of disposal over the estate by the execution of the will.
In the case heard there, the testator had ordered the execution of the will. However, he limited this himself. He explained that the executor's task should only be to supervise the testamentary disposition, but not the ongoing administration of the estate.
The question of whether the trustee as executor of the will must be recorded in the certificate of inheritance will therefore regularly depend on the concrete form of the trust. Did the testator want to grant the trustee power of disposition or should he merely supervise the settlement of the trust? In concrete terms, this can also be determined by the question of whether the trustee has room for maneuver, for example when he pays out the trust.
Can the trustee apply for an executorship certificate?
This question again depends on the specific role of the trustee. As shown above, his activity will regularly be comparable to the activity of an executor of a will.
The basic requirement is that the trustee accepts his office, § 2202 paragraph 1 BGB. He must do this before the probate court in accordance with § 2202, para. 2, sentence 1 BGB. A written declaration of acceptance is also permissible. If the acceptance has been declared, the trustee can then apply for a certificate of executorship.
From this point on, the explanations regarding the application for a certificate of inheritance apply accordingly, § 354 para. 1 FamFG. That is,
the competent court is that in whose district the testator had his last residence or stay or in which the estate is located.
If the court requires an affidavit, this can also be submitted to a German consulate.
Since the powers of an executor in Germany are usually far-reaching, the legal situation in Germany will often not correspond to the will of the trustor. Restrictions of the executor's/trustee's powers must then be noted in the executors certificate, § 354 para. 2 alternative 1 FamFG.
The assessment of a trust under German inheritance and property law is complex. Therefore, the essential points will be briefly described here.
- A trust is reinterpreted in Germany
- In many cases, the trustee is considered the executor of the will and the beneficiary the heir.
- Deviations are possible!
- The beneficiary can apply for a certificate of inheritance and be represented
- An affidavit in lieu of an oath can also be declared before a German consulate abroad
- The consulate can legalize foreign documents
- Whether a trustee is to be included in the certificate of inheritance as executor depends on whether he has the power of disposition or only a supervisory role.
- Under certain circumstances, the trustee may apply for an executor's certificate of inheritance