German Inheritance Tax 2026: Which Succession Plan Holds Up While Karlsruhe Reviews the Rules?

Two cases, two different questions

The two hearings address separate legal questions; the family needs to test its funding and leadership plan now.

October 12, 2:00 p.m. — 1 BvF 1/23. The First Senate will hear a case about legislative powers in inheritance-tax law. Bavaria's application for judicial review raises, among other matters, valuation of real property, personal allowances, tax rates, and the allocation of legislative authority. No outcome can be inferred today. The question before the court is distinct from a particular family's decision to transfer its shares. Court schedule and subject · Press release

October 13, 10:00 a.m. — 1 BvR 804/22. This case concerns relief for business assets and its constitutional treatment relative to assets that do not receive comparable relief. Its connection to business succession is more direct: A change in relief could affect the funding of a planned transfer. This case is also open. A hearing notice establishes neither that relief will be abolished nor when any new rules might take effect. Court schedule and subject · Press release

Until an effective change occurs, the starting point is current law. Regular relief generally provides an 85% reduction for qualifying business assets up to the €26 million acquisition threshold. Optional relief can reach 100% if further conditions are met, including longer payroll and holding periods and a limit on administrative assets. The decisive figure is not the company value on the cover of a valuation report. It is what actually qualifies under § 13b ErbStG, who acquires what and when, and whether subsequent conditions are met. § 13a ErbStG · § 13b ErbStG

If the acquisition of qualifying assets exceeds €26 million, the declining relief under § 13c and the needs-based relief assessment under § 28a become relevant. The election, requirements, and interactions belong in an individual tax analysis. An application under § 13c is irrevocable and excludes § 28a for the same acquisition. In particular, a statutory needs test is not an open choice between paying tax now and devising a nonbinding liquidity plan later. § 13c ErbStG · § 28a ErbStG

The first decision, then, is to separate the legal question the court is examining from the funding and leadership questions the family already has to answer. Confusing them can make uncertainty an excuse to postpone necessary family decisions—or a pretext for rushing an untested transfer.

The five ledgers of a viable succession

Law, liquidity, control, family and time interact; a single tax figure cannot decide the succession.

I use five separate ledgers to test a succession. They are a decision tool, not a statutory framework, and they replace neither a valuation nor a tax opinion. They expose how an assumption in one ledger affects the others.

The surprisingly expensive ledger is often the second. A business interest may qualify for tax relief while being difficult to turn into cash quickly. A property may carry substantial value but sell only at a discount at the wrong moment. A portfolio may be liquid yet already promised to another relative as an equalization payment. Total asset value therefore tells you little about cash actually available on the payment date.

Another fault line runs between control and equality. If one child bears responsibility for management but both must approve every important investment, the active child carries accountability without sufficient authority. The family should design consent thresholds, information rights, settlement formulas, and an escalation path for deadlock before declaring a set of percentages fair.

“A business succession is not resilient if it works under only one tax assumption.”

The test is falsifiable. Have tax and corporate-law specialists run the same intended structure through plausible alternative valuations, relief outcomes, payment dates, and financing terms. If leadership, investment capacity, and sibling settlement remain workable in each credible case, the structure has resilience. If one obvious variant breaks it, change the promise or the sequence first.

Three families, three different bottlenecks

At €30 million, €80 million and €250 million, the binding constraint appears in a different place.

Case A: Operating business, approximately €30 million.

A daughter runs the company; her brother works elsewhere. The parents have limited private liquidity. The intuitive answer is to transfer the company to the daughter and compensate the son with a payment.

Whether and to what extent the shares qualify for relief must first be tested against legal form, ownership interest, administrative assets, each person's acquisition, and other statutory conditions. Especially near the €26 million threshold, it would be untenable to infer a guaranteed relief route from an estimated enterprise value.

The family can now commission an independent valuation, build a classification file, model liquidity, and define voting rights. It should defer a fixed, large settlement or irrevocable tax election until these files agree. It needs inheritance-tax and corporate-law specialists, financing expertise, and possibly family mediation. A viable plan gives the son a fair position without forcing the daughter into a distribution that damages operations. §§ 13a–13c ErbStG

Case B: Mixed assets, approximately €80 million.

A company, rental properties, and securities are to be divided among three family members. The family talks in equal market values, but these asset classes may differ sharply in their legal status, tax treatment, and liquidity.

Not every property is a business asset; a property held on a company balance sheet does not qualify for relief merely by appearing there. The misleading assumption is that identical numbers on a wealth statement deliver identical net positions and influence.

The family can now classify assets separately, model net wealth after obligations, and agree how later valuation differences will be handled. It should defer a final allocation promise until the specialist tax review and family agreement use the same definitions. Valuation, inheritance tax, real-estate and corporate counsel, and potentially lenders all have a role. The aim is a fair, documented allocation in which nobody must unexpectedly liquidate an asset promised to them in order to sustain the operating business. § 13b ErbStG · § 12 ErbStG

Case C: Three-generation family office, approximately €250 million.

Residences, accounts, and assets span several countries, while personal and asset connections to Germany remain. The apparent shortcut is to move one heir's residence.

German inheritance and gift tax, however, requires separate review of the status and residence of the deceased or donor and the recipient, as well as German-situs assets. Foreign tax is not freely creditable against German tax; § 21 ErbStG sets conditions, documentation requirements, and limits linked to particular assets.

The family can now map nexus for each person and asset, assign responsibility among advisers, and identify conflicting dispositive documents.

Suppose the family council has set an approval date for a transfer while German tax counsel and foreign lawyers use different ownership records or valuation dates. The coordinating adviser needs to pause the handoff there, or the decision will be approved on conflicting facts.

The family should postpone relocations or transfers justified only by a blanket tax assumption. Qualified advisers in each affected country, German tax and succession specialists, governance expertise, and perhaps banking coordination are needed. A robust file applies the same owners, values, dates, and evidence to the same acquisition in every relevant jurisdiction. § 2 ErbStG · § 21 ErbStG · § 121 BewG

None of these families should guess the outcome of the hearings. All three can prove or disprove their own bottleneck now. If the plan fails, the active owner loses investment capital, the nonactive heir loses a reliable payout, and the internationally mobile family loses the ability to reconcile conflicting legal and tax positions in time.

The liquidity test: A promise can exceed the cash available

A sibling settlement can exceed available cash even without additional tax.

Consider a purely illustrative family that has promised a nonactive child €3.0 million. After ongoing obligations, only €1.2 million is actually free on the intended payment date. We add three assumed tax-payment burdens for comparison. These are not tax rates, forecasts of a Karlsruhe judgment, or calculations for Cases A, B, or C.

Calculation: Settlement plus assumed tax payment minus funds genuinely available on the relevant date. Interest, other transaction costs, and an additional liquidity buffer are omitted from this simplified model. The numbers show a funding gap at a particular time, not the taxable value of an acquisition.

The first row matters most: Even with zero additional tax, €1.8 million is missing. Karlsruhe neither creates nor eliminates that gap. In the other variants, the family needs to know which company can lawfully distribute what, whether lenders consent, when payment falls due, and which assets could be sold at what discount. A theoretically available application for deferral or relief is not an approved credit facility. For certain acquisitions on death, § 28 ErbStG provides for an application to defer payment; its exact scope, conditions, and interest consequences need specialist review. § 28 ErbStG

Sequence is now an economic decision: Match due dates to free cash first, negotiate funding and staged payments second, and only then commit to a binding settlement. Reverse that order and the future chief executive inherits an obligation to extract a private family promise from the business balance sheet.

What can be decided before and after the hearings

Much can be prepared now; no one can pre-empt the judgment, transitional rules or legislation.

A family can establish facts and preserve options now without predicting a court ruling.

Three planning states, rather than predictions, are useful: The main rules continue; individual elements are found deficient and corrected under a deadline or transitional framework; or a broader redesign becomes necessary. In each state, identify which promises, financing arrangements, and voting rules survive and which resolution must be made again. Until the operative ruling is known, specific claims about retroactive effect or a final transfer deadline are out of place.

I would not freeze an already chosen, economically sound handover merely because a hearing is scheduled. Nor would I justify an irrevocable transfer by saying it must be safer “before Karlsruhe.” The decision turns on the family's presently verified objectives, statutory conditions, funding, and contractual consequences. Uncertainty argues for faster diagnosis, not automatically for faster transfer of title.

International mobility: A new address does not erase every tax connection

People, asset locations and tax connections belong in one coordinated fact pattern.

For internationally mobile owners, succession also involves residence, asset location, and proof. Under § 2 ErbStG, a qualifying German personal connection of the deceased, donor, or recipient can trigger unlimited tax liability on the entire acquisition. Even without that personal connection, certain German-situs assets can give rise to limited tax liability. Additional criteria apply to German nationals after departure. The often-cited five-year rule is not a blanket exemption following a trip abroad or deregistration. § 2 ErbStG · § 121 BewG

Imagine an heir in Dubai due to receive German company shares while the parents maintain homes and centers of life in several countries. One adviser examines the people, another only the shares, a third a foreign foundation. If they use different dates and chains of ownership, they can produce three plausible partial answers and no actionable whole. At that point, the family council needs one agreed fact pattern and an accountable specialist in each jurisdiction. A change of residence should follow only after the family's actual life, tax positions, and affected assets have been examined consistently.

The EU Succession Regulation (Article 1) can affect the law applicable to an inheritance; it does not harmonize national inheritance taxes. A private international structure does not by itself confer tax relief either. The opportunity is earlier clarity. Separating the people, asset locations, powers of disposition, and evidence reveals genuine choices and prevents a purported location advantage from failing when the acquisition occurs.

From analysis to a decision that holds

A shared family file assigns specialist questions and makes the next commitment reviewable.

A succession architecture review is timely if the family is already planning concrete transfers, equalization payments, control rights, or international steps; if a significant acquisition may sit near statutory relief thresholds; or if no one can show how a less favorable liquidity case would be funded. It is less urgent where no transfer is in sight and there are no disputed asset classes, funding constraints, or German connections. Even then, documents and responsible contacts should remain findable.

The next step is not a fresh tax number from an online calculator. It is a common working file with five outputs: a shared family fact pattern, asset classification, an ownership and control picture, a liquidity calendar, and a specialist and update plan.

For an initial review, bring the ownership chart, the parties' residences and nationalities, intended transfer and payment dates, existing dispositive documents, and available valuations.

Assess engagement fit when a concrete decision is approaching. From that file, the family can assign the questions that a German inheritance-tax adviser, a corporate lawyer, and a foreign specialist must each answer authoritatively. No Borders Founder coordinates the strategic architecture and order of decisions; individual tax and legal opinions belong to appropriately qualified professionals.

“Karlsruhe rules on legal norms. The family decides whether its succession still works when the norms change.”

The measure of a sound structure is not the lowest modeled tax today. It must let the successor lead, secure the agreed positions of other family members, actually fund payments, and absorb new legal information without a frantic renegotiation. Test the five ledgers before turning a single number into your succession strategy.