Inheritance Tax Law and Inheritance Law: These Specific Considerations Must Be Taken Into Account With Regard to Stepchildren

After a family member passes away, the issue of inheritance becomes relevant. In this context, both inheritance law and estate tax law are important. Generally speaking, inheritance law and estate tax law overlap in many respects. Despite all these similarities, there is a specific issue—particularly regarding stepchildren—that can significantly affect their inheritance. Problems can only be avoided with appropriate planning. In this article, we will familiarize you with this specific issue and explain the appropriate planning measures.

The Difference Between Inheritance Tax Law and Inheritance Law

In our daily practice, we regularly observe that few people give much thought to the topic of inheritance. It can therefore be assumed that not every reader is familiar with the differences between inheritance tax law and inheritance law. So before we delve into the main topic, we should briefly explain these two legal areas.

Following a death in the family, the question arises as to who the deceased’s heirs are. Especially in cases where an individual leaves behind a substantial estate, a will or inheritance contract is often drawn up early on. After death, the estate is distributed to the family according to this preferred allocation. However, it is just as common for there to be no will or inheritance contract. The question then arises as to whom the estate will go. This is where inheritance law comes into play, which, among other things, establishes the order of succession. Ultimately, inheritance law establishes the legal framework for inheritance itself. However, one topic that is also very important in the context of inheritance is not addressed in inheritance law. All tax regulations are outlined in inheritance tax law, such as when and to what extent heirs are subject to taxation. Although inheritance law and inheritance tax law cover different aspects of inheritance, many legal provisions in the statutes are similar or even identical. In some cases, however, there are differences that appear contradictory at first glance. One such situation concerns stepchildren.

Stepchildren in Inheritance Tax Law vs. Inheritance Law

From a tax perspective, stepchildren are treated the same as biological children. Under Section 15(1)(2) of the Inheritance Tax Act (ErbStG), both biological children and stepchildren are classified in tax class I for inheritance and gift tax purposes. This results in tax equality. For stepchildren, this means that an exemption of €400,000 is granted in the event of an inheritance. A taxable inheritance in tax class I is sometimes taxed at only 7%, depending on the amount of the taxable inheritance.

If we look at inheritance law, however, one will search in vain for equal treatment of biological and stepchildren. Under inheritance law, stepchildren are not entitled to inherit. For stepchildren, this means that they are simply bypassed in the statutory order of succession when it comes to the inheritance of a stepparent.

It is evident that there are often differing views and regulations in the law. While tax law achieves absolute equality for stepchildren, they are at a disadvantage regarding inheritance under inheritance law.

How can stepchildren be included in the inheritance?

Although inheritance law excludes stepchildren from the inheritance process, this does not mean, of course, that inheritance is fundamentally impossible. It is merely the order of succession under inheritance law that poses a problem for stepchildren. The solution is therefore a will or an inheritance contract. In this way, stepparents can establish the legal terms of the inheritance and include stepchildren in the estate. With this simple step, the legal disadvantage faced by stepchildren can be circumvented. As we have already explained, fortunately there are no disadvantages for stepchildren in terms of tax treatment, which ultimately means that an inheritance via a will is no different from an inheritance by biological children. Another option would be to adopt the stepchild. However, the fact of the inheritance alone would not be sufficient grounds for adoption. A will is the significantly more cost-effective and simpler route. Furthermore, adoption also has additional consequences that may not be desired.

In conclusion, it is very important to first be aware of the unequal treatment of stepchildren under inheritance law. The “problem” can be easily circumvented and ultimately has no disadvantages from a tax perspective. In this case, knowledge is therefore the most important factor. With this article, you now have the necessary background information and can take action.

Tax Consulting in Düsseldorf and Oberhausen

The tax landscape has nuances that are often overlooked. To avoid discovering potential problems only when it’s too late, you should seek advice from a tax advisor. At Trimborn . Partner, we’re happy to address your concerns and answer your questions. Trust in our experience. With our offices in Düsseldorf and Oberhausen, we are the ideal partner for tax-related matters. Contact us to schedule an appointment.