Leaving an Inheritance to Children: How Parents Can Properly Plan Their Wills, Tax Exemptions, and Estate Planning
Leaving an Inheritance to Children: How Parents Can Properly Plan Their Wills, Tax Exemptions, and Estate Planning
Many people want their hard-earned wealth to eventually pass on to their children—without high taxes or disputes weighing on the inheritance. By addressing estate planning early on, you can ensure—through a will or inter vivos agreement, a clear distribution, and strategic use of tax exemptions—that your assets actually end up where they belong. In this article, you’ll learn how to best pass your assets on to your children.
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Leaving an Inheritance to Children – An Overview
The topic of inheritance is often emotionally charged: after all, it concerns your responsibility toward your children and descendants and ensuring a fair distribution of your assets. Without clear provisions, the law of intestate succession applies, which does not always take into account all of the decedent’s wishes. This can quickly lead to disputes among the heirs—especially when multiple relatives assert claims.
Those who address estate planning while they are still alive can ensure that their assets are distributed according to their wishes through a well-drafted will or a contract of inheritance. Since death can occur unexpectedly, it is better to think about this sooner rather than later.
With thoughtful estate planning, you can plan ahead and prevent uncertainty and disputes, ensuring that your assets go exactly where you want them to—without your heirs having to first agree on who receives which parts of the estate. Parents should know how they can avoid tax losses by making smart decisions, such as taking advantage of tax exemptions or making targeted gifts.
Tip: When it comes to real estate, investments, and other assets, it’s especially important to get a clear picture of the situation. This is because different rules, tax brackets, and exemptions apply depending on the degree of kinship, and these factors play a decisive role in determining the tax burden. By planning carefully, you can ensure that, when the time comes, as much money as possible actually reaches the heirs rather than being consumed by factors such as inheritance tax.
Inheritance Without a Will: Intestate Succession & Statutory Share
If you do not draw up a will, the rules of intestate succession will automatically apply. These rules determine, based on the degree of kinship, who inherits your estate and assets—and in what proportions. The heirs are divided into classes:
- Order 1: Your children and grandchildren. They will inherit equal shares.
- 2nd order: Your parents, siblings, and their children.
- Order 3: Your grandparents, uncles, aunts, and cousins.
If you have children, they inherit equal shares. If you have no children, the heirs of the next order inherit.
This legal provision can lead to unintended consequences, such as when you actually wish to disinherit a child. Without a will, all children are automatically entitled to a statutory share. This amounts to half of the statutory inheritance and constitutes a monetary claim against the other heirs—thereby placing a financial burden on the community of heirs.
Without a will, your entire estate and all your assets (including your real estate, bank accounts, and brokerage accounts) will automatically become part of the estate subject to intestate succession. This can lead to disputes, such as when heirs have to sell a property to pay out statutory shares. Additionally, your children or other heirs will not be able to make individual arrangements regarding items that are dear to you.
💡 Good to know: Under inheritance law, partners are not classified as “classes” of heirs in the strict sense. Instead, they are considered alongside relatives—that is, in addition to heirs of the first, second, or third class.
Specifically, this means:
- Spouses or registered partners inherit alongside heirs of the first degree (children, grandchildren) or the second degree (parents, siblings).
- If there are no first- or second-degree relatives, the spouse inherits the entire estate.
- The exact percentage depends on the matrimonial property regime: Under the statutory regime (community of accrued gains), the spouse receives one-quarter plus an additional one-quarter as a lump-sum equalization payment (for a total of half).
A non-spousal partner (who is not in a registered partnership) has no legal right to inherit. Without a will, your partner could therefore end up with nothing if children, as sole heirs, exclude him or her from the inheritance.
For blended families or unmarried couples in particular, the statutory order of inheritance can be unfavorable. Without a will, your partner may receive nothing, while distant relatives inherit. This is also unfavorable from a tax perspective: Without individual estate planning, not all tax exemptions and tax brackets are often fully utilized—which can unnecessarily increase the estate tax and add to the financial burden on your heirs.
In short: Without a will or an inheritance agreement, you have no way to make specific arrangements to protect your family and minimize your tax burden. That’s why it’s worth thinking about estate planning early on and taking action to provide clarity and security for everyone involved.
What could reduce the size of the inheritance your children receive?
Even if you’ve built your wealth through hard work and dedication, your children may end up inheriting less than you’d like. There are several reasons for this that you should be aware of when planning your estate—most notably inheritance tax, statutory inheritance rights, and debts.
1. Inheritance Tax
Inheritance tax is the most well-known factor that reduces the size of your inheritance. Different tax brackets and exemptions apply depending on the degree of kinship. For children, the tax-free allowance up to 400,000 euros per parent. Anything above that amount is taxed at a rate of 7% to 30%, depending on the value. This can quickly become expensive, especially with real estate, if the value of the house or apartment is high. Payments of the statutory share to other heirs can also strain the liquidity of the community of heirs, which, in the worst case, may necessitate the sale of a property.
2. Claims to a statutory share
Even if you have made clear provisions in your will, close relatives—such as your children or spouse—can claim their statutory share. This right applies even if they have been disinherited. It is generally equal to half of the statutory share of the estate and is asserted as a monetary claim against the heirs. This means that your heirs may have to sell parts of the estate or the property in order to pay out the statutory shares.
3. Debts of the decedent
Your own debts can also reduce the inheritance your children receive. This is because, when you pass away, your heirs inherit not only your assets but also your liabilities. This can be particularly problematic if there are large mortgages on a property or other outstanding loans. Providing an overview of your assets and debts will help your children avoid unpleasant surprises down the road.
4. Disputes among the heirs
Gaps or ambiguities in a will or inheritance agreement often lead to disputes. These can not only strain family relationships but also result in costs for lawyers, expert opinions, or mediation. Ultimately, this reduces the amount of assets that will go to your children.
To prevent your estate from being eroded by taxes, claims to a statutory share, or disputes, careful estate planning is essential. This ensures that your assets are passed on to your children exactly as you wish—and that they actually receive the value you intended for them.
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How should one plan for the future: a will or a pre-need agreement?
If you want to distribute your assets after your death in a way that best suits you and your family, you have two main options: a will or a pre-need agreement. Both allow you to deviate from the statutory order of succession and make individual arrangements—thereby minimizing taxes, disputes, and financial burdens.
- A Will You can draw one up yourself at any time, even by hand—the main thing is that you sign it and include the date and place. This allows you to specify various details, such as who should inherit your real estate, your assets, or other property. With a Berlin will, for example, spouses can stipulate that the surviving partner becomes the sole heir before the estate passes to the children. However, with built-in tax provisions, you can also set aside a small portion for your children right away.
- The Inheritance Agreement In contrast, a contractual agreement is a contract between you and your future heirs or descendants. It is notarized and is binding on both parties. This means you can no longer unilaterally change the terms of the agreement unless all parties agree. An inheritance contract is particularly suitable if you wish to transfer significant assets, such as real estate or a business, under clear terms. This allows you to ensure stability and avoid disputes during your lifetime.
Both options help you make the most of tax allowances and tax brackets so that your children pay as little inheritance tax as possible when you pass away. A will gives you maximum flexibility, while a pre-need agreement provides certainty for specific situations, such as business succession or large gifts.
💡 Disinheritance: What applies in Germany
In Germany, children cannot be completely disinherited because they are protected by the right to a statutory share. This means that even if you exclude your children as heirs in your will, they are entitled to a statutory share. This amounts to half of the statutory inheritance and is always claimed as a monetary claim against the heirs—even if you disinherit your children.
You can only revoke the statutory share in very few exceptional cases. The conditions for doing so include, for example, offenses such as a serious criminal offense committed against you or other close relatives (Section 2333 of the German Civil Code). However, this requires a very specific justification in the will and is often recognized only in extreme cases.
Understanding Inheritance Tax
If you leave assets to your children or other relatives, inheritance tax generally applies. To ensure your estate isn’t burdened unnecessarily, you should be familiar with the key rules regarding tax brackets, exemptions, and tax rates—and know how to make the most of them.
The amount of inheritance tax depends on your relationship to your heirs. Tax class I applies to your children and spouse—which means particularly high tax-free allowances: currently 500,000 euros for a spouse and 400,000 euros per parent for children. Any amount exceeding this tax-free allowance is subject to tax.
Tax rates vary depending on the value of the inherited assets:
- up to 75,000 euros: 7%
- up to 300,000 euros: 11%
- up to 600,000 euros: 15%
- up to 6 million euros: 19%
- up to 13 million euros: 23%
- up to 26 million euros: 27%
- Over 26 million euros: 30%
This can quickly become a significant financial burden, especially if you own real estate or have substantial bank deposits—and your children may have to sell part of the inheritance to pay the tax. That’s why you should start thinking early on about how to use gifts or a well-planned will to reduce the tax burden.
❗By the way: Claims to a statutory share are also subject to inheritance tax. Children who have been disinherited or other beneficiaries entitled to a statutory share must pay tax on their share, even if they assert this claim solely as a monetary claim.
Strategies for Tax Reduction and Estate Planning
Do you want to ensure that your estate is subject to as little inheritance tax as possible when you pass away and that your children are as well provided for as possible? If so, it’s worth combining several strategies:
- Gifts made during one's lifetime Every ten years, you can give your children 400,000 euros per parent tax-free. For your spouse, the tax-free allowance is 500,000 euros. By gradually transferring your assets before your death, you can significantly reduce your tax burden.
- Berlin Will with Tax Provisions You can stipulate that, upon the first death, the children inherit a small statutory share alongside the spouse, thereby already utilizing their tax-free allowances. This allows you to combine the benefits of the “Berlin will” with the tax advantages of the tax-free allowances.
- Right of usufruct for real estate If you transfer a property to your children while retaining a right of usufruct, this reduces the taxable value. This allows you to lower the inheritance tax and continue to use the property yourself or rent it out.
- Family-owned company or real estate LLC These considerations are particularly relevant for larger estates or complex asset structures. You can transfer real estate or business interests in a tax-efficient manner while retaining control over your assets.
- Use of Tax Class I and Tax Deductions for Grandchildren Grandchildren also have their own tax-free allowance of 200,000 euros. Consider transferring part of your assets directly to your grandchildren while you’re still alive—this saves on taxes and helps support the next generation.
- Investments in Children With Investment accounts or savings plans for your children you can build wealth outside of the traditional inheritance. Any income and capital gains in the children’s investment account will eventually belong to your children—and will no longer be part of the estate. This way, you reduce the tax burden when your children inherit and, at the same time, ensure a secure financial foundation for them.
Whether it’s a Berlin will, a usufruct arrangement, or a family business: With the right strategy, you can significantly reduce your inheritance tax and ensure that your assets are passed on to your children and others exactly as you wish—without an unnecessary tax burden.
-> If you’d like to provide for your children through investments in addition to a traditional inheritance, we can offer you expert guidance. Get a free consultation today and set your children on the path to a secure financial future!
Conclusion
Securing your assets for your children requires more than just a will. Smart estate planning, tax-optimized gifts, and children’s investment accounts can help you take full advantage of tax exemptions and mitigate claims to a statutory share of the estate. This ensures that your inheritance goes to the people you care about—not to the government.
We'll help you find the right investment for your child!
- €25,703 more per child, thanks to our modern ETF strategy
- Find the perfect ETF investment for your child in a 30-minute video call from the comfort of your own home
- Sit back and watch your child’s wealth grow—our experts will take care of the rest
