What is a community of heirs?

“Don’t say you know a person until you have shared an inheritance with them.”

Johann Caspar Lavater

The supposed blessing of an inheritance often brings with it unpleasantness. Once it comes to the distribution of the inheritance, the circle of grieving relatives often suddenly turns into an arena of protracted and relentless (family) disputes. In the worst case, family peace is permanently shattered as a result.

By way of succession, several people often succeed to the position of heirs at the same time. They then form the (co-)community of heirs provided for by law in Sections 2032 to 2057a BGB. Such a community of heirs is a statutory community of forced heirs and community of fate. Whereas previously only one person was able to decide independently and at their own discretion about the assets in question, now several very different people have to agree on a common way of managing and distributing the assets. Although the law provides some clear guidelines for this process, the organization and liquidation of a community of heirs often harbors considerable potential for conflict. The purpose of the community of heirs is to dissolve it as soon as possible. In the worst case, however, this process can develop into a never-ending agony.

How is a community of heirs created?

The community of joint heirs arises automatically upon inheritance if the estate passes to several persons at the same time by way of succession. It extends to all persons who are appointed as heirs by the testator individually or by operation of law – regardless of their will. The law therefore mandates such a community.

Who are the members of a community of heirs?

Members of a community of heirs are all persons appointed to inherit simultaneously and alongside each other, regardless of whether their status as heirs is based on the law or an individual (“voluntary”) appointment of heirs (will or inheritance contract). These are referred to as “co-heirs”.

Substitute or subsequent heirs, i.e. heirs who only take over the position of other heirs on condition that they predecease them, only become members of the community of heirs when this condition is met. Legatees or persons entitled to a compulsory portion only have a claim under the law of obligations to the surrender of the legacy against the community of heirs and are therefore not co-heirs. Persons who are excluded from the inheritance due to disinheritance, waiver, ineligibility or renunciation of inheritance also do not become part of the community of heirs. Co-heirs can be not only natural persons, but also legal entities such as foundations or (partnerships or corporations).

The estate as special assets for the entire estate

The estate to be administered and divided by the community of heirs is a special asset separate from the private assets of the individual heirs. All co-heirs are jointly entitled to administer the estate. The internal decision-making process must always be unanimous – a circumstance that can cause major complications in the event of disagreements.

What does “total assets” mean?

The community of heirs is entitled to the estate assets “in their entirety”. Put simply, this means that “everything belongs to everyone”, regardless of the subsequent division ratio. For this reason, although co-heirs cannot dispose of estate assets individually, they can dispose of their share of the estate as a whole – for example by donating or selling the respective inheritance share. The acquirer of the inheritance share then assumes the position of co-heir. If the acquiring person is themselves a co-heir or co-heiress, their own inheritance share is increased by the additional share acquired.

What rights and obligations do the co-heirs in the community of heirs have?

The co-heirs as a whole, embodied by the community of heirs, are entitled to the estate, but also have obligations arising from it.

Dispositions of the estate, such as the sale of a property from the estate assets, can only be decided unanimously . Obligatory transactions(e.g. the commissioning of a repair or the conclusion of a rental agreement) can be carried out with a simple majority of votes in accordance with the proportion of the estate.

Creditors of the estate can turn to any of the co-heirs to satisfy their claims. Claims that are part of the estate assets, such as a loan claim against third parties, can be asserted individually by the co-heirs. However, only payment to all co-heirs can be demanded.

Each member of the community of heirs is obliged to participate in the proper administration of the estate, e.g. the administration of rental properties. If emergency measures, e.g. a roof repair on an estate property that cannot be postponed, are necessary to preserve the estate assets, such measures can also be initiated by an individual member of the community of heirs.

In principle, there is no entitlement to remuneration for activities performed by individual members in the interests of the community of heirs. However, it may be advisable to make use of the special expertise of individual co-heirs (if they are tax advisors, lawyers, property managers, etc.) and to remunerate their increased efforts from the estate.

How does a community of heirs end?

The community of heirs ends either with the so-called division of the estate or with the unification of the entire estate in the person of a co-heir or co-heiress.

The inheritance settlement

The dissolution of the community of heirs usually takes place by way of a division of the estate. This essentially describes the process of the actual division of the estate among the co-heirs as well as the settlement of all legal relationships between the community of heirs and with third parties. Such legal relationships may consist, for example, of outstanding claims or liabilities from the estate. To this end, the co-heirs enter into a contractual agreement which must include all essential points requiring clarification.

When can the dispute be requested?

In principle, every co-heir and every co-heiress has a right to a division of the estate and can therefore demand the division according to the respective inheritance share at any time. Under certain circumstances, however, division is (temporarily) excluded. This is the case if:

• the specific inheritance shares have not yet been determined, for example because the birth of a person who is to be an heir or heiress is imminent, or
• the testator has stipulated that the community of heirs should not be dissolved or should only be dissolved subject to a period of notice. This is possible up to 30 years after the inheritance or after the occurrence of a condition set by the testator (e.g. death of the spouse, an heir coming of age).
• The co-heirs can also contractually exclude a settlement. For example, in the event that a family business is to be continued by the community of heirs.

The compulsory community of co-heirs serves not least to protect creditors. For this reason, all liabilities from the estate, such as legacies, must be settled before the inheritance is divided. The remainder is then divided within the community of heirs.

How does the division of the estate depend on the settlement?

The division of the estate assets is based on the respective inheritance quotas, i.e. the extent to which each member of the community of heirs is entitled to inherit from the deceased. In the event that no testamentary disposition (will, inheritance contract) has been made, these are the statutory quotas. Within the framework of an arbitrary, individually determined succession, the testator can also make instructions regarding the specific distribution of his or her estate or specific items of the estate. Such instructions are called distribution instructions. The distribution instructions directly express the will of the testator as to which person from the circle of heirs should receive which item from the estate.

What applies if the testator has not made a division order?

If there is no special arrangement for the distribution of the individual items of the estate, the community of heirs must agree on a specific division of the estate.

This requires a precise inventory and assessment of the individual economic items in advance.

The valuation of assets left behind often causes difficulties. In many cases, the sentimental value of a particular bequest (your mother’s favorite jewelry, the summer house full of childhood memories) is often considered in addition to the pure monetary value.

Here, it is advisable to have an honest exchange about who is interested in which item or who is most likely to be able to continue a family business or use a property and pay off the other co-heirs, for example. Items that arouse the joint interest of several co-heirs can either continue to be used jointly or – in extreme cases – be allocated at random, for example by drawing lots.

What happens if the co-heirs do not agree on the division?

The testator can also preemptively order the division by an executor of the will. The co-heirs can arrange for mediation by the competent probate court in order to reach an agreement among the co-heirs. If the fronts are hardened, legal action can be taken by means of an action for division of the estate. This requires a prior detailed division plan and that the estate is ready for division. Real estate must therefore have been liquidated beforehand, for example through a partition auction, and debts of the estate must have been settled. If this action is successful, the co-heirs are ordered to agree to the division plan.

Problem of divergence between estate value and inheritance share

If the testator has made testamentary dispositions regarding the distribution of certain items of the estate, it is not uncommon for the value of what is specifically intended and the statutory or individually determined inheritance quota to no longer correspond.

If, for example, half of the value of the testator’s assets consists of a property which, due to the division order, is only to be inherited by one of her four children who inherit equal shares, the value of the property exceeds the child’s inheritance share by ¼.

For this constellation, case law provides for two different solutions – depending on the interpretation of the testamentary disposition in accordance with the testator’s intentions. If the equal rights of the co-heirs are to be maintained despite the allocation to individual co-heirs of the asset with a higher value in relation to the inheritance quota, they must pay the other co-heirs a corresponding compensation or settlement. In the example case, the child enriched by the property would therefore have to pay the quarter exceeding the inheritance quota as compensation to the community of heirs.

However, if the beneficiary is actually to receive more in terms of value in relation to the other heirs, the donation of the individual item of the estate must be qualified as a so-called advance legacy. This represents a claim under the law of obligations of the co-heir or co-heiress against the community of heirs, which must be settled as a liability of the estate before the estate is settled. Only the remainder remaining after this is then distributed by way of settlement in accordance with the corresponding inheritance quotas.

In our case, the property would therefore be distributed in advance from the estate in favor of the child in question and the remainder distributed equally among the co-heirs. This means that one child would receive 50% of the value of the estate in advance and then another 12.5% of the remaining estate, while the remaining three children would only receive 12.5%.

Final note

Not only the testator, but also potential heirs should therefore familiarize themselves with the procedures for the administration and distribution of a jointly inherited estate prior to the inheritance. As a rule, the persons who will form the circle of co-heirs will also be known before the inheritance takes place. As always in the area of estates and inheritance, far-sighted thinking is therefore recommended!