Inadequate provision can cause considerable economic damage to assets in the event of care or death, and often the wishes and aspirations of the person concerned are not fulfilled. The documents for arranging these matters are a power of attorney, a last will and testament, a health care proxy and a care directive.
This article is intended to raise awareness of this issue among homeowners and apartment owners.
Small examples from practice illustrate the wide range of individual problems and sources of error.
1. The care case:
Mr W, a flat owner, has made himself comfortable in his home. For health reasons, a home-care assistant comes by to help with his daily tasks, and a parish nurse has arranged a “meals on wheels” service for him. Now that his need for care is increasing, the health insurance fund does not see itself obliged to contribute beyond the statutory minimum. The costs are a thorn in the side of the concerned heirs, so Mr W is “transferred” to a care home without further ado. A medical report is then drawn up to determine whether he lacks the legal capacity to conduct business or to make a will.
W is disappointed, because he had spread his assets across various areas (real estate, securities, insurance): just as the advertising had promised him, he had thought he would be able to spend his old age in his flat without financial worries. He had not anticipated that his relatives would feel compelled, out of a sense of duty of care, to have him moved. A health care proxy and a care directive would have spared him this: he would have been able to choose his own representative and guardian for legally effective representation.
In the event of a sudden change in his health, this would have ensured that he could remain in his flat for as long as possible. Financing the sometimes more expensive option of staying in one’s own home as a care case is easier with some knowledge of social and tax law.
2. The inheritance case:
Mrs H, a homeowner, lives as a widow in her small house on the outskirts of town. Her acquaintance, Mrs B, receives regular gifts in return for personal care, and a savings account is set up to pay out to B in the event of Mrs H’s death. Her relatives hardly look after Mrs H, apart from her enterprising stepson S, who, according to Mrs H, is meant to inherit the cottage one day.
Unfortunately, things turn out differently than expected. In the absence of a formally valid will, S could not become an heir; he was also excluded as a statutory heir, even though he had lived in Mrs H’s household for years. Her acquaintance, Mrs B, is likewise out of luck: the heirs instruct the bank not to pay out the savings balance, even though Mrs B can produce the passbook – she had found it in the flat. According to the heirs, she is now even expected to return the gifts she previously received.
Gifts, adoption and execution of the will:
Mrs H would have had the opportunity to improve her stepson’s position – including from a tax perspective – by adopting him. In addition, as testatrix she could have secured her gifts so that, in the event of her death, her acquaintance B would receive and keep what was intended for her. Arranging for the execution of the will can also be advantageous for the heirs, as it avoids lengthy disputes between them over dividing and realising the estate.
This is especially important where the estate consists of only one property: the surviving dependants’ position should be protected. What testator would want an unloved relative to be able to force the surviving spouse out of their own home? In practice, making provision for the estate’s debts is significant too. Statutory succession alone is rarely suitable for guarding against financial loss in the event of death.
3. The tax case:
Mr H, a house owner, leaves behind a small craft business, two owner-occupied flats and the single-family house that also serves as the company’s administrative offices. Mr H believed that, by acquiring real estate, he had done everything necessary to ensure the inheritance process would run smoothly. Years earlier, an adviser had told him that, because of the assessed property value, no inheritance tax would be due.
The estate is then divided among the heirs. One son sells his share of the inheritance to the widow. Another leaves the community of heirs – rather than arguing – in exchange for a settlement payment. The remaining heirs agree among themselves who will receive which property, or the business, in return for internal financial compensation. To their surprise, the heirs then learn that, alongside inheritance tax, income tax is also due. The tax office refuses to recognise the subsequent corrections to the agreements.
Inheritance contract and settlement agreement:
Here, too, there were numerous misjudgements. With comprehensive advice, most of the inheritance and income tax could have been avoided. Who would have thought that simply dividing an estate can trigger income tax? This creates a need for funds that was not foreseen, and sometimes the only option is to sell the real estate. Sensible use of insurance and appropriate financial planning could have avoided this bottleneck as well, had it been recognised in time.
4. The criminal case:
The spouses of the X family live separately, in different flats, but visit each other regularly and remain on good terms. Mr X collects valuable art, lives in a rented flat and runs a flourishing business. Mrs X has bought a larger condominium. While she is away at a health resort, her husband dies at home in the presence of their child from an earlier relationship. When the widow returns after a two-week stay, she finds in her late husband’s flat only a telephone standing on the floor, apart from some “sorted out” older files. The heiress’s and the authorities’ investigation into the sudden disappearance of the estate leads nowhere. As no heir wanted to continue the business, it was sold without any significant proceeds.
Documentation and insurance:
The widow could have ensured beforehand that any investigation would succeed, had appropriate documentation been in place. The real value of the estate would have been far higher if insurance contracts had been used and a succession plan had been drawn up.
5. The probate case:
Mrs V, a landlady, learns that her tenant M has died. This would not be a tragedy if the bank did not stop the rent payments shortly afterwards. The property manager eventually discovers that the flat had been damaged by the tenant and had not been renovated in eight years. Mrs V would like to give notice in order to re-let the flat. Unfortunately, no one is willing to accept the notice, so the matter drags on for months, and she suffers a loss of rental income.
Property management and probate:
The letting agent had failed to include a jurisdiction clause in the lease for the event of the tenant’s death. For a long time, no one could be found who could ensure the rent kept being paid and the flat, including any renovation, was returned in good time. Every individual case has its own particular features. Only sensible, individualised solutions – often combining wills and financial planning – can ultimately avoid disputes and financial losses.
by RA Dr. Johannes Fiala
