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 power of attorney, last will and testament, health care proxy and care proxy.
This article is intended to raise awareness of this issue among homeowners and apartment owners.
Small examples from practice point out the multitude of individual problems and sources of error.
1. the care case:
Mr W, flat owner, has made himself nice and cosy in his home. For health reasons, the “Zivi” comes over and helps with the daily tasks. A parish nurse organized “meals on wheels” for him. Now that the need for care is increasing, the health insurance fund does not see itself in a position to contribute beyond what is required by “law and statute”. The costs are a thorn in the side of the concerned heirs, so that Mr. W. is “transferred” to a home without further ado. Then, a medical report shall be drawn up to determine whether the business or the Testamentary incapacity established.
W is disappointed because he has spread his assets over various areas (real estate, securities, insurance): Just as the advertisement promised him, he thought he would be able to spend his old age in his apartment without financial worries. He had not reckoned with the caring compulsion to move at the instigation of his relatives. A health care proxy and care directive would have spared him this: he would have been able to choose a proxy and a guardian for legally effective representation.
In the event of a sudden change in health, it would be ensured that the apartment owner could remain in his apartment for as long as possible. In order to finance the sometimes more expensive stay in one’s own home as a nursing case, knowledge of social and tax law is helpful.
2. the inheritance case:
Mrs. H, homeowner, lives as a widow in her small house on the outskirts of town. Her acquaintance, Mrs. B, is given regular gifts for personal care and a savings account is set up for payment to B in the event of her death. The relatives hardly care for Mrs. H, except for the enterprising stepchild S., who, according to Mrs. H, is to get the cottage one day.
Unfortunately, things turn out differently than expected. In the absence of a formally valid last will and testament, S. could not become heir; S. was also excluded as legal heir, although he had even lived in the household of H. for years. The acquaintance, Mrs. B., unfortunately also has bad luck, because the heirs forbid the bank to pay out the savings balance, although Mrs. B. can present the savings book at the bank: She had found it in the apartment. She is also now expected to return previous gifts, according to the heirs’ ideas.
Donation, adoption and execution of wills:
Ms. H. would have had the opportunity to improve the position of the stepchild – also from a tax point of view – by adopting the stepchild. In addition, the testatrix could have secured your gifts so that in the event of your death, Acquaintance B would get and keep what was intended for her. The arrangement of an execution of a will can also be economically advantageous from the point of view of the heirs. This avoids lengthy disputes between the heirs regarding the division and realisation of the estate.
Especially if only one property is included in the estate, the protection of the surviving dependants should be considered. Which testator would have been pleased that unloved relatives could, for example, force the surviving spouse to leave his or her own four walls? In practice, provision for debts of the estate is also significant. In any case, the legal succession is not very suitable to create a precaution against financial losses in case of death.
3. the tax case:
Mr. H., house owner, leaves behind a small craft business, two owner-occupied flats and his single-family house in which the company administration is also housed. Mr. H. believes that by acquiring real estate he has done everything to ensure that the inheritance process runs smoothly. Years ago, an advisor had told him that because of the assessed value, there was no inheritance tax.
The estate is then divided among the heirs. A son sells his inheritance to the widow. Another son leaves the community of heirs – instead of arguing – in exchange for a settlement. The remaining heirs agree on who gets which property or the business in return for internal financial compensation. With surprise the heirs take then to the knowledge that beside inheritance tax also income tax results. The tax office does not want to recognise the subsequent corrections to the agreements.
Inheritance contract and settlement agreement:
In this case, too, there are numerous misjudgements. With comprehensive advice, most of the inheritance and income taxes would have been avoidable. Who would think of the fact that income tax can be incurred simply by dividing the estate. This will require unforeseen financial resources. Sometimes there is no other way than to sell the real estate. Through sensible use of insurance and appropriate economic estimation, this bottleneck – if recognised – would also be avoidable.
Four. The criminal case:
The spouses of family X live separately in different apartments. Both visit each other regularly and are in good contact. Mr X collects valuable art, lives in a rented flat and runs a flourishing business. Ms. X bought a larger condominium. While the spouse is in convalescence, her husband passed away at home in the presence of their illegitimate son. When the widow returns after a two-week cure, she finds in the apartment of the deceased, apart from “sorted out” files of older date, only a telephone, standing on the floor. The investigation by the heiress and the authorities into the sudden disappearance of the fortune comes to nothing. No heir wanted to continue the business, so it was sold without any significant proceeds.
Document folder and insurance:
The widow could have ensured in advance that investigations would have led to success if appropriate documentation had been provided. The effective value of the estate would have been much higher if insurance contracts had been used and a succession plan had been put in place.
5. the probate case:
Mrs. V., landlady, has to take note that her tenant M. has died. This would not be a tragedy if the bank did not stop paying the rent shortly afterwards. The property manager eventually discovers that the apartment had been damaged by the tenant and had not been renovated in 8 years. Mrs V would like to give notice to vacate the flat for re-letting. Fatally, no one is willing to accept the notice, so that the regulation drags on for months. As a result, she incurred a loss of rent.
Property management and probate:
The broker had overlooked providing in the lease a provision for jurisdiction in the event of the tenant’s death. Unfortunately, for a long time no person was found who could ensure a further rent payment and the return of the apartment, including renovation, in a timely manner. Each individual case has its own peculiarities. Only sensible, individual solutions – often combining wills and financial services – will one day avoid disputes and financial losses.
by RA Dr. Johannes Fiala
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About the author
PhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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