GERMANY Law and Practice Contributed by: Tanja Schienke-Ohletz, Flick Gocke Schaumburg
to reach an agreement when it comes to deciding who ultimately receives which painting. The co-heir can only sell their share of the inheritance, but not the individual work of art. However, it can also happen that, due to inheritance disputes or tax payments, some of the works of art have to be sold and the collection is then broken up. • One solution is therefore to transfer the works of art or the art collection to a foundation in order to keep the works together. There is the option of a family foundation, which generally supports family members. It is not a charitable organisation, but can hold the art without any further requirements. A family foundation cannot be dissolved by the beneficiaries or the foundation’s board of trustees without further ado, so it exists virtually forever. This can be useful for preserving an art collection. • Collectors or artists often decide to transfer the artworks to a charitable foundation, which must use the artworks to promote charitable purposes. It is tax-exempt, but in return must strictly adhere to the requirements of charitable law. Once in a charitable foundation, the artworks may no longer be transferred to the assets of a private individual. 10.2 Legal and Fiscal Issues in Artwork Succession Under German law, works of art are inherited in the same way as other assets, by way of universal suc - cession. Upon the death of the testator, their entire estate, including works of art, is automatically transferred to the heir or heirs. However, art can also be passed on to legatees. In this case, they only have a claim against the heirs for the surrender of the works of art. If there are several heirs, a community of heirs is formed, which is entitled to the entire estate – includ - ing the works of art – as joint property. The heirs can only dispose of individual items of the estate, includ - ing works of art, jointly. The heirs immediately assume the position of the tes - tator. If there is a will or an inheritance contract, the testator can bequeath individual works of art to spe - cific persons; in this case, the heirs initially acquire
ownership, but must surrender the work of art to the legatee. German inheritance law also recognises the right to a compulsory portion, which guarantees the next of kin a minimum share of the estate, even if the testator has disinherited them; this can also apply to works of art. This can be particularly problematic because the claim to a compulsory portion is a monetary claim, but the works of art represent illiquid assets. In extreme cases, the heirs would then have to sell the assets in order to satisfy the compulsory portion claims. If illiq - uid assets – such as an art collection – are inherited, it is therefore advisable to agree on a waiver of the compulsory portion with the parties concerned. This can only be done before a notary and, of course, the parties involved must also agree to this. 10.3 Tax Implications of Artwork Gifts and Donations The donation or inheritance of works of art is generally subject to inheritance and gift tax. The purchaser – ie, the heir or donee to whose assets the work of art is transferred free of charge, is liable for tax. However, this only applies if either the testator/donor or the pur - chaser is resident in Germany – ie, has their domicile or habitual residence in Germany. If this is not the case, Germany would not levy inherit - ance or gift tax, even if, for example, the art is located in Germany. It is a movable object, for which the loca - tion is irrelevant (unlike real estate). Works of art are generally valued at their fair market value at the time of acquisition. This means that the market value of the work of art is decisive for the tax assessment. This is often not easy to determine. In individual cases, it may be advisable to obtain an expert opinion from an art expert. The amount of tax is based on the value of the acquired work of art, the family relationship (tax class) and personal allowances. Higher allowances apply to close relatives (eg, spouses, children) and lower allow - ances to more distant relatives or third parties. Several gifts from the same donor to the same recipient within ten years are added together for the calculation of the allowance.
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