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A distribution of an estate refers to the legal and practical process by which several heirs in a community of heirs divide the inherited assets among themselves.
It comes into effect when an estate is not taken over by a single heir but must be distributed among several people. The estate – often consisting of real estate, financial assets or company shares – is divided up so that each heir receives their share.
Community of heirs: If the deceased leaves behind several heirs, they form a community of heirs. This community jointly owns the estate until it is distributed. In the meantime, they can only dispose of the estate jointly.
Amicable distribution: Ideally, the heirs agree among themselves who will receive which part of the estate. They can sell real estate, pay out inheritance shares or divide up assets. A notarial contract is required if real estate is included in the estate.
Partition agreement: Such an agreement regulates in detail how the estate is to be divided. The heirs can receive their share either through an amicable distribution or through the sale of estate items.
Probate auction: If no agreement can be reached, an heir can apply for a partition auction. The probate court then ensures that the estate is divided by compulsory auction – an often undesirable solution, as assets may be sold at a lower price.
Special provisions: In practice, special clauses in the will may also influence the course of the distribution of the estate. A testator may give instructions for the distribution in the will or prohibit the division of the estate.
Tax consequences: The distribution of the estate itself has no direct impact on inheritance tax. Inheritance tax is incurred upon death. However, certain agreements or transfers in the context of the distribution may lead to further tax obligations, such as income tax if a property is sold
The distribution of an estate involves legal and emotional risks, especially if there are disputes among the heirs. Without amicable solutions, there is a risk of lengthy and costly legal proceedings. Tax pitfalls, such as an unintended increase in the tax burden due to the sale of real estate, should also be avoided.
Overall, the distribution of an estate is a complex process in which professional advice from tax advisors and solicitors is essential in order to avoid conflicts and handle the legal and tax aspects correctly.