American inheritance law
There is actually no such thing as “American inheritance law” because inheritance falls under the jurisdiction of individual US states, so one would actually have to refer to Texas, California, etc. inheritance law. The requirements for drawing up a legally valid will, as well as the legal provisions for the settlement of estates, vary considerably in the US depending on the region. In order to harmonize the legal systems, a model law, the Uniform Probate Code, was developed, but so far it has only been implemented in whole or in part by Alaska, Arizona, Colorado, Hawaii, Idaho, Maine, Massachusetts, Michigan, Minnesota, Montana, Nebraska, New Jersey, New Mexico, North Dakota, South Carolina, South Dakota, the US Virgin Islands, and Utah.
Differences between inheritance law in the USA and Germany
Freedom of testamentary disposition
Inheritance law in the US is governed by the principle of freedom of testamentary disposition, i.e. the testator is essentially free to draft their will as they see fit. For example, they can
- make a specific gift,
- a residuary gift,
- appoint an executor, etc.
Legal principle of estate administration
While the legal principle of “direct acquisition” applies in Germany – i.e., the heirs immediately and directly assume the legal position of the deceased – in legal systems governed by common law, such as the United Kingdom, Australia, and most US states, the legal principle of estate administration applies, which means that the estate usually passes to the executor, who distributes it as specified in the will. If this estate administrator is designated in the will, they are called the executor or, in some states, the personal representative (usually one of the beneficiaries, but often also a third party, such as a lawyer or friend), otherwise they are called the administrator.
Issuance of letter
After the probate court has verified the validity of the will, it issues a document to the administrator or executor, namely the “Letter of Administration” if there is no will (and thus the legal succession comes into effect) or the “Letters Testamentary” if the deceased left a will, thereby appointing the administrator or executor as the estate administrator.
The estate administrator first pays all liabilities, including inheritance tax, fulfills any bequests (if applicable), and only then distributes the residual estate among the beneficiaries.
As a rule, the estate administrator does not have to ask the beneficiaries for permission or consult with them on individual measures, but is of course liable for economically unreasonable actions and for violations of the provisions of the will.
Will substitutes
In the US, will substitutes are widely used to transfer assets upon death “outside of the estate.” A living trust transferring assets to a trustee for management on behalf of beneficiaries is a common means of estate planning. Another option is a pour-over will transferring the estate to a trust, where it is managed and distributed according to the trust’s rules.
Joint-tenancy
Joint tenancy also offers the option of several people jointly owning an asset (e.g., an account or a house) and, in the event of the death of one of the partners, the share of the first to die accruing to the survivor upon death, without formal estate administration.
Payable on death account
Another option, which is quite common in the USA, is to enter into an agreement with the bank or another financial institution stipulating that, in the event of death, the balance is to be paid to a specific person (payable on death account) or that securities are to be transferred to that person (transfer on death account).
