Inheritance Law2026-08-30

Inheritance Tax 2026 – Should I Review My Will and Lifetime Gifts Now?

Tax-free allowances, tax classes and the ten-year rule for gifts: what you should know in 2026 about your will and transfers of assets during your lifetime – and why a pending case before the Federal Constitutional Court is a reason for caution.

You have made a will. Perhaps you have already given something to children or grandchildren during your lifetime. Now you are wondering whether it all still fits together. That concern is well founded: tax-free allowances, tax classes and the way property and business assets are valued determine how much of your estate ultimately ends up with the tax office – and how much stays with your family. On top of this, there is currently some uncertainty as to how long the present valuation rules will remain in place.

In brief

The tax-free allowances themselves are firmly set out in § 16 ErbStG: €500,000 for spouses, €400,000 for children, €200,000 for grandchildren. They are not automatically recalculated or index-linked. They remain unchanged until the legislator adjusts them. Anyone who made a gift more than ten years ago can use these allowances again, per person and per ten-year period. Anyone who has already made a gift within the past ten years must add it together with any future transfer. Reviewing your will and any gifts you have already made is therefore worthwhile regardless of the Federal Constitutional Court. It is always worthwhile whenever your assets, your family circumstances or the ten-year period have changed since you last planned. The pending case on the valuation of business and property assets is an additional reason, but not the only one.

How I can help

Checking whether your allowances under § 16 ErbStG have already been used up, in whole or in part, by earlier gifts
Calculating the actual tax burden you can expect, based on tax class and tax rate (§§ 15, 19 ErbStG)
Strategies for making use of the ten-year rule – for example, staggered gifts to several beneficiaries
Amending or redrafting your will and inheritance contract in light of your current asset and family situation
Advising on whether and how you should respond to the Federal Constitutional Court’s decision on asset valuation

Allowances and tax classes – who receives how much tax-free

The law distinguishes three tax classes according to the personal relationship to the deceased or the person making the gift (§ 15 ErbStG):

Tax class I: spouses and civil partners, children, stepchildren and their descendants, as well as parents and grandparents in the case of transfers on death
Tax class II: siblings, their children, stepparents, sons- and daughters-in-law, parents-in-law, divorced spouses
Tax class III: all other recipients, such as unrelated partners or distant acquaintances

Each tax class is assigned a personal allowance under § 16 ErbStG. Spouses and civil partners receive €500,000, children and the children of deceased children €400,000, grandchildren €200,000, other persons in tax class I €100,000, and tax classes II and III €20,000 each. Only the amount above this allowance is taxed at the rate set out in § 19 ErbStG. That rate is graduated: from 7% to 30% in tax class I, and considerably higher in classes II and III. Do you wish to provide for your partner as an unmarried couple? Look carefully at which tax class they fall into. Without a marriage certificate or registered civil partnership, only €20,000 remains tax-free.

The ten-year rule – why earlier gifts now count again

§ 14 ErbStG provides that several transfers of assets from the same person are added together if they occur within ten years. The earlier transfer is added to the most recent one at the value it had at the time. Only then is it assessed how much of the shared allowance remains. In practice, this means two things:

Anyone who received a gift more than ten years ago can use their full allowance again in relation to the same donor. The earlier gift then drops out of the calculation.
Anyone who has made a gift or inherited within the past ten years must include that amount in the next transfer from the same person. A transfer can then suddenly become partly taxable – even where, on its own, it would fall below the allowance.

For the tax calculation there is also a cap: under § 14 Abs. 3 ErbStG, the tax triggered by the later transfer may not exceed 50% of that later transfer. If you regularly transfer larger amounts of wealth, use the ten-year rule actively as a planning tool. Staggered gifts every ten years make use of the allowances several times over – rather than giving them away in a single transfer.

The trigger: valuation of business and property assets before the Federal Constitutional Court

A decision by the Federal Constitutional Court on the valuation rules for inheritance tax is expected for October 2026. It concerns, in particular, the valuation of business and property assets. I deliberately do not cite a specific case number or the details of the proceedings here – these need to be examined closely. What matters for you is the broad picture: if the Court finds fault with the current valuation methods, the legislator may be forced to make corrections. These would affect future transfers of property and business assets. If you own such assets and are planning a larger transfer, keep an eye on this decision. But do not let it drive you into hasty action: an impending change in the law is no reason to postpone overdue estate planning. It is rather a further reason to tackle that planning now, with professional guidance. That way you will be able to respond quickly to any new rules.

An example from practice

Eight years ago, my client gave her daughter a securities portfolio worth €250,000 – at the time below the €400,000 allowance, and therefore tax-free. Now she would also like to leave the same daughter a freehold flat worth €300,000 in her will. Without checking the ten-year rule, the daughter would have assumed that this transfer, too, would remain tax-free. In fact, both transfers are added together: €250,000 + €300,000 = €550,000. After deducting the single allowance of €400,000, €150,000 remains taxable. The gift will only drop out of the ten-year period in two years’ time. By adjusting the timing of the transfer, we were still able to reduce the tax burden noticeably.

Common mistakes

Earlier gifts are forgotten: especially where there are several children or grandchildren, it becomes hard to keep track of who received how much, when and from whom.
The will is not updated to reflect changed circumstances: a will drawn up years ago often no longer matches today’s asset structure, for example after buying a property.
Unmarried partners are treated like family members: without a marriage certificate, usually only the €20,000 allowance applies – an unpleasant surprise if nothing is done in good time to address it.
Gifts are made “all at once” rather than in stages: this throws away the chance to use the allowances several times over across multiple ten-year periods.
Waiting for the Federal Constitutional Court’s decision instead of acting now: a possible future change in the law is no substitute for current planning tailored to your circumstances.

Frequently asked questions

Do I have to change my will now because of the Federal Constitutional Court’s decision?

Not necessarily straight away. A review is sensible, however, if you own substantial property or business assets. Until a decision is handed down and the legislator responds, the current law continues to apply unchanged. You should nevertheless know at which points your planning could be affected by any new rules.

Do I lose my allowance if I do not use it?

No, an unused allowance is not lost. It does not simply disappear: once the ten-year period has elapsed, it is available to you again in full in relation to the same person. It merely cannot be transferred to other people or “saved up” for later transfers.

Does a gift to my child still count if I later inherit from my spouse?

No, the aggregation under § 14 ErbStG only applies to transfers from the same person. A gift from one parent and an inheritance from the other parent are treated separately in the child’s hands and each set against its own allowance.

What happens if I do nothing at all?

Without a will, the statutory rules of succession apply. These are not necessarily the most tax-efficient and often do not reflect your personal wishes. By not making use of the ten-year rule, you also throw away the chance to transfer assets tax-free more than once. Instead, you pass them on in a single transfer and lose a larger share of them to inheritance tax.

Does the allowance apply per heir or to the estate as a whole?

The allowance belongs personally to each individual heir or recipient, graduated according to their relationship to the deceased or donor. Where there are several children, therefore, each child has its own allowance of €400,000 in relation to the respective parent.

Your next step

Whether – and to what extent – you need to take action depends on your particular asset and family situation. That ranges from the question of which gifts have already been made to how your wealth is made up between property, business assets and liquid funds. In an initial consultation, I will look at where your will or your existing gift planning needs improvement. Together with you, I will develop a strategy that takes account both of the current law and of how things may develop through the pending case before the Federal Constitutional Court. You can find more about the range of services I offer in inheritance law at /en/topics/inheritance-law. Do get in touch to arrange an appointment, so that I can discuss your individual situation with you.

This article provides general information and is no substitute for legal advice in an individual case. Last updated: 2026-08-30.

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