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Taxation of the death benefit - sole heir pays sister out

February 2, 2015 | 50,00 EUR | answered by Ralph J. Schnaars

A question about the taxation of death benefits from an inheritance.
After the death of my father, I was determined by the probate court to be the sole heir, but I have to pay out 50% of the inheritance to my sister. For the death benefit, I had to get a new income tax card issued. I transferred 50% of the net amount to my sister, and the amount on this income tax card was automatically included in my tax return.
My sister now believes that I did not act correctly and insists on separately declaring 50% of the death benefit in her tax return, as she would otherwise be guilty of tax evasion, which has also been confirmed by her tax office.
I spoke with my tax office caseworker before the withdrawal period expired (which has now passed), and she reviewed my documents during the conversation. From her point of view, I acted correctly, as being the sole heir means that the division of the tax burden is a matter of private law. The death benefit has been fully taxed.
According to my sister, my tax burden is higher, but I believe that this is the real driving force behind her insistence. However, as the tax amount on the death benefit is very low at 300 euros, I consider the effects to be negligible.
Does my sister now have to declare the already taxed death benefit again for tax purposes, and was my approach correct? We are still within the tax-free allowance for the inheritance, so there is no inheritance tax due.

Ralph J. Schnaars

Dear inquirer,

I believe your tax office is correct.

As the sole heir, you are likely the only one entitled to receive the funeral benefit. Therefore, you are obligated to declare this income for taxation.

You satisfy your sister's claim or share with a 50% payment. This is a settlement within the inheritance division and is simply a distribution of the inheritance.

Since the inheritance falls within the applicable tax-free thresholds, there are no additional taxes for this 50% distribution.

If your sister wants to declare her share of the funeral benefit in her tax return, she would first need a legal right to the funeral benefit and actually receive the benefit. However, both of these conditions are not met, as the partial payment from you to your sister no longer constitutes funeral benefit in the true sense, but rather just another payment within the entire inheritance settlement.

Based on the information you provided, it appears that your sister did not have any income from funeral benefits to declare, and therefore does not have any income to be taxed. Overall, you have handled the situation correctly.

I hope this helps with your considerations.

Kind regards,

Ralph J. Schnaars

STWB Tax Consulting Company
Direct contact +49 (0)171 525 20 42
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