Succession: a portfolio your heirs can actually read

When the person who kept the overview dies or can no longer act, the first problem is not inheritance tax. It is that nobody else knows what exists. A depot sends statements. A fund commitment, a stake in a start-up through a pooling vehicle, a convertible loan and a private loan to a friend send nothing, until a capital call arrives addressed to someone who cannot answer it. German law gives heirs six weeks to disclaim an estate and three months to notify the tax office. A record of a few pages, kept current, with the place of every document, is worth more in those weeks than any structure set up years earlier.

What do heirs find?

The liquid part announces itself. Banks and other custodians must report the assets of a deceased customer to the tax office within one month of learning of the death (§ 33 ErbStG), and the statements keep arriving.

The illiquid part is silent. A GmbH stake is in the shareholder list at the commercial register, but nobody writes to the heirs about it. A commitment to a venture fund exists as a subscription agreement in a PDF and as a login to an investor portal. An angel investment held through a vehicle appears on no cap table under the family's name. A convertible loan is a contract whose conversion terms only its signatory remembers. Much of the correspondence arrives in one personal mailbox.

Then there are the liabilities, which matter more. The unfunded part of a fund commitment is a debt of the estate. So are property loans, guarantees given for a company, and the obligation in a shareholders' agreement to sell alongside the majority.

Which deadlines run before the overview exists?

An heir may disclaim the estate only within six weeks of learning of the inheritance and its legal basis; the period is six months if the deceased last lived abroad or the heir was abroad when it began (§ 1944 BGB). Whoever does not disclaim inherits everything, the open commitments included. Weighing EUR 400,000 of unfunded commitments against assets that cannot be sold quickly is not possible without a list.

The acquisition must be notified to the tax office within three months (§ 30 ErbStG). The exemption for estates under a will opened by a court or notary does not apply where the estate includes real estate, business assets, shares in corporations or foreign assets, which describes most readers of this blog.

Who may act while the investor is alive but incapacitated?

This case is more likely than sudden death and less often prepared. A spouse has no general authority. The mutual right of representation that § 1358 BGB gives spouses covers health matters only and ends after six months. It does not allow a spouse to meet a capital call, vote a share or extend a loan.

What does is a lasting power of attorney, the Vorsorgevollmacht (§ 1820 BGB). It can be registered in the central register of the Federal Chamber of Notaries, which guardianship courts consult. The register records that a power exists and who holds it; the document itself must still be found. Three practical points belong on the list. Ask each bank now whether it accepts the power you have or wants its own form. For land-register matters the power must be notarially certified or recorded (§ 29 GBO), and the same form saves discussions with a GmbH's notary. And a power that continues after death lets the holder act in the weeks before the heirs can prove their position.

Without a power of attorney a court appoints a guardian, who needs court approval for many transactions. A capital call's ten-day notice does not wait for that.

How do heirs prove who they are?

The standard proof is a certificate of inheritance, the Erbschein, issued by the probate court. It takes time and costs fees that depend on the size of the estate. It is not always required: the Federal Court of Justice held on 8 October 2013 (XI ZR 401/12) that a bank may not insist on one as a general rule, and that a notarial will together with the court's opening record can suffice. On 5 April 2016 (XI ZR 440/15) it said the same for a handwritten will that names the heirs clearly. A fund manager in Luxembourg or Delaware is not bound by either ruling and will ask for whatever its own lawyers require. The record should say, for each holding, who the counterparty is and how to reach it.

What will the tax office want for unlisted holdings?

Inheritance tax values everything as of the date of death (§ 11 ErbStG). For a listed share that is a price. For shares in an unlisted company, § 11(2) of the Valuation Act looks first at sales between unrelated parties less than a year back; a financing round within that year can therefore set the value. Failing that, the value is derived from earnings prospects or another recognised method, with the net asset value of the company as the floor. The simplified earnings method of the Act multiplies sustainable annual earnings by a fixed factor of 13.75 (§ 203 BewG). Units in investment funds within the meaning of the Capital Investment Code are taken at their redemption price (§ 11(4) BewG).

What this means for the record: the heirs' adviser will ask for the documents of the last financing round, the current cap table, the latest annual accounts and, for every fund, the capital account statement nearest the date of death. Each spouse has a personal allowance of EUR 500,000 and each child one of EUR 400,000 (§ 16 ErbStG); whether an illiquid stake pushes the estate above them depends on these valuations. This is an outline, not tax or legal advice. The individual case belongs to a notary and a tax adviser.

What belongs in the record

• Every holding with its legal form: which entity, what exactly is owned, and through which vehicle or trustee.
• For each fund: commitment, paid in, unfunded amount, currency, the manager's contact and the portal.
• For each company: shares and class, the cap table as of the last round, the shareholders' agreement, convertible loans with cap, discount and maturity.
• For each property: land-register entry, loans, lender, end of the fixed-rate period, leases, the manager.
• Depots and accounts: bank, number, existing powers of attorney.
• Loans given and received, guarantees, and anything signed that obliges the estate to pay.
• The people: tax adviser, notary, co-investors, the lead of each syndicate.
• Where the originals are, and how an authorised person reaches the mailbox and the portals.

A record that is two years old is a different problem

The list fails in the same way every time: it was written once, after a conversation like this one, and the three commitments made since are missing. A record that is produced from the documents as they arrive does not have that weakness, which is one reason we build Valued the way we do: the original document sits behind every figure, and the whole portfolio exports to Excel for a person who has never logged in. A well-kept spreadsheet with a folder beside it does the same job if someone maintains it. We described where that stops working.

There is a simple test. Hand the record to the person who would have to act, and ask two questions: how much could the funds still call, and when does the next fixed-rate period end? If the answers take more than a few minutes, the record is not finished.