Company Succession and Trusts
Inheritance tax ruling creates boom for advisors
Clarity at last – this is what all the experts providing company succession advice hoped the long-awaited ruling by the Federal Constitutional Court (Bundesverfassungsgericht) in December 2014 would bring. These hopes were dashed. But the consequences that the German Ministry of Finance drew from the much-discussed ruling were and are all the more surprising for advisors. With a tough stance not only toward small companies (as stipulated by the Federal Constitutional Court), but above all toward high-net-worth individuals (HNWIs), the German Ministry of Finance incurred the wrath of virtually the entire advisory scene. The new “needs assessment” was met with particular incomprehension.
The assessment is crucial to achieve further tax relief above the asset threshold of €26m, which is also new. It is questionable, however, how many HNWIs will subject themselves to this assessment in the first place. It is already foreseeable that, if they do, it will most likely be strategically, in order to split business assets (with “positive” needs assessment) and private assets (to be taxed, but liquid). “This is the collateral damage of a bad law” was how one advisor put it.
Given these legislative plans, transfers under the old law are booming. Lots of company owners are suddenly transferring to very young family members or trusts (family trusts or double trusts) to take full advantage of the current regulation.
Comfortable standstill thanks to high utilization rate
The flood of requests for asset structuring triggered by the planned legislation is leading to full utilization rates at law firms. All advisors – whether those who look after assets in the single-digit millions, or those who advise in the billion-euro region – are called on to an equal degree. To some extent, this is resulting in a comfortable standstill in the sector. For example, Flick Gocke Schaumburg (with a new office in Hamburg) and P+P Pöllath + Partners (with stronger interdisciplinary cooperation) continue to dominate the market. And the boutiques focusing on succession advice (e.g. Hennerkes Kirchdörfer & Lorz and S&P Söffing) are experiencing a boom.
Family companies going to court more often
Recent years have also seen noticeable growth in litigation work for high-net-worth private clients in inheritance or shareholder disputes. Succession boutiques like Binz & Partner excel in major proceedings, such as the disputes involving meat producer Tönnies, Berlin’s Dussmann family regarding the Breuninger department store, or Aldi heir Babette Albrecht against art consultant Helge Achenbach, as do large firms with strong litigation practices, including Hengeler Mueller, Heuking Kühn Lüer Wojtek, Gleiss Lutz and Noerr.
Substantial private wealth often arises from succession planning in family businesses (incl. corporate sales) for owners who are high-net-worth individuals (HNWIs) or ultra-high-net-worth individuals (UHNWIs, with assets over €100m).
These assets must be structured, reinvested, assured and passed on – often using trust solutions. Company succession teams at more and more firms are advising high-net-worth private clients (such as managers and athletes) concerning the professional environment; this is only mentioned in this chapter as an additional competence. ?Tax law (incl. tax litigation, operational and fiscal advice) remains essential, but so do ?corporate and transactions ( ?M&A, ?private equity), inheritance, family, art and trust law, as well as the execution of wills.
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