Resolving an Inheritance Community: How to Easily Obtain a Loan for Paying Out an Heir
22 Jun 2025
6
Minutes
Katrin Straub
CEO at nextsure
An inherited property is blocking the community of heirs because one co-heir is demanding their share in cash? This doesn't have to lead to conflict or a forced sale. A targeted loan for paying out an heir is often the quickest and fairest solution for all parties involved.
The topic in brief and concise terms
A loan for estate settlement allows co-heirs to be paid out and an inherited property to be kept within the family.
The inherited property typically serves as the main security for the loan, often resulting in more favourable interest rates than with an instalment loan.
A certificate of inheritance, an excerpt from the land register, and a notarial partition agreement are essential for granting a loan.
The core issue: When the heirs' community becomes unable to act
An inheritance community forms automatically when an estate is bequeathed to multiple heirs. This community must manage the inheritance and can only make unanimous decisions about estate items such as a property. If only one co-heir demands cash instead of a share in the property, the entire community can be blocked because no one can be forced to sell. However, according to § 2042 BGB, each heir has the right to demand the dissolution of the community. Without agreement, there is a risk of a partition sale, which often leads to a sale below market value. A loan for paying off an heir is a proactive solution to prevent this scenario. This paves the way for a clear financial separation.
The Solution: How a Loan for Inheritance Payout Works
An inheritance settlement loan is a type of financing that an heir takes out to buy out the shares of their co-heirs. Let's assume two siblings inherit a house worth 400,000 euros. One sibling wants to stay in the house, while the other needs their share of 200,000 euros. The remaining heir can take out a loan of 200,000 euros and use the property as collateral for the bank. This way, the co-heir is paid out, and the borrower becomes the sole owner. There are two common types of loans for this:
Mortgage Loan: This often offers more favourable interest rates, as the inherited property serves as collateral. The interest rates usually range between three and five percent, depending on creditworthiness.
Personal Loan: For smaller payout amounts or if the property is not to be used as collateral, a loan with free use is an option, although with typically higher interest rates of four to eight percent.
This structured financing creates clear conditions and prevents lengthy disputes. Next, the prerequisites for such financing must be examined.
Bank requirements: These documents are needed for the loan
Banks thoroughly review an application for an inheritance payment loan as it is a special form of financing. The applicant's creditworthiness is crucial; this includes a regular income and a positive Schufa report. The most important security for the bank is usually the inherited property itself. For this, a land charge must be registered in the land register, which requires the consent of all (still) co-heirs. The following documents are typically required:
A certificate of inheritance or a notarised will as proof of the inheritance claim.
A current extract from the land register of the property.
An appraisal or a realistic market value estimate of the object.
Proof of income from the last three months and a correct household budget calculation.
The notarized inheritance settlement agreement that regulates the payout.
With complete documents, the process is significantly accelerated, which could otherwise take up to eight weeks. A precise calculation of the incurred costs is the next logical step.
Costs and Interest: Establishing a Realistic Calculation
The total costs for paying out an heir exceed the mere loan amount. In addition to the loan interest, which varies depending on the term and credit rating, there are additional fees. Notary costs and fees for changing the land register entry must be paid for the transfer of property ownership, which together can amount to about 1.5 to two per cent of the property's value. For a property value of 400,000 euros, this would mean an additional 6,000 to 8,000 euros. Our expert tip: Always plan a buffer of at least five per cent of the loan amount for unforeseen costs. A bridge loan until the sale can be a short-term alternative, but is usually more expensive. Careful planning protects against financial surprises and ensures that tax aspects are also considered.
Avoiding tax traps: Inheritance and speculation tax
The payout to a co-heir itself does not trigger income tax. However, inheritance tax applies to the entire inheritance share, not just the payout amount. For children of the deceased, there is an allowance of 400,000 euros, and for spouses even 500,000 euros. If the value of the inheritance share is below this, no inheritance tax is due. Another important deadline is the speculation period of ten years. If the property is sold within ten years of the inheritance, capital gains tax may be incurred on the profit. If an heir takes over the property for personal use, this is unproblematic. In the case of a later payment of tax arrears, a loan can also help. To cover all eventualities, it is also worth looking at preparations for death. After the financial and tax aspects have been clarified, the question of how to handle potential household clearances remains.
Practical Process: What Happens After Loan Approval
Once the bank approves the loan, the practical implementation follows. The entire process is accompanied by a notary to ensure legal security for all parties involved. First, all co-heirs sign the inheritance settlement agreement, which documents the payout amount and the transfer of ownership shares. After the contract is signed, the bank directs the disbursement of the loan amount directly to the departing heir. At the same time, the notary initiates the re-registration in the land register, so the remaining heir is entered as the sole owner. Often, an inheritance is also associated with a household clearance or decluttering, which also requires financial resources. With the successful payout, the community of heirs is dissolved, and family harmony is preserved.
Request a personalised risk analysis now
The payout of a co-heir is a complex process with financial and legal hurdles. Careful planning and the right financing strategy are crucial to protect family wealth and avoid disputes. Have your individual situation reviewed for free by our experts and receive specific suggestions to optimise your financing and insurance situation.
More useful links
Gesetze im Internet offers access to the Civil Code (BGB), which sets out the legal grounds for inheritances and communities of heirs.
Notar.de provides an article with information and advice for individuals in a community of heirs.
Statistisches Bundesamt (Destatis) offers a statistical report on inheritance and gift tax.
Verbraucherzentrale provides books and e-books on the topic of community of heirs.
Bankenverband informs about how to search for assets in the event of death.
Deutsche Bundesbank offers information on banking supervision, which is also relevant for the assessment of bank deposits in cases of inheritance.
Bundesfinanzministerium provides information on inheritance and gift tax.
Bundesnotarkammer is an important resource for notarial services related to inheritance.
FAQ
What is a loan for the payment of an heir?
This is a loan that an heir takes out to financially settle the inheritance share of one or more co-heirs. For example, a property can remain in the possession of one heir while the others receive their share in cash.
What collateral does the bank require?
In most cases, the inherited property itself serves as the primary security. For this purpose, the bank registers a mortgage in the land register, for which the consent of all co-heirs is required.
Are there taxes incurred when distributing an heir's inheritance?
The payout itself is not a taxable transaction. However, the entire acquisition by inheritance is subject to inheritance tax, with high personal allowances (e.g. 400,000 euros for children) applicable.
What is an inheritance settlement contract?
This is a notarised contract in which all heirs arrange the exact distribution of the estate. It serves as the legal basis for payments and the transfer of ownership, and is an indispensable credit requirement for the bank.
Can I also consolidate other debts with the loan?
Yes, many banks offer to replace existing, more expensive loans (such as an overdraft or instalment loan) as part of raising capital for estate payouts. This can often even reduce the overall monthly burden.
What is the alternative to a loan?
The main alternative is selling the property and dividing the proceeds. In rare cases, a private loan within the family might be considered. If the heirs cannot agree, the last resort often remains a partition auction, which usually has disadvantages for everyone.
