Technical article

If One Heir Moves to Germany: What a Foreign Trust Payout Costs There

The trust pays a grandchild EUR 50,000 a year (approximately US$55,000), as an example.

By Neil Solomon · 4 min read

Picture a grandfather in Canada who has a family trust in a low-tax place. The trust pays a grandchild EUR 50,000 a year (approximately US$55,000), as an example. The grandchild moves to Berlin for work and becomes a German resident. What does the payout cost there?

The short answer from the sources is a flat tax on the whole payment. Germany taxes capital income at 25%, plus a 5.5% surcharge on that tax, which makes 26.375%. Church tax comes on top if the person belongs to a church. Chambers' guide for 2026, written by a German law firm, says the tax applies to the full value of what is paid out, and that principal is taxed too. On the example, 26.375% of EUR 50,000 is about EUR 13,200.

A second tax sometimes sits beside it. Germany can also treat a payout as a gift. The table sets out how the two fit.

When gift tax applies. In 2021 the highest German tax court narrowed an earlier rule that taxed any recipient. A beneficiary the trustee can pay or skip as he chooses is not taxed as a gift recipient, according to EY Germany. A beneficiary with a firm legal claim is. Where it applies, the tax class follows the heir's relationship to the person who formed the trust. A child counts as first class with an allowance of EUR 400,000, and a grandchild whose parent is alive has EUR 200,000. Other relatives fall in the second class, with EUR 20,000 and rates of 15% to 43%. The third class, for everyone else, pays 30% up to EUR 6 million and 50% above it.

The two taxes can stack. One tier C law-firm article says a payout can face both gift tax and income tax, and that the courts have accepted the double burden so far. That is one firm's reading.

Taxed before the payout. Germany looks at a foreign family trust's income each year. If the trust is run entirely outside Germany, its income can be attributed to a German-resident settlor, or otherwise to German-resident beneficiaries, whether or not anything is paid out. When that has already happened, the later payout is not taxed a second time as income.

What counts as living there. An heir is resident with a home kept and used, or a habitual stay of more than six months. Once resident, the heir reports any taxable gift or inheritance to the inheritance tax office within three months of learning of it. A holding of 10% or more in a foreign asset pool, or one costing more than EUR 150,000 (approximately US$165,000), goes on the income tax return, within 14 months after the year ends.

You might say: "A flat 26.375% sounds modest next to the top rate." It is lower than the top income tax rate, which is 47.475% in 2026 once the surcharge is added. But the flat rate applies to principal as well, and a payment of original capital is tax-free in some other places. A family used to that may find the German treatment a surprise.

You could ask three things about an heir who may move: does the heir have a firm legal claim or a discretionary one, has the trust been taxed yearly already, and what is the relationship to the person who set the trust up?

If a member of your family lives in Germany and receives from a trust abroad, what did the first year teach them? Share it here, because someone else with the same move ahead may benefit from your story.

Figures are estimates for planning, based on public data. Date read: October 2026.