Erbengemeinschaft - Estate

My children are dual citizens (US/German). They inherited something from their German grandfather (who is not connected to the US, non-US-situs property).

My understanding is that they don't have to pay US Estate Tax but they have to report their inheritance on Form 3520.

Under German law, the heirs form an Erbengemeinschaft (joint ownership of inheritance) until the assets are distributed to them. Under US law, the assets left by the decedent form an estate, which is a separate legal/tax entity. So far my children have not received any assets out of the Erbengemeinschaft/estate.

My question is: when do they have to file Form 3520? Already now? or when they actually receive assets? Under German law, being part of an Erbengemeinschaft means having received assets and being subject to Erbschaftsteuer. Under US law, I believe, they are not considered to have received a bequest or gift until assets are distributed from the estate - but I am not sure.

What about income from the assets (dividends/rent) generated after the death of grandfather, if that income is not yet distributed to the heirs? When does it have to be reported on their 1040?

The questions you ask all have to do with US law and not German law; thus this should better be posted to the US forum. I personally don’t know the details of such a matter but I am posting a link to the IRS page that gives instructions for the Form 3520, assuming this is really the correct form you need to file.

International tax matters are an extremely complicated topic.
You (or, rather, the heirs) are best advised to seek professional advice and not listen to strangers on an Internet forum.

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