You might wonder what the connection is between inheritance matters and personal finance. In fact, the connection is direct – after all, it’s about managing assets/property and liabilities/debts that you either receive or leave behind as an inheritance.

Inheritance represents the totality of property rights and obligations that you pass on to your heirs. The inherited estate includes ownership rights over movable and immovable property – such as homes, land, vehicles, and more. Also inherited are funds in bank deposits, decedent’s claims arising from employment or other types of contracts, life insurance policies, company shares, certain pension rights, copyrights, securities, and many other assets. Along with them, debts are usually inherited as well – such as those owed to creditors, service providers, etc.

The main piece of legislation governing inheritance matters is the Succession Act, although various aspects of inheritance law are also addressed in other relevant legal acts. Inheritance law is a specific, extensive, and complex area, reflecting a wide range of life situations. Therefore, it is advisable to consult a legal specialist before taking action related to inheritance matters.

Leaving an Inheritance

Keeping your financial and property affairs in order is always a good idea, regardless of your age. Periodically review and appropriately organize documents related to your assets – cash, real estate, securities, valuables, financial instruments, and more. Pay close attention to your debts, such as loans, because debts also remain with your heirs. It is wise to consult a legal expert in inheritance law, especially if you intend for your estate to be distributed in a manner different from the statutory one. Discuss your plans with your loved ones. This often helps avoid unwanted situations in the future.

·         Inheritance by Law

Under this method, the law dictates how the estate is distributed among the heirs, and no actions need to be taken during your lifetime. The circle of legal heirs includes several lines of relatives in a specific hierarchy of kinship. In general, a closer circle of heirs excludes more distant ones. The law specifies the share of the estate each heir is entitled to in various scenarios.

The law allows you to distribute your estate during your lifetime or to leave it to third parties through a will or partition. There are several legal requirements and specifics that need to be considered based on the particular life situation. When drafting a will or making a partition, keep in mind that the law reserves a portion of the inheritance for a certain group of heirs – children, parents, and a spouse. If their right is violated, they can contest the distribution of the estate to claim their reserved portion.

·         Inheritance by Will

The law provides for different forms of wills. Based on the method of estate distribution, a will can be universal (covering the entire estate) will - to leave all or part of your estate to one or more heirs or particular (specific assets) will - to leave specific property or rights to a specific legatee. Depending on how it is drawn up, a will can be handwritten or notarized. A will is typically made when you wish to alter the statutory shares of your heirs or leave assets to someone outside that group.

·         Partition During Lifetime

To avoid potential disputes and misunderstandings about your estate, you may choose to distribute your property among your heirs in advance. The law provides two non-compensatory methods for this – through donations and wills, each with its own specifics.

A preliminary distribution through donation is made by entering into a donation contract with your heirs, through which you transfer your property to them free of charge as of the date the contract is signed. Since this is a transfer of property, it must follow the legally prescribed form depending on the asset type. Heirs become owners of the donated property at the moment the contract is executed in the appropriate legal form – such as a notarized deed, a contract with notarized signatures, or a written agreement. For instance, if you donate your apartment, the recipient becomes its owner after the notary completes the transaction. For your own protection, you may reserve the right to use the property or part of it for life by including this condition in the notarial deed of donation.

If the distribution is done by will, the applicable forms and rules for a will apply, through which the testator expresses their wishes for distributing their assets and obligations among the heirs. The will takes effect upon the testator's death.

Receiving an Inheritance

As appealing as a large inheritance may sound, it is essential to approach the situation carefully and with full awareness. One of the most important aspects affecting your finances is that under universal succession, you inherit both assets and liabilities together. For example, you cannot accept your relative’s apartment without also assuming responsibility for their unpaid heating bills.

If you are the sole heir, you receive the entire inheritance, and when there are other heirs, each becomes the successor to an ideal share of the inheritance. When a legatee is designated in a will, he or she is a private successor, as specific property is bequeathed to him or her, which, however, he or she cannot receive directly, but only through the heir.

As an heir, you have a choice – to accept or to refuse the inheritance, following legally established procedures and deadlines.

·         Accepting an Inheritance

Acceptance is a unilateral declaration of will whereby you express your desire to acquire the rights and obligations included in the estate. This applies to both statutory and testamentary inheritance.

You may accept the inheritance directly/in full, which means agreeing to take on both the rights and liabilities of the deceased. There are two ways to do this: Express acceptance – by submitting a written statement to the district court at the deceased’s permanent address (where the will is opened), after which it is entered into a special registry. Tacit acceptance (through conclusive actions) – when you take actions that clearly demonstrate your intent to accept the inheritance and that you otherwise would not have the legal right to perform, such as selling an item belonging to the deceased. Since this approach can involve various actions with different legal consequences, it is strongly recommended to research the matter in detail.

Once you have accepted the inheritance, you cannot reverse the decision. Do not take this step before checking what debts are included in the inheritance – they may far exceed the value of the assets. Be aware that by accepting the inheritance in full, you are liable for the debts not only with the inherited assets but also with your personal property. For example, if you inherit an apartment along with debts, creditors may seize your own property if the inherited assets are insufficient to cover the debt.

To protect yourself, you can choose acceptance under inventory, following a special legally defined procedure. In this case, you are not personally liable to creditors – your responsibility is limited to the value of the inherited estate as recorded in the inventory.

·         Refusing an Inheritance

The law also gives you the option to refuse an inheritance – both the assets and the debts. Often, this decision is made when the inheritance is burdened with substantial obligations. You cannot refuse only part of the inheritance – for example, accept the agricultural land but decline the village house, or take on some debts while rejecting others.

To refuse an inheritance, you must file a written statement with the district court at the deceased’s permanent address. The refusal is then recorded in a special court registry.

·         Declaring inherited assets

Inherited assets may be declared to the National Revenue Agency (NRA) by completing Appendix 13 of the annual tax return (under Article 50 of the Income Tax Act) within the specified deadline for its submission.

The inheritance must be declared to the municipality of the last place of residence of the deceased by his or her heirs by law or by will and the legatees or their legal representatives. If the deceased has no address in the country, the declaration shall be submitted at the location of the greater part of his or her property in the country. A declaration shall be submitted to the municipality in accordance with the Local Taxes and Fees Act for the taxation of inheritance. The deadline is six months from the opening of the inheritance or from learning of its opening, depending on the status of the heir or legatee.

·         Payment of tax to municipalities

Under the Local Taxes and Fees Act, tax is payable on inherited property, which is determined in accordance with the Tax and Social Security Procedure Code for each heir by law or by will or legatee separately. The amount is communicated by the municipality and is payable within two months of receipt of the notification.

No tax is payable by the surviving spouse and direct heirs without restrictions. The Local Taxes and Fees Act specifies the cases in which property is exempt from tax. For example, no tax is payable on ordinary household goods, small agricultural equipment, libraries, and musical instruments when inherited by direct relatives, spouses, brothers, and sisters. Property of persons who have died in the line of duty, industrial accidents, and natural disasters is also exempt from tax, as well as property bequeathed to the state and municipalities or to non-profit legal entities for public benefit.

 

Useful links:

Inheritance Act

Local Taxes and Fees Act

Tax and Social Security Procedure Code