As heir, you have the choice to accept an inheritance (pure or under reservation of estate description), or to reject it. In case of a pure acceptance of the inheritance you will receive not only all goods of the deceased, but also all possible debts of the deceased. If the liabilities (debts) turn out to be greater than the assets, you will have to make up the difference with your personal assets and this in proportion to your share of the estate. However, when the inheritance is predominantly an asset, one will be inclined to accept it purely. Yet even in this case it is important to be aware that accepting purely can have a very negative impact. To accept an inheritance or not to accept it? Below is a brief explanation of the possible risks and ways of limiting them.
1. What risks?
The tax authorities can (on the basis of a so-called "fiction provision" in the law) presume that bank balances that were present during a period of 3 years prior to death are still present in the estate at the time of death. As a result, these funds will fall into the estate as assets and will form part of the taxable base, on which inheritance tax will be due.
Consider the case where the deceased had received a large sum in the last three years, as a result of selling a house or receiving a gift or inheritance. The aforementioned presumption also applies if he has withdrawn a large sum from his account.
The tax authorities may then, on the basis of written evidence such as deeds or account statements, "pretend" that those funds are still there and thus belong to the estate. It is then up to the heir to provide rebuttal evidence as to exactly where those funds went, via a statement in the estate tax return.
2. Effects
It is not unlikely that you, as the taxpayer's heir, have no knowledge of what happened to these funds. Were the funds lived out by the deceased (rest home, medical expenses, etc.), reinvested as a result of the purchase of another property, or partially donated to someone? If you do not succeed in providing proof to the contrary, you will have to pay the inheritance tax on those funds that are de facto no longer present in the estate. In the worst case, you may even have to pay more than what you received from the estate in the first place and - to make matters worse - savings may have to be used.
3. Accepting under privilege of estate description does not bring relief
It is sometimes said that it is better to "accept the inheritance under the benefit of inventory". This system implies that you can never be liable for more debts of the estate than what you receive from it (a break-even). However, this refers to debts of the estate (read: of the deceased) and not to debts of the heir such as inheritance tax. Conclusion: accepting the inheritance under the privilege of inventory does not offer a solution.
4. How to protect myself as an heir?
To avoid such a scenario, it is advisable to have a preliminary bank inquiry carried out before accepting the inheritance. More specifically, in the capacity of heir (and with the explicit stipulation that "this request for information does not imply tacit acceptance of the estate"), it is a good idea to obtain an overview of the deceased's bank statements for the past 3 years. If it appears that in this last period a lot of money has inexplicably disappeared and no supporting documents are available, it may be advisable to reject the inheritance. Although you will not receive anything from the estate, you will not have to dig into your own pockets.
5. Also think about your own heirs
Let the above also be a focus for your own estate and, in that regard, protect your own heirs as well. Invoices, account statements and other evidence of expenses are best kept for three years. In this way, your heirs will be able to provide counter-evidence more easily, should it ever be necessary.
Do you have questions about whether or not to accept an inheritance? Then don't hesitate to here contact us.
