1 A lot can also be given without taxes
Many think that all property left must be taxed. This is not the case. Donations can be made to a close party quite generously and even without any tax consequences.
It is common knowledge that every three years you can give a gift without taxes - as long as the amount is less than 5,000 euros. When giving 4,999 euros, the recipient does not have to pay gift tax. When the amount is more than one euro, it goes for 100 euros of gift tax.
If a student of the young on both sides of the grandparents are alive and wealthy and willing to donate the property, can get them in the same year a total of EUR 19 996 as a gift tax-free.
Tax lawyer Hanna Silander from the Central Association of Taxpayers reminds that the amount of EUR 4,999 can be donated to anyone, and the tax treatment is similar for the recipient.
- The recipient can be your own child, relative or anyone you know.
Home furniture can be given as a gift even every year. However, the value of a single item of household effects must be less than EUR 4,000.
- When the value and amounts of gifts are below the tax exemption threshold, they do not have to be reported to the taxpayer and it is not necessary to keep any records of the gifts, Silander explains.
The need for money for young people studying is a well-known thing. Many study on the other side of the world at an educational institution where tuition fees can be in the tens of tons. The taxpayer accepts the tuition fees and study expenses of a student moving abroad as tax-free gifts annually, and there is no upper limit on expenses.
Expenses include rent, telephone bills and insurance paid by the donor against the bills and not by giving the amount in cash directly to the student.
The recipient of the gift must remember the rule of adding gifts. When several monetary gifts are received from the same donor within three years, the total value of the gifts is calculated. The recipient will have to pay gift tax if the amount rises to 5,000 euros. As a result, a tax-exempt gift becomes taxable.
2 Pre-inheritance is not without problems
Parents often give property to breastfeeders during their lifetime, which can be of great value. For tax purposes, it is a gift or an inheritance. Pre-inheritance is not without problems in tax terms.
Tuomo Lindholm, a tax lawyer at the Central Association of Taxpayers, reminds that the inheritance is immediately taxed. This is a gift tax. It must be notified to the taxpayer within three months. Tax processing takes an average of six months, but sometimes the decision can come in just a few weeks.
- Pre-inheritance is taken into account when the inheritance is definitively distributed. Usually, inheritance also tightens the inheritance tax on heirs, regardless of time, Lindholm says.
In the final division of the inheritance, the pre-inheritance is deducted from the inheritance of the recipient in order to ensure equal treatment of the heirs. When deducting pre-inheritance, the property is valued almost without exception at the time of receipt.
Inheritance tax is paid when the value of the taxable portion is at least 20,000 euros, but gift tax is already paid when the value is 5,000 euros.
The gift tax does not apply to gifts of less than 5,000 euros. However, if the same person gives several gifts to the same recipient within three years, the gifts will be added together for the 5,000 euro limit.
An amount of less than EUR 5,000 does not have to be declared to the taxpayer and will not be quoted in inheritance tax at a later date if the giver of the gift lives for three years. However, if the donor dies before three years have elapsed since the gift was given, the heir or testator's gift of less than € 5,000 must be stated in the charter.
Pre-inheritance is usually about the offspring needing funds in their life situation and therefore the parents end up with pre-inheritance. Designation as an inheritance is often avoided again for inheritance tax reasons. When a gift certificate has been made and there is no pre-inheritance, then the asset will no longer be receivable in final inheritance taxation, unless the death of the giver occurs within three years.
- When each heir receives the same amount from his parents during his lifetime, then everyone is usually on the same line.
- It would be desirable for the property to be such that, in view of the increase in value, time would treat the property received by the heirs in the same way. In this way, the heirs would be on an equal footing at the time of the division of the inheritance, Lindholm says.
There are cases where the pre-given legacy has been followed by a serious family dispute between the siblings that even the parents have not been able to make up for.
In one case, parents gave their two children pre-inheritances in the 1990s. One received wholesale Nokia shares and the other a summer cottage.
No one at the time could have guessed what would happen to Nokia’s stock. Its value increased approximately 400-fold from 1992 to the summer of 2000 - the investment of one hundred changed to 40,000 euros.
The person who inherited Nokia became a millionaire. The owner of the summer cottage had to be content with his part and put the worm on the hook to get the roach from the beak of the pier.
There is no unambiguous answer to the question of which one is worth it - an inheritance or a gift. This usually requires case-by-case consideration and possibly consideration of other papers as well, such as a will.
3 A breast heir has the right to a part of the law
Parents can make a will and order that part of their property go to someone other than the heirs. However, the will must not infringe the legal part of the heir. The legal part guarantees the heir the right to the inheritance left by his parents. The legal part is half of the property to which the heir would otherwise be entitled.
If there are three heirs, without a will each would receive one-third. However, the size of the legal part in the example case is one-sixth, or half-third.
Juha Untamo, who has worked as a lawyer in the Heinola and Lahti areas for decades, reminds that you cannot get a legal part if the heir does not demand it.
- The claim must be made within six months of the date on which the heir became aware of the will.
- And if the heir does not demand it himself, the grandchildren will remain incompetent and the whole family will lose the right to the law.
Untamo reminds that the heir can also give up his part of the law and his inheritance for tax reasons. This means that his children will succeed him, thus saving inheritance taxes for one generation.
- You don't have to accept the legacy if you don't want it, Untamo explains.
The waiver must be made in writing and the waiver cannot state to whom the property will go. Usually, the waiver is stated in the charter.
The heir may also lose the part of the law on the grounds that the parents make him inherited by will. Inheritance may be lost if the heir has behaved dishonestly or in an offensive manner towards the heir. The inheritance also goes if the heir has killed the heir.
Inheritance is rare. In case law, the threshold for inheritance is quite high.
Still, it’s not uncommon for parents to try to inherit their child and want to leave him or her without a law for reasons that sometimes sound special.
- For example, it may happen that the heir's spouse is not in the minds of the parents, and it is therefore desired to leave the child without an inheritance. The requirement does not go through, and usually the chargers eventually understand why this is the case.
The strongest issue related to the law concerns widowhood.
- The widow's right to a spouses' common home takes precedence over the children's law.
The widow does not have to sell the family home, but has the right to remain a widow after living in her home and in this case the children have to wait for their part of the law.
- Sometimes it may have happened that the widow is relatively young, perhaps the same age as the deceased's own children. In such a case, children may have to wait a really long time for their part of the law, Untamo states.
4 The deceased's debt will not be paid to the heirs
Finland is a country of indebted people. It is estimated that there are already more than 400,000 citizens with enforcement debts.
Many know in advance that there will be no inheritance because the testator has more tricks than wealth. Therefore, many shareholders of a estate also fear whether the debt taken by the parents will remain to be paid by the shareholders of the estate and it may happen that the heir will be personally liable for the debts of his parents.
The partner in the estate is not responsible for the debts of the deceased, but in some situations he may have to bear them. This can happen if the potato writing has not been completed within the deadline, ie three months. Liability for the debts of the deceased may also arise if the shareholder of the estate provides false information.
The funeral expenses and the liquidator's fee are paid first from the estate. Next, the debts of the deceased are paid and then the other debts. If there are not enough funds for the debts, the creditors will be left without their claims.
- The debt will not be taken care of by the heir. Taxes are paid on the property of the testator up to the amount for which the funds are sufficient, reminds tax lawyer Tero Hämeenaho of the Central Association of Taxpayers.
If a partner in the estate has become liable for part of the deceased's debt by guaranteeing it, he may become a payer if the assets of the estate are insufficient.
Death does not extinguish creditors, and creditors are entitled to their claims. The law stipulates that debts must first be paid off and only then can an inheritance be made.
The heirs may be as indebted as the testator. However, the heir may file a waiver with the estate or the magistrate before the estate is seized. Once the over-indebted waiver has dealt with his case lawfully, the inheritance goes to the successor, who is also responsible for inheritance taxes. In this way, the coming wealth can be passed on to the next generation, and creditors will be left to miss their claims.
5 An individual can leave his property even to cats
If the single has no heirs, the parents are no longer alive, and there is no other relative in the order of succession, the property goes to the state - unless the will provides otherwise.
In a will, a person can himself determine to whom or where the property goes. Wealth can be left to just about anyone, even to a cat association. Relatives will no longer have access to the money.
Many lonely people have already prepared for the future and made a will at a young age. The offspring of a good friend may be expected from a forest plot or a summer place.
The will can also be used in advance to ensure that the wealth does not go, at least to a relative to whom it does not want to be left.
Non-profit associations often receive wills from singles. A non-profit organization, as its name implies, acts for the common good in material, spiritual, moral or social terms.
- In a tax sense, a non-profit organization is not a taxpayer in inheritance and gift taxation and in that sense the recipient is a good party, points out Kati Malinen, Director of Tax Advice from the Central Association of Taxpayers.
However, one exception to a single will may be included, and he or she should consider this when making a will.
- If, for example, he has acquired property from his parents by will, for example, a summer cottage to which the parents have assigned a secondary recipient in the will in case of death, the single person cannot bequeath it, Malinen points out.
An animal cannot be named as a testator, but animal rights associations can accept an inheritance.
6 Inheritance can be passed on across generations
Many inherit their parents at a stage when they themselves are already retired or on the verge of retirement age, and their offspring are already strongly attached to life.
The inheritance may be withheld if there is no need for it. The property can thus be passed on over one or more generations.
The benefit to the waiver of the procedure is that at least inheritance taxes are eliminated when the property goes to the grandchild. Inheritance taxes are paid by the ultimate heir.
In this way, the property is passed down over a generation and may come to the recipient at just the right moment - for example, for a grandchild who is just in the study phase.
The waiver of inheritance may have a greater effect on the total amount of inheritance tax. If the property is transferred to more than one grandchild, the amount of tax will be reduced. Payment of inheritance tax is only received if the value of the property received by the individual heir is at least 20,000 euros.
- In this way, taxes can be significantly avoided, even taxed altogether, if there are several recipients and the value of the property to be recovered falls below the taxable limit for each heir, tax lawyer Tero Hämeenaho reminds the Finnish Taxpayers' Association.
The waiver of the inheritance must be made in writing and the entire inheritance must be abandoned. The matter must be dealt with as soon as possible after the death to be charged and preferably at the latest in the charter.
If the waiver is made incorrectly, double taxation may result.
- The transferor cannot determine to whom the inheritance will go or impose other conditions on his or her waiver. If he does so, he will have to pay the inheritance tax himself and the grandson a second time gift tax, Hämeenaho warns.
The inheritance can also be waived in a situation where the heir has debts and the inheritance would go to their payment. This is how the property goes to the children instead of foreclosure. Inheritance may be waived if the waiver was made before foreclosure.
You can read more about issues related to retirement income in the special publication Ilta-Sanomat's Secured Retirement Days.