Statistically, it’s a proven fact that the pandemic has shot home inheritances in Spain through the roof. Even reaching record numbers — in March there were 19,446 inherited homes, a historic figure, according to the INE (National Statistics Institute). However, this also comes with payment incapacity and therefore, resignations. There are a series of problems that have arisen with the increase in inherited properties. A trend, which experts believe will continue to grow due to Covid-19. There’s no doubt that this generates movement in the real estate market: quick property sales, a turning up in new properties available for short-term rentals, establishments get turned into homes, a turnaround of prices among many other doubts that the citizens have. We will be clarifying these doubts all along this article.
WHY ESTATE WAIVERS HAVE SOARED
As per usual, there is no single particular reason. Each family and each person has their own reasons that force them release their right as an heir even more so when the assets to inherit include a home. Almudena Velázquez, legal director of the claims platform reclamador.es, points out that in recent years they have detected, amongst other, reasons that lead to inheritance waivers. Mainly, it’s caused by the serious economic crisis that Spain is going through for the past couple of years and it seems like the consequences won’t seem to end, especially during this pandemic when a large majority of the population has been or continues to be in a layoff situation.
It doesn’t help that the taxes to pay to receive the inheritance represent a significant cost that not everyone can bear. These taxes are 1) Inheritance Tax (Impuesto de Sucesiones) and 2) Capital Gain (Plusvalía). However, some regions in Spain grant the heirs with a close degree of kinship important reductions and bonuses but, for instance, that is already lost when we talk about inheritances between uncles and nephews. And in any case, we mustn’t forget the regions where these reductions are not carried out, receiving an inheritance can be ruinous for the estate of the heir due to its fiscal consequences. End even so, the amount will be greater the longer the period between the acquisition date of the property by the deceased and the date of his death. With this, the heirs get holes burned in their pockets just from taxes because the debts, very much like mortgages, are also inherited. This is another reason that can lead an heir to decide to renounce an inheritance.
Fátima Galisteo, from Galisteo Abogados, points out that the deaths due to the pandemic that we’re going through are causing situations of great economic difficulty in some families by accepting the inheritances, because the element of unpredictability also intervenes. You don’t know when you die but when you reach a certain age the need to say how you will dispose of your assets after your death arises.
COVID-19 has been so devastating that, for many people, it has not been possible to make forecasts and the heirs face the huge problem when deciding whether or not to accept the inheritance. In the Community of Madrid, this circumstance has hardly had an impact when the heirs were descendants (children, grandchildren) or ascendants (parents) due to the 99% reduction in the tax quota. The same does not happen when the heirs are the brothers or nephews, who do not enjoy such a bonus.
“The true tax, which we dare to classify as confiscatory and unfair, is the Increase in Value of Urban Land, commonly known as the “plusvalía” of the dead. It taxes the hypothetical gain that the acquisition increases in the value of the land since the date that their parents bought it,” says Galisteo. To give an example, for a home that is not the usual one, which the parents acquired more than twenty years ago (sometimes more than fifty, although the limit for the tax calculation is twenty) with a cadastral value of 50,000 euros the tax amounts to 8,700 euros. Only the transfer of the habitual residence has a discount when the acquirers are the children or the widowed spouse.
We can cite a case: Doma Remedios (fictitious name) was forced to sell off the apartment that she inherited from her son to pay the Capital Gain. Ms. Remedios has a pension, which from now on will be in danger based on the income from the capital that she obtains from what she inherited from her son.
Other: Three nephews, who were heirs to an apartment, have wavered the inheritance due to the impossibility of paying the Inheritance Tax and Capital Gain.
CAN THE INHERITANCE RIGHT BE SOLD TO OBTAIN LIQUIDITY WITHOUT GIVING UP THE INHERITANCE?
Almudena Velázquez points out that the sale of hereditary rights is possible, but several issues must be taken into account:
- This sale must be made once the inheritance has been accepted and before its distribution. Which means that you will have to pay the Inheritance Tax and the Capital Gain in personal income tax, while the buyer will have to pay the Property Transfer Tax.
- Specific assets of the inheritance aren’t sold, but the hereditary right, which means that although the buyer does not acquire the status of heir, he does put himself in their place and therefore acquires both the assets and the debts.
- When it is sold to a third party, it must be communicated to the rest of the heirs, who will have the right to acquire it for the same price.
Fátima Galisteo maintains that when there is money or financial products in an inheritance, the inheritance can be accepted and pay the Inheritance Tax with it. But on many occasions, among the inherited assets, there is no money, just real estate, which must be sold in order to pay the Tax. But to be able to sell them, first you have to accept the inheritance, and this is where the problem arises for the heirs: 1.- Accept the inheritance with the risk that the property will not be sold within the terms that the Treasury grants us to settle the tax (1 year – actually 6 months that can be extended up to a year from the death – or, in special cases, up to 5 years) or 2.- Give up the inheritance.
In these situations there is a possibility of transferring the inherited assets, but it must be taken into account that the taxpayer is the heir and that he may sign a sale commitment before acceptance, for tax purposes firstly there will be an accrual of the Inheritance Tax and then the Tax of Patrimonial Transmissions, which means that you have to accept before selling.
It’s not an uncommon fact that investors acquire a property and while they accept the inheritance also pay the inheritance tax as part of the purchase price.
WHAT DOES IT MEAN TO ACCEPT AN INHERITANCE IN BENEFIT OF INVENTORY
Almudena Velázquez, from reclaimer.es, recalls that it is the only legal instrument by which we can inherit only the assets and not the debts: by accepting the inheritance in benefit of inventory, these will be paid with the inherited assets. In this way, the beneficiary will not compromise his own assets.
It is a procedure that must be carried out with a judge or a notary present. By doing this, it will be possible to pay the debts left by the deceased with the inheritance assets.
From Galisteo Abogados they point out that accepting an inheritance implies acquiring the assets that a loved one leaves at the death of him, but also all his debts (or part of them if the inheritance is shared with other heirs). This will mean that these become the property of the heirs and will have to be assumed with their own assets since the simple acceptance or rejection of an inheritance is final, it is not possible to accept an inheritance partially or with conditions.
For this reason, when it is known that the deceased has debts, it is a very common practice to renounce the inheritance, sometimes without having made a calculation of the debts and the assets, which could compensate them. And there is an alternative to outright acceptance or rejection that many are unaware of: the acceptance of inheritance for the benefit of inventory. This formula is the only one that allows us to avoid inheriting debts, since it separates the estate of the heir from the inheritance allowing the heir to respond to the debts of the deceased with the inherited assets and only up to the amount that he receives from the inheritance.
The first thing is to carry out an inventory with a lawyer specialized in inheritance, valuing the assets and debts of the deceased, as well as the derived expenses such as Inheritance Tax, Municipal Capital Gains, Notary, Property Registry in case there is real estate. In this first phase we would find out if the deceased had debts and, if any, if the value of the assets covers them, and what is the remainder that remains to the heirs, after deducting the expenses of processing the succession.
In addition, this procedure does not imply any obligation for the heir, since it is aimed exclusively at having all the necessary information to know if he can accept the inheritance without his personal assets being affected and the deadlines he has to do so. And it is that, according to the article 1023 of the Spanish Civil Code, the benefit of inventory produces the heir the effect of “not being obliged to pay the debts and other charges of the inheritance, but as far as the assets of this reach.” In this way, by accepting the inheritance for the benefit of inventory, the heir is liable for debts and other charges only to the extent of the assets included in it.
After making a preliminary inventory, the heir has the information and necessary recommendations to decide whether he wishes to accept the inheritance, reject it, or make use of the inventory benefit. In the latter case, the statement must be made in presence of a notary together with an extract of the inheritance assets within 30 days from when you are aware of your beneficiary situation and, although the presence of the lawyer in this part is not necessary, the usual and most advisable thing is to be in charge of preparing all the documentation and accompanying the heir throughout the process because any action aimed at avoiding including goods or rights in the inventory or carrying out acts of disposition of any property before paying the debts, this would lead to the loss of the inventory benefit and it will be understood that he accepts the inheritance purely and simply, with which the heir will also be liable for the debts with his estate.
WHAT HAPPENS WITH DONATIONS TO ONE OF THE CHILDREN
In reclaimer.es they have detected that one of the most unknown assumptions when managing an inheritance is not knowing that donations affect inheritances.
According to the Civil Code, all heirs must contribute to the estate, the property or its value that they would have received while the deceased was alive. This operation is what is legally called collation of assets and its practical application is that when the inheritance is partitioned, if there are more heirs as is the case, the property donated while alive or its value will be computed within the part of the inheritance of the one who received it.
However, when it comes to managing this inheritance, it is necessary to distinguish whether that donation was collatable or non-collable. If it is a non-collable donation, when the inheritance is distributed, the heir who received that non-collable donation, will not have to contribute to the estate of the inheritance, unless it is an ineffective donation. That is excessive because it clearly harms the legitimate part of the rest of the heirs. For this, it is essential that this is manifested in the deed of donation, or in the will.
Fátima Galisteo points out that what was donated while alive to a forced heir must be counted in the inheritance for the calculation of the legitimate unless the donor had arranged otherwise to make the donation. The incorporation of the apartment or the money donated to the inheritance is called “colación” in the Spanish Civil Code.
Therefore, if the parents said nothing while making the donation, the flat will be counted in the inheritance, everyone inherits the same amount and the donated flat must be counted as the part that corresponds to the donee, who, in the event that the value of the flat was higher than its fair share, you must pay the others the excess. If it is not collable, the excess received by the donation will be attributed to the third of improvement and to the third of free disposal, so that you will not have to pay anything, except what may be missing to cover the legitimate of the other heirs.
WHAT HAPPENS TO THE HEIR BORN FROM A RELATIONSHIP PRIOR TO THE FATHER’S CURRENT FAMILY UPON DEATH AND HAS LEFT NOTHING IN THE WILL
Almudena Velázquez, from reclamador.es, comments that this person is a forced heir and, therefore, by law corresponds to him a part of the inheritance. Inheritances are divided into three parts, one of which is obligatorily reserved for forced heirs, which is known as strict legitimate. Within that third, it would be necessary to know how many more forced heirs are called to inherit and divide the inheritance among all the heirs. For example: The inheritance is valued at 300,000 euros and there are three children, one of them fits this case. The strict legitimate would amount to 100,000 euros and therefore 33,333 euros would correspond to him.
Fátima Galisteo emphasizes that children are forced heirs with respect to their parents and ascendants and have the right to a part of the inheritance that is called legitimate, which the deceased cannot dispose of. The amount of it is two-thirds of the hereditary assets, although one of said thirds can be used by the deceased to improve the forced heirs that he wishes, the other third being called strict legitimate. The corresponding part of this last third (divided between all the siblings) necessarily corresponds to him, even if his father has contracted a new marriage and has not even named him in his will, although if there is no agreement between the heirs, he will have to go to a procedure challenge of the will.