The tax assessment from the tax authorities on the child’s share can be circumvented. Since 2003, men and women who have just become widows or widowers and have children and a home have been receiving a large tax bill for the inheritance tax on the child share that they have not yet transferred to their offspring. This tax bill on the child share can be avoided.
Children cannot claim money from the other parent after the death of a parent
That is not possible, because the children cannot claim their share at all, because the law has arranged that this share goes to the surviving partner. In addition to the grief they have to deal with, they also have to cough up a lot of money. And if that money is actually invested in a home, it is sometimes difficult to pay for it.
Inheritance tax on child share
The same remaining parent must pay inheritance tax on the claims that children have on their parents if one of them dies (referred to as child’s share). The children cannot yet claim their child share at that time, because the law in that area changed in 2003. However, this also means that they do not yet have to pay inheritance tax.
Parents inherit half and a child’s share upon the death of their partner
If parents leave an inheritance of 300,000 euros and there are two children, they will each receive 50,000 euros. The parent inherits half and a child’s share anyway.
How much inheritance tax after death?
The inheritance tax that must be paid obviously depends on the amount. There is an exemption of 19,000 euros, so no inheritance tax has to be paid on an inheritance of that amount. 10 percent tax must be paid on the remaining amount. For a child for whom 50,000 euros remains (after the parent has received half and a child’s share), 10 percent must be paid on 31,000 euros. This is 3100 euros. If there are two children, the parent must pay a total of 6,200 euros. But that is very difficult if the money is in a home, for example.
No inheritance tax for children: change will
Yet solutions can be found to this problem. There are two:
A two-stage will stipulates that the surviving spouse is the sole heir and that the children are disinherited upon the first death. Under the two-step arrangement, children only inherit from the parent who died first if both parents have died. The surviving parent has an exemption of 600,000 euros and in most cases (unless there is much more property) no tax has to be paid. After the death of the second parent, the children then receive the entire property, but must also pay all inheritance taxes on the total. With a total inheritance of 300,000 euros, half goes to each child, i.e. 150,000 euros. There is an exemption of 19,000 euros per child, leaving a taxable amount of 131,000 euros. 10 percent inheritance tax must be paid on this amount. If there is no will, the surviving parent will pay an amount of 3,100 euros per child for an inheritance of 300,000 euros. So a total of 6200 euros. If the children then pay the remainder, they will also have to pay inheritance tax again. On balance, the amount does not differ much, but it does mean that the parent does not have to pay the inheritance tax.
However, there is another way to avoid inheritance tax. This is done by means of a supplementary will. In that case, the surviving parent must pay the inheritance tax per child’s share, but is then compensated on paper for compound interest of 6 percent per year, which is not due and payable. This interest can add up considerably and may first be deducted from the remaining inheritance. This is before inheritance tax is levied. This interest therefore grows every year and can be deducted from the remaining inheritance as a kind of second exemption. The longer one parent lives, the more lucrative this arrangement is.
Since January 1, 2010, partners have been exempt from gift and inheritance tax up to 600,000 euros. An exemption of 19,000 euros per child applies for children. For the remaining inheritance amount, the first 118,000 euros is taxed at 10 percent. Everything higher than 118,000 euros is taxed at 20 percent. Since January 1, 2003, the law stipulates that the surviving spouse automatically inherits the entire estate, but must pay inheritance tax on the claim that the children have on their child’s share. There are other solutions available for each will, which do require the involvement of a notary. The costs of changing a will, for example, vary per notary (finding out who is the cheapest is certainly worth it) and are between 200 and 600 euros.