Renouncing an Inheritance in Practice – Reasons, Process and Tax Implications

Why renounce an inheritance

Renouncing an inheritance is a legal and sometimes sensible option. There are several reasons for doing so.

Tax planning

The most common reason for renouncing an inheritance is tax optimisation:

• The inheritance passes directly to grandchildren – one generation is "skipped"
• Inheritance tax is avoided being paid twice (first to the heir, then to their children when the heir dies)
• The grandchildren's inheritance tax rate may be more favourable if the inheritance is divided among several people
• Particularly significant for large inheritance shares

Financial situation

• The heir's own debts – the inheritance would go directly to creditors
• Debt enforcement – the inheritance share would be seized
• The inheritance could affect the heir's social benefits
• The inheritance consists mainly of debts (e.g. a run-down property)

Personal reasons

• The heir does not need the inheritance – wants it to go directly to their children
• Disagreements within the estate – renunciation simplifies the situation
• Principled reasons – does not want to participate in estate administration
• The relationship with the deceased was conflicted

Forms of renunciation

Inheritance law recognises two forms of renunciation, with significantly different tax consequences.

Effective renunciation (advance renunciation)

• Renunciation occurs before accepting the inheritance
• The renouncing party has not exercised their rights in the estate
• The inheritance passes directly to substitute heirs (the renouncing party's children)
• No gift tax or inheritance tax consequences for the renouncing party
• Substitute heirs pay inheritance tax normally

Ineffective renunciation

• Renunciation occurs after accepting the inheritance
• The renouncing party has already exercised their rights (participated in decisions, taken property)
• For tax purposes, the renouncing party is deemed to have first received the inheritance and then gifted it
• The renouncing party pays inheritance tax + the recipient pays gift tax
• Significantly more unfavourable from a tax perspective

The difference in practice

The decisive question is: has the heir accepted the inheritance?

Acceptance of the inheritance includes:

• Participating in estate decision-making
• Taking estate property into use
• Receiving estate income
• Making agreements about estate obligations

The following do not constitute acceptance of the inheritance:

• Attending the estate inventory meeting
• Signing the estate inventory deed
• Arranging the funeral
• Handling urgent matters (e.g. caring for the deceased's pet)

The renunciation process

Formal requirements

Renunciation of an inheritance must be:

• In writing – oral renunciation is not sufficient
• Unambiguous – the intention to renounce must be clearly expressed
• Gratuitous – the renouncing party may not receive compensation
• Unconditional – no conditions may be attached to the renunciation

Practical implementation

1. Renunciation declaration is recorded in the estate inventory deed at the inventory meeting
2. Or a separate written declaration is submitted to the estate
3. The renouncing party signs the declaration
4. The renunciation is final – it cannot be revoked

Content of the renunciation declaration

• Name and personal identity code of the renouncing party
• Name and date of death of the deceased
• Clear declaration of renunciation of the inheritance
• Mention that no consideration is received
• Date and signature
• Witnesses (recommended but not mandatory)

Notification to the Tax Administration

• The renunciation is recorded in the estate inventory deed
• The Tax Administration takes the renunciation into account in inheritance taxation
• Inheritance tax is assessed directly on the substitute heirs
• No inheritance tax consequences for the renouncing party (effective renunciation)

Impact on children and substitute heirs

Renouncing an inheritance directly affects the renouncing party's descendants.

Order of succession

When an heir renounces an inheritance:

• The inheritance passes to the renouncing party's substitute heirs – usually their children
• If the renouncing party has no children, the inheritance is divided among other heirs of the same rank
• The renouncing party cannot choose who receives the inheritance – the law determines this

Example

The deceased has three children: A, B and C. A renounces the inheritance.

• If A has two children, they receive A's inheritance share (split equally)
• If A has no children, B and C share the entire inheritance between them
• A's spouse does not receive A's inheritance share through the renunciation

Status of minor children

If the renouncing party's children are minors:

• A guardian (usually the other parent) accepts the inheritance on behalf of the child
• Permission from the Digital and Population Data Services Agency (DVV) is not required for accepting the inheritance
• Inheritance tax is paid normally in the child's name
• Property is managed on behalf of the child until they reach adulthood

Tax consequences

Taxation is the most important practical consideration in renouncing an inheritance.

Taxation of effective renunciation

• No inheritance tax for the renouncing party
• Substitute heirs (the renouncing party's children) pay inheritance tax
• The tax rate is determined by the relationship between the substitute heir and the deceased
• In practice, grandchildren are in tax class I (same as children)

Taxation of ineffective renunciation

• The renouncing party pays inheritance tax on the inheritance share received
• The recipient also pays gift tax
• Double taxation – a significantly more expensive option
• This should be avoided at all costs

Tax planning strategies

• Renunciation is worthwhile when the inheritance is intended to go directly to grandchildren
• For large inheritance shares, the tax savings can be significant
• Example: €100,000 inheritance to a child → child's death → to grandchild = tax paid twice. With renunciation, tax is paid only once.
• Consult a tax professional before making a decision

Inheritance tax rates (tax class I)

Inheritance tax table for tax class I (close relatives):

• Under €20,000: tax-free
• €20,000–40,000: 7%
• €40,000–60,000: 10%
• €60,000–200,000: 13%
• €200,000–1,000,000: 16%
• Over €1,000,000: 19%

Read more about inheritance tax.

Creditors' position

Creditors' rights can restrict the renunciation of an inheritance.

Renunciation by a debtor subject to enforcement

• A bailiff can seize the inheritance share to cover debts
• Seizure is possible even if the heir has renounced the inheritance
• The bailiff assesses whether the renunciation was made to the detriment of creditors
• The inheritance share can be seized up to the amount corresponding to acceptance of the inheritance

Fraudulent renunciation

If the purpose of the renunciation is to harm creditors:

• A creditor can demand reversal of the renunciation
• Recovery rules under the Recovery Act may apply
• The court assesses the purpose of the renunciation
• A fraudulent renunciation can be declared invalid

Permitted renunciation

Renunciation is permitted when:

• The purpose is tax planning (inheritance to grandchildren)
• The heir is not subject to debt enforcement
• The renunciation does not harm creditors
• The renunciation is made in good faith

Special situations

Renunciation of a bequest

• A beneficiary under a will can renounce the testamentary bequest
• A bequest can be partially renounced (unlike a statutory inheritance)
• Partial renunciation of a bequest is treated differently for tax purposes
• The partial renunciation must be clearly defined

Renunciation of the forced share

• A direct descendant can renounce their forced share (lakiosa)
• The renunciation can also be made in advance (during the decedent's lifetime)
• An advance renunciation must be agreed with the decedent
• A reasonable compensation can be paid in connection with the advance renunciation

Advance inheritance and renunciation

• If the renouncing party has received an advance on their inheritance, renunciation can be problematic
• The advance on inheritance is taken into account in inheritance taxation
• Renunciation cannot be used to circumvent the consideration of the advance on inheritance

Transfer of an estate share

An alternative to renouncing an inheritance:

• An estate share can be sold or donated to another person
• This is a different matter from renouncing an inheritance
• The transfer is treated as a sale or gift for tax purposes
• The transferee becomes a shareholder of the estate in place of the transferor

Read more about inheritance tax and wills.

Frequently asked questions

How does one renounce an inheritance?

In writing, before accepting the inheritance. The declaration is recorded in the estate inventory deed or given as a separate declaration.

Can you partially renounce an inheritance?

A statutory inheritance cannot be partially renounced – it is all or nothing. A bequest under a will can be partially renounced.

Who inherits the renouncing party's share?

The renouncing party's children (substitute heirs). If there are no children, other heirs of the same rank.

What are the tax consequences of renunciation?

In effective renunciation, none for the renouncing party. In ineffective renunciation, inheritance tax + gift tax.