Nordea: Inheritance – do you need a will?

Rules on tax and inheritance differ markedly across countries. To make a will is almost always a good idea – but check the applicable rules first.

It is exciting to move to another country. New career opportunities, a new language, a different culture and new friends, a new school for your children and perhaps a better climate. You look into tax matters, but mostly because you want to know the effect on your wages and pension. The rest you deal with as you go along. But ‘the rest’ may include the most important issues: how to best provide for your immediate family – also in terms of taxation – when you are no longer there. Often, this issue is ignored because it can be discomforting to consider what may happen when we are no longer alive. Yet these thoughts may be among the most important of your life.

So how should you go about it? Well, most importantly you should set the objectives of your inheritance planning, addressing such questions as:

– Who should inherit and how much?
– Do I wish some beneficiaries to inherit specific items?
– Should the inheritance be subject to conditions, such as separated property for heirs or assets put into a trust?
– Would I like to leave some of my assets to charity?

Even if you do not have special wishes, it is always a good idea to make a will. A will can not only resolve issues such as those mentioned above, it can also save your heirs from having to make important decisions, like agreeing, in the absence of specific instructions, about what you might have wished. However, before making a will, you should familiarise yourself with the principles of estate distribution, forced heirship rules and tax consequences.

The choice of jurisdiction can be crucial to the inheritance allocation. In the United Kingdom, for example, the entire estate can be freely allocated by will, i.e. there are no clear rules that safeguard an inheritance for children, spouses or other family members. In Spain, on the other hand, children are entitled to inherit at least two thirds of a parent’s estate, while Swedish rules entitle children to only a quarter.

It is important to check all inheritance rules, even those concerning the formalities. Not only tax rates are important; of equal significance are how the rules work and their implications for family members and property, both in the country of residence and outside. In conclusion, it is important to look at the location of both heirs and property, and plan accordingly, because these can have a major impact on the outcome, both in terms of civil law estate division and taxation.

The new EU/EEA rules coming into force this summer will provide greater flexibility and simplify the choice of rules to apply, but they will also require more investigation into the effects of what an active selection of jurisdiction and rules will have.

Lars Lindved and Roberth Josefsson are both wealth planning specialists at Nordea International Private Banking (Luxembourg / Switzerland / Singapore).