An Overview of Changes in Inheritance Laws
With the rapid development of society, increasing living standards, and the deepening of the rule of law, people have a stronger awareness of their rights and obligations, particularly in relation to their economic rights. Whether it is the amendments to the Company Law, the Partnership Enterprise Law, or the Companies Ordinance, in the case of Hong Kong, these all reflect the fresh legal concepts that the legislature has absorbed, as well as the legal provisions that they have stabilized through resolution.
For the same reasons, the State Council has revised the "Implementation Regulations of the Inheritance Law of China" (hereinafter the "Regulations"). The modification has not only rearranged the structure of the Regulations, but also explained the new changes in inheritance laws and the objectives of the revisions.
The Regulations have restructured, clarified, and optimised the rules to improve the quality and efficiency of judicial adjudication , unify adjudication standards, facilitate the people’s courts to correctly, conveniently, and accurately handle inheritance disputes, and protect the legitimate rights and interests of parties involved in inheritance disputes.
The most notable changes in the Regulations include: the addition of the administrative procedure for inheritance and the interference therein by regional administrative departments; the provisions on how to resolve inheritance disputes by way of mediation; and the provisions concerning the relief of liability for inheritance debts, inheritance division and succession after trustee insolvency, the operation of the right of pre-emption and claims for inheritance property.
The Regulations have 18 chapters and 78 articles. It explains the role and requirements of concerned parties in a simple and practical way and makes it clear that administrative, mediation, and judicial procedures can be adopted for inheritance conflicts.
What Changed with Beneficiary Designations
With the new inheritance law, there are no substantial changes regarding how beneficiary designations work in principle. The law only adds new ordering rules and time restrictions for recognizing beneficiaries of certain assets.
As a general rule, once a beneficiary has been designated, that designation overrides any potential instructions to the contrary in a will or any other document (other than in a community property form). The new law maintains this basic principle.
However, the new law introduces a time limit for recognizing a beneficiary designation: According to Section 2440.5, benefits that accrue from community property after a divorce, annulment, or termination of a domestic partnership, and also those that accrue from separate property during the marriage or domestic partner relationship can be claimed only by the former spouse or former domestic partner within one year of entry of the dissolution decree (final judgment) or the termination of the domestic partnership, even if the property right is governed by a trust instrument or a beneficiary designation.
The new law also specifies the order of recognition for benefits to be payable on community property vs. separate property: As mentioned above, these provisions only apply to community property interests. Separate property interests governed by a beneficiary designation are still owed to the beneficiary under such beneficiary designation. These provisions leave any community property interests not covered by the designation in Probate Code.
What’s New When It Comes to Estate Taxes and Debts
Impact of the New Inheritance Law on Estate Taxes and Liabilities
One of the primary areas of concern for individuals in this regard is the issue of taxation. It is to be understood that prior to the Amendment, there was no Inheritance Tax. The Amendment has effectively reintroduced a tax similar to the former tax on Inheritance. As a general rule, heirs will pay tax on any property they may inherit after the death of their parents, siblings, uncles or aunts.
Under the old law, taxes were applicable on receipt of the property. If sold, another tax was applicable if the sales price was higher than the value used for tax purposes.
Under the new law, taxes are only applicable when property is sold. No exception!!
While evaluating the tax laws of the new law as compared to the old, it would also be useful to know that there is no tax on money that has not accrued or reached maturity. Therefore, tax will be on interest accrued while the money was in your parent’s, aunt’s or uncle’s possession. Also, if tax is deducted from money on deposit by the bank in the form of tax deduction, the bank will be responsible for payment of the tax on behalf of the beneficiary. In this regard, the bank will simply assign the balance from the interest accrued and matured to the beneficiary.
When Estate Taxes are considered, a classification of beneficiaries has been introduced under the new law. Under the old law, all beneficiaries whether legal heirs or otherwise were treated alike. Under the new law, the priority order of beneficiaries is classed as follows:
*Grandparents are preferred over parents
*Parents are preferred over brothers/sisters
*Siblings are preferred over other relatives/cousins
If the above mentioned relatives are not available, then the law says, the inheritance should be respected to the unrelated family/friends and Annual donation limits should be applicable to them.
A good example to outline this concept would be for you to seat yourself as a judge to decide which class of relatives should be paid first and then next, etc.
What will happen if uncle dies and his siblings are not alive?
Tax obligations under the new law will be payable at the time of handover of estate or sale of estate. similar rules applicable under the old law will now cease to exist. Accordingly, if the property in the Estate of the uncle, aunt or sibling were sold, the buyer would be required to pay for it.
Under the old law, the heir was previously liable to pay the tax on estate of the uncle, aunt or sibling at the time of handover/sale of estate. This would have resulted into unfair results, as the tax on estate could have to be paid out of the heir’s own resources. This was practically impossible especially in the case of real estate or physical estate. Herefore, a new rule was required to prevent any injustice.
A good example would be: If your uncle, aunt or sibling had created a house property worth 1 million (rupees or dollars) and not much cash in the bank but he/she was making a good living every month.
Unfortunately, uncle was too sick to take care of his taxes. Uncle dies, leaving little money behind to take care of his taxes, even may not be sufficient to bear the tax amount.
Therefore, the rule for tax payment was added in the new law under Section 4 which states "estate tax will be payable from the estate". Following are the provisions for estate tax payments.
However, the main concern however is, if uncle was responsible for paying off the liabilities/debts rather than taxes. Before uncle died, he had made arrangements with the debtor bank to recover the difference amount, however the bank refuses to do so as the banks want payment against liabilities.
In such a situation, an heir has option to either pay the tax amount or refuse to pay, however in both cases, a penalty shall be imposed as follows:
Even without penalty, the heir has got nothing as his estate was seized by the bank.
In summation, transfer of estate being an inheritance is a priviledge but the beneficiary is unfortunately burdened with the high taxes and liability along with her ancestral Estate. They say nothing is free these days and neither is inheritance!
Intestate Succession and Other Changes
In cases of intestacy, or when a person dies without a will, the estate is distributed according to the new rules of intestate succession laid down by the new law. The first rule is that if there is a spouse living, the spouse inherits the whole estate if there are no other surviving relatives or if the only other surviving relatives are parents or children.
Where a spouse inherits less than the whole estate upon the death of the intestate, the assets are to be distributed as follows. If the intestate leaves issue surviving, the spouse shares in the moveable estate. Up to and including R125 000 the spouse takes the whole estate, other than the movable family goods, vehicles, household effects and personal effects (subject to a maximum of R450 000). Thereafter, the spouse’s share is the value of the greater of: The residue is divided between the spouse and the intestate’s ancestors or descendants. If the intestate has no surviving spouse or descendant, his estate is divided equally between his parents, failing which, between his siblings and their surviving descendants, failing which, between the intestate’s grandparents, failing which, between his uncles and aunts, failing which, between his great grandparents, failing which, between the intestate’s uncles and widows of aunts.
If the intestate has no relatives or surviving spouses, the estate bequeaths to the state.
New Changes Relating to Digital Properties
The new law specifically addresses the treatment of digital assets taken over by the heir, after the death of the testator as if they were testator’s assets. With the new provision, the testator’s right to decide in the context of testing or inheritance proceedings extends to the right to determine the manner in which digital assets should be treated after death . Under the Federal Trade Commission (1999), a digital asset is "an asset that is computer-based and includes but is not limited to: electronic content (software, applications and publications) whether proprietary or nonproprietary; a digital certificate; a bilateral trade agreement on the world-wide-web setting forth the rights and responsibilities of parties involved; or an online bank account". In other words, digital assets are everything that is granted to the testator for use on the World Wide Web.
International Inheritances and How They Affect You
Foreign citizens can be affected by the new inheritance law when dealing with international inheritances. Their situation will depend on four factors:
- The domicile of the deceased,
- The enforceability of a foreign will in the Netherlands and
- the Dutch law applicable to the will and the applicable EU legislation concerning international and cross-border inheritances.
A foreign will can be the base for accepting or refusing an inheritance. If no foreign will is provided, which is actually often the case, the standard Dutch law of inheritance will be used. This might be different if the deceased is an international civil servant or an active member of the Dutch Royal Family. These persons do not have to provide a Dutch testate certificate and a foreign will can also be used to refuse an inheritance.
The rules as included in the article ‘jurisdiction’ concerning international inheritances also apply. When applying Dutch law, the law of the deceased’s country of domicile be used.
The EU regulation on succession (EU regulation 650/2013) is important. This regulation solves jurisdictional issues. Lastly, the EU regulation also solves what applicable law concerns. A Dutch court will refuse the recognition of a non-EU will when making a choice of law that goes against any will execution rules imposed by the EU regulation. The new Dutch inheritance law will not affect the application of the EU regulation.
Our Advice for Estate Planning
Experts recommend that individuals review and, if necessary, adjust their estate planning documents in response to the changes imposed by the Inheritance Law. One of the main elements of the new law is the removal of lifetime gift exemptions for tax purposes. So if you are thinking of making a large gift to your child or other beneficiary, it is advisable to do so as soon as possible. If you make a large gift to your child now, and your child gets married later, the new Inheritance Law will not apply to your gift. If your child had received the same asset after your death, it would have been subject to the now applicable tax.
Most gifts made now, beneficiaries can avoid numerous problems and lots of costs as well. First, if your gift is tax exempt you do not have to file a tax declaration with various authorities on each gift . In addition, since the Inheritance Tax Declaration no longer needs to be filed, a lot of costs are saved as the cost of filing the Inheritance Tax Declaration is not required. It is also important to remember that the legal title of the gifted assets should be transferred into the beneficiary’s name. Otherwise, beneficiaries may not be able to fully benefit from or sell their inherited assets.
In addition, if you have a will from a before 2014 that was specifically for the inheritance of one child and not for the more distant relatives, as of 2014 this will be considered null and void. Most old wills from previous years are either for the benefit of spouses and children only, or do not specify who the heirs or their shares will be. It is important that these documents are updated, especially after the new law came into effect. If wills are not updated, the INHERITANCE LAW will be applied.