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Inheritance and gifts are important aspects of financial planning and wealth management. Sometimes, however, the boundaries between these concepts can become blurred. In this article, you'll find information about what an inheritance advance is, how much you can give as an advance, how you should give it, and how it differs from regular gifts.
Regulatory framework
Advances on inheritance are regulated in section 75 of the Inheritance Act. This states that
If a life heir has received a benefit of financial value from the testator, the benefit must be reduced in the life heir's inheritance if this was set as a condition for the benefit. A condition for reduction should be in writing and made known to the other heirs.
Unless otherwise stipulated as a condition for the benefit, the following shall apply to the reduction:
- The curtailment amount is set to the value of the benefit when it was received.
- If the reduction amount is greater than the heir's right to inheritance, the heir is not obliged to return anything to the estate.
- If the life heir who has received the benefit dies before the testator, the reduction will be made in the inheritance of the life heir's heirs.
- The reduction amount only affects the distribution between the heirs and their lines and not the calculation of the spouse's share of the joint property or the spouse's or cohabitant's inheritance, or what the testator can dispose of by will.
What is an advance on inheritance?
Prepayment of inheritance refers to a wealth transfer given to an heir in connection with future inheritance. This means that the testator decides to distribute the inheritance to the heir while the testator is still alive. Many people want to make an inheritance advance to help an heir financially during their lifetime, instead of the heir having to wait until the testator is dead.
Gifts and inheritance advances are both ways of transferring value to others, but there are important differences between them. Gifts are normally given without any expectation that they will be part of a future inheritance. They are often less formal and can include everything from birthday gifts to donations to charitable organisations. However, the Inheritance Act does not distinguish between advances on inheritance and gifts of a certain size. The decisive factor is whether the testator has decided whether this should be cancelled later. If not, it will be regarded as a gift that will not be reduced in a later inheritance settlement.
How much can you give as an advance on inheritance?
How much you can give as an advance on inheritance depends on the testator's assets. Advances on inheritance must also comply with the Inheritance Act's rules on shared inheritance. This means that if the testator is survived by a spouse, cohabitant with children in common or their own heirs, an inheritance advance to one of the heirs cannot be at the expense of what the other heirs are entitled to under the Inheritance Act.
If a surviving spouse is in an undivided estate, the possibility of making an advance on inheritance is limited. A breach of this can have major consequences for the testator.
How should you give an advance on inheritance?
Under the old Inheritance Act, the donor could retrospectively decide that the gift/inheritance should be deducted at a later date. After the new law came into force on 01 January 2021, this rule has changed. Today, the donor must, at the same time that the advance is given, decide that this will later be reduced in an inheritance settlement. It is strongly recommended that this is done in writing in a deed of gift and that the other heirs are informed. In addition, it is sensible that this is also stated in a will.
How can we help you in this process?
Making an inheritance advance can be a complicated process and it's important to ensure you comply with all legal requirements and any tax regulations. Our law firm is here to help you with this process. Our experienced lawyers have expertise in inheritance law and wealth management, and they can guide you through every step of making an inheritance advance, from creating legal documents to advising on tax and inheritance taxes.
Contact our law firm today for a consultation and let us help you plan your financial future and fulfil your wishes when it comes to inheritance and gifts.
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Monica Melgård
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