Inheritance tax and inheritance law in Estonia
Taxation Researcher | October 15, 2021
The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Estonia: what restrictions there are and whether making a will is advisable.
There are no inheritance tax laws in Estonia.
However, the gains from the transfer of property received as a gift or inheritance are subject to income tax.
Some gains are exempt from taxation, such as:
- Gains from the sale of a taxpayer’s primary residence;
- Gains from the transfer of a summer cottage or garden house that the taxpayer has owned for more than 2 years.
Thanks to Concordia Attorneys
What inheritance laws apply in Estonia?
Inheritance is governed by the law of the last country of residence of the deceased.
Inheritance in Estonia is governed by Estonian Inheritance Law (EIL), Private International Law Act (PIL) and the Code of Civil Procedure (CCP). The current EIL is valid until the 31st of December 2008, and a new Inheritance Law will be in force from the 1st of January 2009.
Foreign property-owners who are members of different religions, or different nationalities, or foreigners who do not reside in Estonia are not treated differently with respect to the law.
Inheritance is governed by the law of the last country of residence of the deceased. Consequently, Estonian inheritance law only affects the estate of a deceased person whose last place of residence was Estonia. A person can make a disposition in his/her will (or succession contract) to the effect that the national laws of his/her citizenship apply. Such a disposition is not valid if the person is not a citizen of that state at the moment of death. If a foreigner has made this disposition and his/her national law provides that, in inheritance issues, the relevant law is that of the country where the property is located, and the property is located in Estonia, then Estonian Inheritance Law applies.
In the event of renvoi (the transmission of inheritance issues from a foreign state back to Estonia) the rules of private international law of the foreign state apply. If such rules prescribe application of Estonian law (remission), the rules of Estonian substantive law apply. If the foreign law prescribes application of the law of a third state, the transmission is not taken into consideration.
The Private International Law Act determines:
- The types and effect of testamentary dispositions;
- Succession capacity and unworthiness to succeed;
- The extent of succession;
- The successors and the relationships between them;
- Liability for the debts of the testator.
Inheritance proceedings open upon the declaration of death of the deceased, at the place of his/her last residence. Upon the opening of a succession, a successor has the right to succeed. According the current EIL, in order to succeed, a successor must accept the succession. The new EIL stipulates that the succession transfers to the successor upon the opening of a succession, but if a successor does not want to succeed, he/she has to renounce the right to succeed.
According to the current EIL a notary may provide a term for acceptance or renunciation of a succession and send a written notice thereof to a person entitled to succeed, or publish a notice in the official publication Ametlikud Teadaanded. The term is not shorter than two months after receipt or publication of the notice. Usually if everything is done quickly, all the successors are known, and there are no disputes, then the inheritance proceedings take approximately 3 to 6 months. The inheritance proceedings are finished when a notary issues a succession certificate to a successor or legatee. A succession cannot be accepted or renounced if ten years have passed after the opening of the succession.
The new EIL stipulates the term for renunciation is three months. The term commences from the moment the successor becomes aware (or ought to become aware) of the death of the deceased and of his/her right of succession. For initiation of succession proceedings a successor, a creditor of the deceased, a legatee or any other person who has rights in respect of the estate submits a corresponding notarized application to a notary. A notary publishes a notice concerning the initiation of succession proceedings in the official publication Ametlikud Teadaanded not later than two working days after initiation of the succession proceedings. If a successor is not known, or there is no reliable information concerning the place of residence of the successor, the notary publishes a call for identification of a successor in Ametlikud Teadaanded. The inheritance proceedings are finished when a notary issues a succession certificate. The certificate is issued if sufficient proof is provided concerning the right of succession of a successor and the extent thereof but not before one month after publication of the notice concerning the initiation of succession proceedings. There is every reason to believe that the inheritance proceedings according to the new EIL will not take more time than the current EIL.
According to the Code of Civil Procedure (CCP) inheritance issues (e.g., an establishment of the right of succession, a successor´s claim against the possessor of an estate, a claim arising from a legacy or succession contract, or a claim for a compulsory portion or division of an estate) must be filed with the Court of General Jurisdiction at the time of death of the testator. CCP also regulates the application of estate management procedures. An Estonian court may apply management measures to an estate located in Estonia, regardless of the state whose law is applicable to succession, and regardless of the state whose authority or jurisdiction is competent to conduct the succession proceeding. Estate management measures are applied by the court in the location of the opening of the succession. If a succession opens in a foreign state, and the estate is located in Estonia, then estate management measures may be applied by the court in the location of the estate.
Estonian Inheritance Law provides for a compulsory (reserved) portion.
If the inheritance of a foreigner is governed by EIL, then the compulsory (reserved) portion is regulated by EIL. If the deceased did not make a will (or succession contract) then the compulsory portion regulations do not apply, and the estate is inherited only by intestate successors.
According to the current EIL, if a testator by will (or succession contract) disinherits a descendant, ascendant or spouse who is entitled to succeed by intestacy, or if the relative´s or spouse´s share of the estate is reduced (compared to their entitled share by intestate succession) then the descendant, ascendant, or spouse has the legal right to claim a compulsory portion.
The new EIL, effective from 1st of January 2009, is essentially the same, but includes another regulation. If a testator by will (or succession contract) disinherits a descendant or parent or spouse to whom he/she had maintenance duties arising from the Family Law Act, or if a testator reduces their share of the estate (compared to their entitled share by intestate succession) then the descendant, parent, or spouse has the legal right to claim a compulsory portion.
The compulsory portion is one-half of the shares which the relative or spouse would have inherited by intestate succession (assuming all other intestate successors accepted their shares).
Provisional inheritances and gifts made by the testator to other persons up to three years before his/her death, for the purpose of reducing the compulsory portion, are considered to be part of the inheritable estate. The debts and burial expenses of the testator, the cost of valuation and preparation of the estate inventory, and one month´s maintenance expenditure for persons who were financially supported by the testator, are not considered to be part of the estate.
According to the current EIL, in the first instance, a successor inherits property according to the testamentary intention of the testator. If this is less than the compulsory portion, the missing share must be obtained from another part of the estate. If the estate is less than the size of the compulsory portion, the inheritor of the compulsory portion has the right to demand the return of gifts from the gift recipients, commencing with the latest gift before the death of the testator. If gifts are made concurrently, the gift recipients are liable to the recipient of the compulsory portion in proportion to the size of the gift. The limitation period for submission of the claim against a gift recipient is one year after the date the recipient of the compulsory portion accepts the succession.
Additional regulations are included in the new EIL. A testator may by will (or succession contract) disinherit the compulsory portion of any person who commits a criminal offence against the testator, the testator´s spouse, ascendant or descendant. In such case, the testator must express the reason for disinheritance of the compulsory portion. At the request of a successor of a compulsory portion, a court may declare the disinheritance of the compulsory portion to be invalid if the testator fails to indicate the reason for the disinheritance, or if the reason is not in accordance with the provisions of the governing law.
Unless otherwise specified by the testator, a successor who is disinherited of the compulsory portion must transfer shares to the intestate successors on the same basis as if he/she was not alive at the time of opening of the succession.
A succession contract is the preferred method of inheritance.
Succession is intestate if the testator has not left a valid will (or succession contract). If the will (or succession contract) of a testator only concerns a share of the estate, then the remaining share is inherited by intestacy.
The right of testate succession (by will or succession contract) is preferred to the right of intestate succession (by law). The right of inheritance by succession contract is preferred to the right of succession by will or by law.
According to PIL, the form of a will (or succession contract) is governed by The Hague Convention of 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions (RT II 1998, 16/17, 28).
A person may make, amend or revoke a will (or succession contract) if he/she has the legal capacity to do so according to the law of the state of his/her residence at the time of making, amending, or revoking the will. If according to the law of his/her state of residence, a person does not have the capacity to make, amend, or revoke a will (or succession contract), then he/she may make, amend or revoke a will (or succession contract) according to the national law of his/her citizenship.
Succession contracts are governed by the law of the state of residence or citizenship of the testator at the time of entry into the contract. The applicable law determines the admissibility, validity, content and binding force of the contract, and the consequences of the contract under the law of succession.
At the time of making a reciprocal will, the will must comply with the laws of the states of residence of both testators, or with the law of the state of residence of one of the spouses, jointly chosen by the testators.
Property may be gifted during the lifetime of the owner.
There are no restrictions on gifts of property in Estonia, other than stipulated above, with respect to the distribution of the compulsory portion after death.
Acquisition of immovable property (real estate) must be notarized and registered.
Property ownership is regulated by the Law of Property Act (LPA). An owner has the right to possess, use and dispose of his/her property, to demand the prevention of violation of these rights, and to eliminate the consequences of violation from other persons.
Movable property ownership is acquired when the transferor delivers the property into the possession of the acquirer, and they both agree that ownership has been transferred.
The legal owner of immovable property (real estate) in Estonia is the person whose name is on the title deeds, title papers, and transaction documents. A transaction in which immovable property (real estate) is acquired or disposed of must be formally notarized. A property transaction without such formality is valid if a real right contract is entered into for the performance of the transaction, and a corresponding entry is made in the land register.
Marital rights to property are governed by law.
The Family Law Act stipulates that property in Estonia acquired during marriage is the joint property of the spouses. Property which was in the ownership of a spouse before the marriage, property acquired by a spouse during the marriage as a gift or by inheritance, and property acquired by a spouse after termination of conjugal relations, is the separate property of the spouse. If the value of the separate property of a spouse significantly increases as a result of work or expenditure by the spouse during the marriage, then a court may decide that such property is partly or wholly the joint property of the spouses.
According to PIL, the general legal consequences of marriage are determined by the law of the state of the common residence of the spouses. If the spouses reside in different states but have the same citizenship, the general legal consequences of marriage are determined by the law of the citizenship of the spouses. If the spouses reside in different states and have different citizenships, the general legal consequences of marriage are determined by the law of the state of their last common residence, if one of the spouses still resides in such state. If the law applicable to the general legal consequences of marriage cannot be determined, then the law of the state where the spouses are otherwise most closely connected applies.
Children and other persons with restricted legal capacity require a legal representative.
According to the GPCCA adults who have attained 18 years of age have full active legal capacity to succeed. Minors who are under 18 years of age, and persons who, due to mental illness, mental disability or other mental disorder, are permanently unable to understand or direct their actions, have restricted active legal capacity.
If a person has restricted active legal capacity, then his/her legal representative must submit an application to initiate and administer inheritance proceedings. If a person with restricted active legal capacity submits an application for initiation of inheritance proceedings, then prior consent of his/her legal representative is required, otherwise the application is void.