Many parents want their property to be inherited by their children or grandchildren. But then the fortune tax has to be paid. There are tricks to get around this. There are many ways to reduce this tax but also ways to pay nothing. Trusts and inheritance tax are always the subject of controversial debates. Many people want to protect their heirs from this and are looking for ways to partially or entirely avoid it, and a trust company can help you with that. However, when you inherit real estate, the entire value is not always taxed; an allowance is also wholly excluded.

How Do Trusts and Inheritance Tax Work?

The tax rate after deducting the tax deduction is between 7 and 50 percent, depending on the tax bracket and the property’s value. But there are completely legal ways to avoid fortune tax altogether. We explain how to do this below. It would be best if you used allowances wisely. First, relatives should know the various exemptions applicable to their heirs. This way, you need trusts to avoid inheritance tax, or at least much of it. The closer is the relationship, the greater the exemptions. There are certain levels of payment for each of the siblings or close related. Up to these levels, no tax is charged on an inherited property.

Talk to a Trust Company

If there is an amount left over after deducting allowances, this amount will be taxed. These exemptions also apply if a gift is made before death. There is only one difference when it comes to gifts for grandparents and parents: the amount of the exemption is significantly less than if this group inherits. In such a situation, you should talk to a trust company, as they can help you take care of your wealth. A trust company is the best option any person has to protect their fortune after it passes away so that their relatives can benefit from its inheritance.

It is, therefore, worth knowing these exemption levels and investing the assets in an estate for future heirs. There is no tax if the property’s value is below the exemption amount. With the higher levels, purchasing an apartment or house whose value is below or slightly above the level is possible. Also, if you live alone on the inherited property, the fortune tax will be eliminated under certain conditions. If you lose someone, it is essential to read carefully about trusts and inheritance tax to know what you are dealing with.

As you have read, the fortune tax will be eliminated under certain conditions. These are:

• The heir must live in the property for at least the next ten years
• The surface of the property must not exceed 200 m². If it exceeds this level, the remaining area is taxed
• The testator (the person leaving the estate) must have lived in the property immediately before his death
• If the property is sold or rented to a third party before the end of the ten years, inheritance tax must be paid retroactively.

Avoid Wealth Fines — the Family Loan Method

Another way to save both inheritance and income tax is through the so-called family loan. A contract is concluded between relatives. But be careful: the tax authorities prefer to look twice at contracts between relatives because the risk of abuse is exceptionally high here. So, cheats are not worth it here. It is crucial in this situation to talk to a trust company because they can offer you different options and solutions regarding what you can do with your wealth. They can come up with different strategies so that your fortune stays safe.

For a loan agreement between relatives to be recognized, it must correspond to a competitive comparison according to tax law. In addition, the agreements mentioned must be performed. Therefore, one cannot enter into a loan agreement between them, which is ultimately more of an illusion than a reality. If everything is done correctly, the testators (ex. parents) can grant the heirs (children) a loan in the amount of the property’s value. The children are then registered in the land register as owners — from this point on, the parents are essentially just “the bank.”

The tax-free amount can then be deducted from the loan granted; it is tax-free and can be considered a gift. The children then pay interest to their parents on the remaining loan. These may be lower than at a regular bank. The problem with trusts and inheritance tax is that this subject is extensive. Therefore, you must be very careful about how you manage the situation. Also, what happens if all heirs disinherit? Advantage: The money stays in the family, and the children can deduct the interest from the income tax.

Be Careful with Every Step You Make

On the other hand, parents must declare the interest as income; they are taxed. That depends on the exact circumstances: if the parents have a lower tax rate than their children, for example, because they are already retired, this procedure can be helpful. Then, the family saves on income tax as a whole — taken together. After ten years, parents can again make a gift of the tax-free amount to their children — this is possible every ten years. That means that the parents can gradually pay off the remaining loan simply by repeatedly making a gift.

Interest payments to parents can also be used for other purposes. For example, the money could later be used to care for parents in the home or a home carer. All sorts of questions arise when such situations occur. For example, does the heir have the obligation to settle the income tax liability of the deceased person upon receiving the inheritance? Does succession patrimony include or not include patrimonial rights and who it belongs to? The best thing you can do is contact a trust company and they will answer all your questions.