Most of the time, inheriting something is not as easy as a simple transfer on death. Every country of the world, and within many countries, states and provinces, set certain rules and regulations that must be followed when dividing up an estate. Some of these rules are designed to tax inheritances, while others are in place to protect the inheritance rights of heirs like children and surviving spouses. The body of rules and restrictions placed on inheritances are collectively known as inheritance rules.
Inheritance rules are not universal, and can actually be quite different from one country or state to the next. Still, most schemes usually have a few things in common. First, inheritances are almost always taxed. Second, most inheritance rules make presumptions about who should be included in any inheritance distribution. Finally, there are usually specific requirements with respect to who can do the distributing, and how records of distribution must be filed.
Taxes on inheritance distributions can be quite steep, and generally apply to all property distributions, not just cash. A person who inherits a house, for instance, might find that she owes her government anything from 10 to 40 percent of the home’s value in inheritance taxes, which are different from property taxes or land taxes. Lawyers and estate planners often look for ways to help clients distribute assets in such a way that beneficiaries can escape some of the tax consequences imposed by inheritance rules. Most of the time, however, tax planning has to be done before a person dies, and before property is distributed.
Lawyers’ services may also be required if certain relatives, particularly a spouse or children, are either not getting an inheritance, or are getting a significantly smaller inheritance than others. Most inheritance rules presume that all legal heirs will receive equal distributions. A legal heir is someone whom the law recognizes as a direct descendant or spouse. Legal heirs automatically have inheritance rights under most inheritance rules.
All living children, for instance, are usually presumed to deserve a share of a parent’s estate unless there is a very clear disinheritance written into a will or other instrument. Surviving spouses are also usually presumed to receive some if not all of an estate on death. Inheritances that leave one or more people out can usually be challenged in court, and in some circumstances, governing inheritance rules can trump what a person wrote in a will.
Filing and reporting is also an important part of most inheritance rules. Copies of wills and other distribution documents must usually be filed in a court of record, usually in the jurisdiction where the estate owner died. If there is property that was not named in any document but was nonetheless distributed, this too must typically be recorded, often with a probate court. Most of the time, this is handled by the executor of the estate. The executor must also usually record all distributions with the local tax office. Rules about filing location, completeness, and deadlines are set out in the governing state inheritance regulations, federal inheritance rules, or other governing law.