Family Wealth Planning - Wills, Prenuptial Agreements, etc.

[Notorious]

A thread about family wealth planning and tips. What should be considered if wealth has accumulated/is accumulating enough to leave something for future generations? As an inheritance, advance inheritance, or gift? What about marriage, a prenuptial agreement, or a potential divorce? Is a lawyer’s/consultant’s help always needed for documents, or can an ordinary person manage with drafts found online and common sense?

Inheritance tax has been much discussed recently, but family wealth planning is much more than that. There are certainly wealthier people here who have considered this matter and prepared documents. According to what’s read online, the three “cornerstones” for anyone wealthier are a will, a prenuptial agreement (if married), and an enduring power of attorney. Insurance, investment companies, etc., are then somewhat more complex arrangements.

A couple of excerpts from the media on the topic:

Hesari’s tips for inheritance planning (for subscribers)
Rahapodi episode on the topic

Related threads on the forum:
Ylisukupolvinen varallisuus ja perheen oma sijoitusyhtiö - Raha & säästäminen - Inderes forum
Lapselle säästäminen - Raha & säästäminen - Inderes forum
Pohdintaa sijoittajan avioehdosta - Raha & säästäminen - Inderes forum

[Notorious]

Now to a practical case. Hopefully, my own departure isn’t too close yet, but a will would still be good to work on. At least the division of inheritance into parts and the right to partial renunciation sound like things that should be included.

Any experiences with wills that utilize these? Links to templates or screenshots of clauses?

[SentinVenyttaja1]

At least those threads touch upon the topic

Ylisukupolvinen varallisuus ja perheen oma sijoitusyhtiö

Lapselle säästäminen

For me, when it comes to wealth transfer, the first things that come to mind are tax-free donations and covering living expenses.

[MaximusMassimo]

When transferring suitable assets, it’s worth at least considering reserving the right of use and administration. Of course, everyone should have a prenuptial agreement, but in addition, for example, when gifting to a child, it’s worth seriously considering in the gift deed to exclude the child’s current and/or future spouses from the gift itself and any property acquired in its place. These are fundamental matters for which it is indeed worth seriously considering the use of a lawyer, as there are usually quite costly pitfalls due to formalities for negligible savings.

[Wallet_Nahlroos]

Life insurance for inheritance taxes is a good idea.

[Notorious]

Inheritance or Gift – My Own Thoughts from a Taxation Perspective. I am certainly not a professional in the field and take no responsibility for these writings When delving into these matters for my own situation, I can, of course, share them with others as well.

There is currently a lot of political debate ongoing about inheritance taxation, but let’s leave that outside this thread and proceed according to the current situation for now. It should be noted, however, that reforming inheritance tax might also lead to changes in gift taxation.

Both inheritance tax and gift tax are progressive taxes, meaning the amount of tax increases as the gifted/inherited sum grows. Both taxes also have two tax classes: 1 closest relatives (lower taxation), 2 others (higher taxation). The tax authority’s website provides good material, instructions, calculators, tables, etc. I will put the links at the end. In this review, we will focus on class 1, i.e., close relatives.

Inheritance Tax Table

Gift Tax Table

Key takeaways:

• Inheritance tax is tax-exempt up to 19,999 euros, gift tax only up to 4,999 €
• The progressivity of inheritance tax is stricter than that of gift tax (the tax increases more steeply as sums grow)
• You can only die and inherit once, but you can give gifts throughout your life. In gift taxation, gifts given within 3 years are aggregated, meaning you can aim for tax benefits by distributing smaller sums every 3 years. The most well-known of these is the tax-exempt 4,999 € donation every 3 years mentioned above by @SentinVenyttaja1, but nothing prevents distributing a larger sum (in which case tax is naturally paid, but at a lower percentage than by distributing everything at once).
• The recipient pays the tax, meaning you can distribute more tax-efficiently the more recipients there are.
• A given gift is counted as part of the inheritance if death occurs within 3 years of giving the gift.
• There are deductions for inheritance tax: at least for a minor recipient and a spouse deduction, and reliefs: e.g., family companies. To my understanding, there are no deductions/reliefs for gift tax.

Let’s forget about deductions and reliefs and put the taxes side by side in a table. The crossover point is at approximately 250,000 €, if the gift is given all at once.

Amount	Inheritance Tax	Gift Tax
4,999 €	0 €	0 €
10,000 €	0 €	500 €
19,999 €	0 €	1,292 €
50,000 €	2,500 €	4,200 €
100,000 €	8,700 €	10,100 €
200,000 €	21,700 €	22,100 €
250,000 €	29,700 €	29,600 €
500,000 €	69,700 €	67,100 €

If there is a fair amount of expected lifespan left and one knows that not all assets will be used personally, then from a tax perspective, gifts should definitely be utilized. Depending on the wealth and the number of heirs, it is definitely worth considering giving larger sums than the tax-exempt 4,999 € every 3 years. Generally, heirs also appreciate assets more the younger they receive them.

The real world is, of course, not as simple as the Excel world, as there are various deductions, one can play with partial renunciations through a will, and retain the right of usufruct and ownership, marriage/marital conditions affect when inheriting from spouses, etc.

Links: https://www.vero.fi/henkiloasiakkaat/omaisuus/lahja/
https://www.vero.fi/henkiloasiakkaat/omaisuus/perinto/

[Insinoori]

There are dangers in such threads. Having dealt with inheritance matters some time ago, I would never have reached the same conclusion as the bank’s lawyer if I hadn’t used their services. For example, the partition of marital assets can be used very liberally in an inheritance situation. Of course, the service wasn’t entirely free.

The danger arises from the fact that situations are so different. If, for example, the estate or its heir has undivided estates themselves, families are contentious, there are many siblings, or the property to be divided is remarkably large or consists of many different assets, I would certainly not look for advice on any discussion forums, but would go straight to a lawyer specializing in inheritance matters. A few thousand for things to go right the first time is not a very large sum of money.

When people have tried to save money on this, they have often ended up paying much more in the end.

Of course, there is a demand for informing about alternatives and carefully weighing them at a general level. However, I believe that the basics of gift tax matters are quite well known, especially in investor forums. Most questions here seem to be about cost-effectively transferring assets to descendants already during one’s lifetime. For this, there are already the threads mentioned above.

My own opinion, even from an educational perspective, leans towards the view that everyone is the master of their own destiny and should use their own money during their lifetime. This does not exclude financing the offspring’s studies, assisting with housing, providing investment grants for mopeds, cars, etc., or walking hand in hand through life situations. I have seen more than one young heir and heiress suddenly spend the money they received completely without consideration, down to the last penny, exactly where the testator certainly did not wish it to be put. At the same time, the heir’s health has deteriorated, and future dreams have suddenly moved much further away.

[Notorious]

From my perspective, the purpose of this thread is certainly not to encourage people not to use expert help. On the contrary, I personally strongly recommend it, especially if the situation is even slightly more complex or if one is not familiar with drafting documents. On the other hand, “Talk to a lawyer” is a very loose piece of advice. There are lawyers/consultants of many kinds, and I personally like to approach the matter by trying to find out things myself even before a consultation, which allows me to ask questions/present views, or at worst, realize that this is not the right person to handle my case. If I recall correctly, for example, in that ‘rahapodi’ (money podcast) episode (I listened to it a long time ago), one of them mentioned having received really poor service from a lawyer. In one estate where I was a co-owner, the local bank’s lawyer was quite lost even with basic matters. Of course, most of those who do that for a living are certainly tough professionals.

The worst and probably most common solution is to do nothing, the matter explodes after death, and then you pay the most. That’s why I would see the discussion as welcome. I absolutely agree, of course, that advice should not be taken directly from an online forum for one’s own use, but I believe that the readers of this forum understand this themselves. However, ideas can emerge.

[xlat]

In my opinion, the discussion about inheritance and gifts is perhaps too much driven by taxation. Taxation is important to consider in solutions, but one should not make decisions that are difficult or unpleasant later. For example, instead of a right of occupancy, it might be wiser to bequeath ownership of the apartment to the surviving spouse, and other solutions that are not as tax-efficient but which save trouble and problems later (a right of occupancy lasting decades can lead to all sorts of issues).

Probably the smartest thing to do is to list things roughly as one wants them to go, and then with a lawyer, tailor the documents so that an optimal solution is found, where taxes are optimized to achieve the desired outcome.