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What about inherited debt?

Inheritance is not always something that can be gained, especially recently inherited debts have become more and more common. What can you do in such a situation?

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The death of a loved one is one of life’s most difficult situations. Settling an inheritance can often be a long haul, especially if the survivors cannot reach an agreement.

An inheritance is seen as a right to the estate – that is, to the “totality of the estate” of the deceased, which can include both assets and debts. It is only out of the estate as a whole that individual heirs are awarded shares – shares in the estate. The only things that do not form part of the estate are, for example, rights and obligations that are so strongly linked to the person of the testator that it is not possible for them to pass to someone else.

The problem, of course, is that because the estate is taken as a whole, it is possible that the debts will be as high as the value of the estate or exceed it. The debts of the testator then pass to the heirs (although the law may provide for exceptions, but these are only the bare minimum).

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In the event that such a situation should arise, there are four ways to avoid the estate (or part of it) being passed on to the heirs that is burdened with debts:

I. Waiver of the right of inheritance

This is dealt with before the death of the testator. In such a case, the heir and the testator must draw up a notarised contract renouncing the right of succession, which will exempt you from subsequent succession proceedings. The contract can be revoked if necessary, but again only in writing in the form of a public deed – so it is also necessary that the revocation takes place during the lifetime of the deceased.

The renunciation of the right of succession also applies to the descendant of the heir who has renounced his or her right of succession, unless otherwise agreed in the contract.

This is not widely used, but it may be practical, for example, for a testator who has three daughters and gives one of them a plot of land during his lifetime so that she and her husband can build a family home. Since he did not give anything to the other two during his lifetime, he wants to share them fairly and also avoid any disputes after his death. He can enter into the given contract of renunciation with the gifted daughter and thus exclude her from further inheritance.

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II. Refusal of inheritance

This option occurs if the testator is already deceased. An express declaration must be addressed to the competent court within one month of the date on which the heir is notified of this right (the time limit is extended to three months for heirs living abroad). As a rule, the refusal is made directly at the court hearing, but it is also possible to address it to the court outside this event. The refusal is irreversible and if the heir refuses his/her share, he/she loses his/her possibility of appeal. The inheritance cannot be refused only in part – the whole share is always refused.

Tip: Did you inherit your parents’ house or cottage? Maybe the first thing that flashes through your mind is that you will now pay a hefty inheritance tax. But that’s no longer the case. Find out how it all works in our earlier article.

III. Renunciation of inheritance

This takes place before the court in the succession proceedings, in favour of another heir – but the other heir must also agree to this. It is possible to renounce not only the whole inheritance but also part of it.

IV. Refusal of the succession subject to the mandatory share

Refusal of inheritance is the simplest and surest way to avoid the situation described above. The intestate heir (a descendant of the deceased) may renounce the whole inheritance, including the so-called obligatory share, which for adult heirs is one quarter of the share that would normally have been due to him (if he had not refused the inheritance).

However, the law also allows him to refuse subject to the compulsory share, i.e. one quarter of his legal share. This share is free of all debts and is calculated on the value of the estate.

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Inventory of the estate

In the final hearing, an inventory of the estate, i.e. of all assets and debts, if any, is drawn up specifically as of the date of death. The value of the assets is ascertained. In the case of real estate, land, vehicles and other more valuable assets, an expert’s report is required (the notary chooses the expert, again to preserve impartiality), while for other assets, a consensus on the value between the heirs is sufficient.

If the heirs agree on everything, a simple list of assets is drawn up and a declaration of agreement is signed. However, if there are disagreements, a so-called inventory of the estate must be prepared. This can be recommended especially in situations where it is not clear whether the estate is over-indebted or not, i.e. whether there are larger estates or debts.

Theinventory is prepared by a notary in cooperation with a forensic expert, who in such a case will estimate the value of all assets, not only the more valuable ones. An inventory of the estate is also needed in cases where no heirs declare themselves or where the will contains legal errors and cannot be clearly followed.

The heir may also propose that the estate be inventoried – i.e. that the value of the estate be determined and the debts that form part of the estate be taken into account; the court will then order the inventory.

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Reservation of the inventory of the estate

At the same time, it is possible to propose that the court publicly invite creditors to declare their claims against the testator – i.e. to come forward with the fact that the testator owed them something and these debts are then included in the estate. This can limit the cases where the debts will exceed the assets in the estate – even if all the assets are to be used only to pay the debts.

If this procedure is used, only those creditors who apply within a certain time limit and only up to the value of the acquired estate will have the right to settle the debt. Thus, it is possible for an heir to get “to zero” but not “to the negative.” However, there are also exceptions to this possibility, so it will not be 100% effective (e.g., if the creditor has a lien or other similar right on an item that belongs to the estate).

Overall, you need to think carefully about whether you will actually accept the inheritance. You should also be careful with minor children, as they may also be heirs, but as a rule you will act for them as their legal representatives. It may therefore happen that you do not refuse the inheritance, although this may be appropriate in the case of a heavily indebted estate, the court confirms the inheritance and then problems arise with indebted minors who have a much more difficult entry into adulthood.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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