Inheritance and advance on inheritance
What does inheritance mean for your finances?
Inheritance affects us all at some point in life. But what does inheritance actually entail, and how can it shape your financial future? Inheritance is the transfer of assets, such as money, property or securities, from a deceased person to the surviving beneficiaries. This happens either in accordance with the deceased's will or according to the statutory rules of inheritance if no will exists. You can also receive an advance on inheritance, which means you receive part of the inheritance before the final estate settlement.
Inheritance can lead to significant financial changes in your life, and it can be overwhelming to decide what you should do with it. We all find ourselves in different financial situations, and there is no universal solution for how you should manage the inheritance. Therefore, it is advisable to contact your bank to receive tailored financial advisory services that suit you and your situation.
Advance on inheritance
Advance on inheritance means that one or more children receive parts of the inheritance before the estate settlement takes place. This sum is deducted from the total inheritance when it is to be distributed amongst the remaining heirs. The child who has received an advance on inheritance will therefore have this portion deducted during the distribution. Many choose to use an advance on inheritance as equity for first-time home purchases, long-term fund savings or other major investments.
The amount or value is not automatically registered as an advance on inheritance. It is therefore important to document this clearly, and it may be advisable to seek legal assistance to avoid conflicts when the estate settlement is to be carried out. Only children can receive an advance on inheritance, and if the child is an only child without other statutory heirs, it is regarded as a gift.
Who can inherit?
Inheritance can be complicated as there are different ways you can inherit. It is always advisable to involve legal assistance if you need to draw up a will or are in an inheritance process.
Inheritance from a will
A will is a legal document that shows the distribution of assets upon death. In a will, you have the freedom to decide who should inherit your assets, whether it is:
- Family members
- Friends
- Partners
- Organisations
It is important to know that certain relatives, such as spouses and children, have a right to a portion of the inheritance, known as the statutory share. This right cannot be taken away from them through a will.
Inheritance from Parents
When you inherit from your parents, you as a statutory heir will receive your proportion of the inheritance either in accordance with their will or in accordance with the Inheritance Act.
As a statutory heir, you are entitled to a statutory share of 2/3 of the inheritance, up to 15G (the National Insurance basic amount) of the total value. You may also inherit more than the statutory share if you are named in the will, or if there is no will.
Inheriting an Undivided Estate
If your spouse, cohabitant or parent dies, you may inherit an undivided estate. This means that the distribution of the inheritance from the deceased is postponed until the deceased's spouse also dies. If the deceased did not have a spouse or cohabitant, an undivided estate will not be established. There are several rules relating to undivided estates, and you can only hold an undivided estate as:
- Spouse with joint children
- Child of the deceased, where the other parent is alive.
- Cohabitant of the deceased with joint children or expecting a child
- Spouse with consent from children from previous relationships
It is important to be aware that remaining in an unsettled estate entails a responsibility to manage the estate in a prudent manner, and that certain limitations apply.
Tips on how you can use your inheritance
1 result
Fixed-rate deposit
Depositing money into a fixed-rate deposit means that you lock in your money at a fixed interest rate over an agreed period. This means that you receive a guaranteed return on your deposit, regardless of market fluctuations. This is often a sensible option when you know that you will not need the money for a certain period. You can lock in your money for:
- Three months
- Six months
- Twelve months
- Twenty-four months
Please note that interest rates may vary across different periods, and it may be advisable to speak with a financial adviser to determine which option would suit you best.
Home Savings Scheme for Young People (BSU)
The Home Savings Scheme for Young People, or BSU, is a good savings option for those under 34 who wish to save for a home. A BSU account typically offers the highest savings interest rate in the market, and here you can save up to NOK 27,500 per year and:
- The possibility to save up to NOK 300,000 in total
- Tax deduction of 10%, up to NOK 2,750 each year
- Locks the funds for home purchase
It is a good alternative to place an inheritance in a BSU account if you are saving for a first-time home purchase. If you have inherited more than the BSU account allows you to deposit, you can place the remaining amount in a fixed-rate deposit for the remaining period before you top up the annual BSU quota again.
Home Purchase
If you have inherited a substantial amount of money, purchasing a home can be a good alternative for using the funds. The housing market historically provides good value appreciation, and if you do not already own a home, this can be an excellent opportunity to enter the housing market. You can also purchase other property such as:
- Cabin
- Rental property
- Housing project
- Campsite
Remember that historical rate of return is not a guarantee for future rate of return, and it may be wise to contact a financial adviser who can guide you with good advice.
Repay debt
Repaying debt is usually a top priority and this is where inheritance can come in handy. If you have expensive loans with high interest rates, it is wise to repay these as soon as possible. If you have several loans to repay, it may be wise to consider which ones you should prioritise, such as:
- Credit card debt
- Consumer loan
- Refinancing loan
- Car loan
- Mortgage
- Student loan
If you are unsure which loans you have or which you should prioritise, we recommend that you contact your bank for advice and guidance tailored to your finances.
Funds
Funds are a long-term savings method and it can be a smart choice to invest your inheritance in funds if you already own a home, have inherited a large sum, or are young. A fund is a security that can invest in shares, bonds and other fixed-income securities. There are many funds offering different levels of risk and return, some popular funds are:
- Index funds
- Fixed-income funds
- Equity funds
- Balanced fund
Funds are for you if you need to keep the money invested for at least six years. Funds are suitable, for example, for saving for children throughout their upbringing, a long-term investment or for retirement.
Inheritance tax
In 2014, the Inheritance Tax Act was abolished, which means you no longer need to worry about tax on inheritance. Before this year, there were different laws and rules for taxation of inheritance relating to property, securities and wealth, with varying tax rates.
However, if you inherit from someone who died before 2014, you must pay tax on this inheritance. It is important to note that the Inheritance Tax Act may be reintroduced in the future, so it may be wise to stay updated on the legislation when you inherit.
Familiarise yourself thoroughly with the Inheritance Act
The Inheritance Act is the framework that governs the distribution of the deceased's estate. This legislation is important to ensure a fair and balanced distribution among the heirs. The Inheritance Act applies to, among other things, the distribution of inheritance according to law, the right to unsettled estate, wills and agreements such as advances on inheritance. Some of the most important provisions of the Inheritance Act address:
- Compulsory portion and the spouse's minimum inheritance
- Unsettled estate with joint children
- Rights of children from previous relationships
- Requirements for a valid will
With the customer programme at DNB, you have good offers and discounts on legal services from Ally Advokater.