Succession
Succession is the process by which the assets, rights, and obligations of a deceased person are transferred to their heirs. Succession begins upon a person’s death, at which point their estate is opened. Heirs and their rights are determined through succession proceedings. To carry out succession procedures, one must always contact a notary—even if they are the sole heir or if a will has been made in their favor.
What can you inherit?
The entire estate of the deceased is inherited – all their belongings, rights, and obligations. If several successors have accepted the succession, the estate is owned by the successors jointly. Community of the estate can be divided by an agreement. If no agreement can be reached, it is possible to take the matter to court.
What is inheritable?
- Immovable property
houses, apartments, cottages, land - Movable property
vehicles, furniture, electronics, jewellery and other personal items - Financial assets
cash, shares and other securities held in bank accounts - Obligations
the heirs are liable for the deceased’s debts, but only up to the amount of the inheritance if an inventory of the estate has been made - Rights
rental and exploitation rights, Intellectual property rights (copyrights, patents)
What is not inheritable?
Rights and obligations that end on death are not included in the estate:
- financial and material penalties
- membership of a non-profit organisation
- income tax credit
- employment contract
- authorship of the work
- etc.
Inheritance of a company
If the deceased has a share in a public limited company or private limited company the heirs inherit only the shares of the company, not the assets and liabilities of the company – these continue to belong to the company. If the deceased was a member of the board, this status is not inherited.
Shares in a public limited company
- The succession certificate must be submitted to the bank where the deceased’s securities account is located and the shares will be transferred to the heirs’ securities accounts.
Shares in a private limited company
- The heirs are registered as shareholders on the private limited company’s registry card on the basis of an application of the board member of the private limited company and the succession certificate.
Inheriting a one person company
If the deceased was the only shareholder and board member a situation can arise where the management of the company is locked up – no one can pay taxes or salaries, etc.
- If a power of attorney was previously given (e.g. to an accountant), the company can continue to operate.
- If there was no power of attorney, and if for any reason the succession proceedings are taking longer, you should ask the court to appoint a substitute member of the board or apply measures for management of the estate (to appoint an administrator of the estate), to avoid business interruption.
Once you have the succession certificate, an application can be submitted to the Commercial Register to have the heir registered as a shareholder of a private limited company and appoint yourself or someone else as a member of the board.
If the new shareholders are not interested in continuing the business, liquidation proceedings must be carried out. It is also possible to sell the company to a person who handles liquidations, if the heirs do not wish to engage in this process themselves.
Inheriting the estate of a sole proprietor
The property used in business of the sole proprietor is part of their estate because sole proprietor is not a separate legal person. Successors inherit both business-related assets (e.g. equipment, funds in bank accounts) and liabilities (e.g. tax debts, pending contracts).
There successors have three options
- Continue as a sole proprietor and take over the assets and liabilities used in business.
- Transfer the assets of a sole proprietor to a company and continue the activity in another business form.
- Terminate the engagement in business and take the assets for personal use, possible income tax obligations must be taken into account.
- In the case of inheritance of the assets of a sole proprietor, it is worth consulting the Tax and Customs Board.
- Assets are considered to be related to the business if they were recorded in the accounts of the sole proprietor. For example, if the deceased had a house in which he or she carried out his or her business activities but the house was not a part of business assets, no income tax liability arises if the heir starts using it as his personal residence.
Inventory of the estate
The purpose of the inventory of estate is to protect the heir who has accepted the succession. In the course of making an inventory, an inventory of the estate is prepared which sets out all inheritable things, rights and obligations existing at the time of opening of the succession, their description and appraisal necessary for their designation and valuation.
What are the benefits of an inventory?
As a general rule, the heir must fulfil all the obligations of the bequeather, even if the estate is insufficient. If an inventory is made, the heir’s liability is limited to the value of the estate as ascertained. Heirs do not have to use their other personal property to pay the debts.
- A successor who accepts the succession may submit a claim for inventory.
- A successor may submit a notarially authenticated claim for inventory to a notary within three months after the successor becomes aware or should have become aware of the circumstances from which it can be presumed that the estate is insufficient for covering the claims of the creditors of the bequeather.
- If the inventory shows that there are more debts than assets and the heir does not want to pay them out of his or her own money, a petition for bankruptcy of the estate must be submitted to the court.
- If the heir who has accepted the inheritance does not request an inventory, he or she is required to perform all the obligations of the bequeather, even with his or her personal property.
When is an inventory obligatory?
- If the heir is an underage child or an adult with restricted active legal capacity.
- If the heir is a local government or state.
If the parent of a child, the legal representative of a person with restricted active legal capacity does not request an inventory of an estate in the interest of the successor, the legal representative is personally liable for the debts of the bequeather which cannot be sufficiently satisfied from the estate.
What happens next?
- The notary shall appoint a bailiff for making an inventory. In the course of making an inventory, an inventory of the estate is prepared which sets out all inheritable things, rights and obligations existing at the time of opening of the succession, their description and appraisal necessary for their designation and valuation.
- A person who submits a claim for inventory shall submit a list of the estate and the obligations related to the estate known to him or her to the maker of the inventory.
- After making an inventory the obligations related to an estate shall be performed in the order laid down by law.
- If the estate is insufficient and the heir does not wish to use his or her own money for this purpose, he or she must submit to the court a petition for bankruptcy of the estate.
- Even if it is known in advance that the estate will consist mainly of debts and that the estate will eventually have to be declared bankrupt, the right of succession is exactly the same as if there was property to actually inherit. If the first order intestate successors renounce the succession the right to inherit passes on to second and then to the third order of intestate successors so the notary will inform more and more distant relatives of their right to inherit.
- In order to prevent the heir’s descendants and more distant relatives from having to deal with the estate that is in debt, and to ensure that the heir are not liable for the inherited debts with their own property, the heirs can accept the inheritance, request an inventory of the estate and/or submit to the court an application to declare the estate bankrupt.
- For help with filing for bankruptcy and the rest of the process, contact a lawyer.
- In cooperation with the Ministry of Justice, HUGO.legal offers 2 hours of free legal advice to people living in Estonia (a one-off fee of €5 is payable). Free legal advice is available to all people living in Estonia with an average gross income of up to €1200 per month.