Bert and Emma Gondo, ages 75 and 65 respectively, live with their three children in a European country that is a community property regime. This regime entitles a surviving spouse to receive one-half of the community property after their spouse’s death. The forced heirship rules entitle the surviving spouse to one-third of the total estate, and the children are entitled to split one-third of the total estate. The Gondos’ total estate has grown from EUR 6 million to EUR 16 million during their marriage. The country in which Bert and Emma reside imposes an estate tax of 40% on estate values above a statutory allowance of EUR 500,000.
The Gondos’ three children are collectively entitled to one-third of the total estate under forced heirship. Assuming Emma were to die today, the estate tax is computed as:
Estate value EUR 16,000,000
Less: Statutory Allowance EUR 500,000
Excess EUR 15,500,000 Tax rate 40% Estate Tax EUR 6,200,000
The value of the total estate, on an after-tax basis, is EUR 16,000,000 – EUR 6,200,000 = EUR 9,800,000.
The three children are collectively entitled to one-third of the EUR 9.8 million which equals EUR 3,266,667 (EUR 9,800,000/3). Each child would receive EUR 1,088,889 (EUR 3,266,667)/3.
Do you deduct the allowance because it´s tax-exempt?
And then add it back to compute the estate to which the children are entitled to, because even if Emma would die, they´d still be entitled to this allowance?
Thanks a lot!