Private wealth - statutory allowance

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!

The amount to be distributed is the total estate value (EUR 16m) minus estate tax.

The first EUR500k is tax-exempt. In this case the excess of EUR 16m - EUR 500k = EUR 15.5m is taxable at 40%.

Once you compute the estate tax, then subtract the tax from the total estate value (EUR 16m). That remaining amount is then distributed to the beneficiaries based on existing regime and will.

Are only the first EUR 500k tax-exempt, meaning that if the allowance was EUR 600k, it would not be tax-exempt anymore? Is there a law in this sense?
And are the descendants still entitled to the allowance, after Emma dies? (I thought maybe the allowance stops being distributed by the state)
I am not familiar with such matters from a legal/law point of view.

Thanks a lot!
C.

The statutory allowance determines the amount that is tax-exempt.

In the case of the Gondos, the statutory allowance is EUR 500k, hence the first EUR 500k is tax-exempt.

Estate tax = 40% x (EUR 16m - EUR 500k) = EUR 6.2m

If the statutory allowance is EUR 600k, then the first EUR 600k is tax-exempt.

Estate tax = 40% x (EUR 16m - EUR 600k) = EUR 6.16m


The term “allowance” here does not mean pocket money given to the descendants.