Change of ownership of a forest property due to inheritance

Marital right

Under the Marriage Act, the spouse has the right to receive half of the spouses’ remaining joint assets after divorce or death. In other words, the marital right entitles the widow(er) to a share of the total remaining assets in euros after deducting the debts of the deceased. The widow(er) does not pay inheritance tax on assets received through the marital right.

The other half of the remaining assets belong to the heirs of the deceased, who do pay inheritance tax. A widow(er) with a marital right is a beneficiary of the estate and is thus entitled to participate in decisions concerning e.g. any forest belonging to the estate. Assets in the scope of the marital right are separated in the distribution of assets between the widow(er) and the estate.

Prenuptial agreement

During their marriage, if they wish the spouses may draw up a prenuptial agreement that unilaterally - or usually bilaterally - removes the spouse’s marital right. If the spouses have concluded a prenuptial agreement, the heirs pay inheritance tax on the inheritance they receive, not on the half of the spouses’ joint remaining assets.

If the widow(er) is not a beneficiary of the estate, they do not become a beneficiary in the estate’s forest ownership either. Naturally, however, the widowed spouse continues to own and manage any forest that is in their name.

Will

A will can be drafted when a person is still alive to specify the distribution of inheritance in the future. The will may be free-form, but it must be unambiguous and always contain the statements and signatures of two competent witnesses. A person may will their property to anyone, but any direct heirs have the right to their statutory share regardless of the will. The statutory share is half of the inheritance.

The will should be prepared with the help of a professional.

There are two types of wills.

1. A beneficiary of a so-called general legacy receives a share of the total inheritance and thus becomes a beneficiary of the estate.
2. A beneficiary of a so-called special will receives a specific item, sum of money, or otherwise specified asset which may be separated from the estate. This is also known as a bequest. For example, a forest property may be bequeathed to the grandchildren with a special will. The person receiving the bequest does not become a beneficiary of the estate.

Mutual right of possession testaments are rather common between spouses. However, these are not recommended for forest assets. Although separating the right of possession decreases the amount of inheritance tax that the heirs need to pay, it also prevents owners from carrying out operations in their forest. Only the holder of the right of possession has the right to execute timber sales.

Estate inventory

All heirs and the widowed spouse must be invited to the estate inventory. During the estate inventory, a list of the estate’s assets, liabilities, and statutory heirs is drawn up and the fair value of the assets, i.e. their probable sale price, is evaluated.

The estate inventory requires beneficiaries to present several documents proving ownership and the right to inherit. The most comprehensive details on forest properties are available at the National Land Survey through certificates of registered title in the cadastre, extracts from the cadastre, abstracts of title, and map extracts from the cadastre.

Evaluating the value of forest assets

The value of forest property is mainly evaluated through a forest property assessment. Additionally, it is important to check whether the decedent had shares in any estates, partnerships, or jointly owned forests in addition to their own forests and to determine the value of these holdings as well. In addition, the decedent may have had investments or receivables related to a membership or loyalty in a forestry company, such as Metsäliitto, Stora Enso, or UPM. 

The Tax Administration has compiled a guide on evaluations of farms in relation to inheritance and gift taxation. The guide is available in Finnish at the Tax Administration’s website.

Renunciation of inheritance

The heirs and beneficiaries are entitled to renounce their right to the inheritance, i.e. to avoid additional inheritance taxes. The renunciation should be given in writing and at the estate inventory at the latest. The person renouncing their inheritance may not, in any way, begin using the assets or determine who should inherit the property in their stead. The inheritance must be renounced in full.

If the person renouncing the inheritance has children, the inheritance and inheritance tax liability are transferred to them and the person renouncing the inheritance is no longer subject to inheritance tax. Moreover, distributing the estate between several children may decrease the inheritance taxes, as the tax is progressive.

Renouncing a bequest

You may also renounce forest assets given to you in a will, regardless of whether the will is a general or special legacy. Guidelines for renouncing a bequest are available in Finnish at the Tax Administration’s website.

The bequest (i.e. specified asset) may be renounced in whole or partly, but the person renouncing the bequest may not determine who should receive it in their stead. The renunciation should be given in writing and at the estate inventory at the latest.

Right of possession and renouncing it for the widowed spouse

Under the Code of Inheritance, the widowed spouse is entitled to retain the possession of their spouse’s estate. This form of right of possession does not lower the inheritance tax imposed on the heirs. However, the right of possession given to the widowed spouse in a will does lower the inheritance tax payable by the heirs. It also gives the widow(er) the right to receive the yields of the assets bequeathed in the will.

The widow(er) may renounce both rights of possession, preferably no later than at the estate inventory. If the widow(er) later renounces their right of possession by donating or selling it to forest owners, this leads to the imposition of either gift tax on the recipients or capital gains tax on the seller.

Taxation of inheritance

The heirs listed in the estate inventory deed and any beneficiaries of the will are each liable to pay tax on their received share. If the will determines that the right of possession of an inherited forest is transferred to a person other than the heir, this does not remove or defer the inheritance tax obligation of the heir although it decreases the value of the inheritance.

Inheritance that exceeds EUR 20,000 in value after possible deductions for minors or spouses is liable to taxation. The spouse may deduct EUR 90,000 from the inheritance, and a direct heir under the age of 18 may deduct EUR 60,000.

In inheritance taxation, gifts intended as advance inheritance are added to the value of the estate according to the fair value at the time of the transfer. The gift tax paid on a gift intended as advance inheritance is deducted from the inheritance tax. Inheritance taxation also takes into account gifts given to direct heirs within three years before the death of the decedent, regardless of whether they were given as advance inheritance or not.

Inheritance taxation uses two different tax categories.

1. The first tax category includes the closest relatives of the deceased, i.e. the spouse, child, child of the spouse, adopted child, parents or adoptive parents, the direct heir of a child or adopted child and, to a limited extent, the fiancé(e) of the deceased.
2. Other relatives and non-relatives fall into the second category.

Check the inheritance tax calculator on the Tax Administration website.

First meeting of the estate and organisation of administration

After the estate inventory, it is recommended that you organise the management of the estate’s forests. The best way to do this is to invite all estate shareholders to a meeting. Here is a list of matters that should be discussed in the meeting:

• Forests that belong to the estate
• Use of the Metsään.fi service and a possible forest plan
• Non-finalised timber sales, forest management questions and tax matters as well as other matters related to the forest left to the estate
• Writing down the records of taxable operations
• Bank account and access rights of the estate
• Applying for a pro forma registration of title (i.e. clarification of ownership)
• Agreement on responsibilities for managing the estate’s matters and powers of attorney

The estate and using Metsään.fi

The beneficiaries to the estate must create user IDs for the Metsään.fi system as you need your personal online banking codes to log in. If you have applied for a pro forma registration of title, the contact details of the shareholders will be updated in the customer register of the Finnish Forest Centre. If not, the estate inventory deed can be used to create the user IDs. In this case, a copy of the page confirming the identity of the deceased and their heirs must be delivered to the customer service of the Finnish Forest Centre. Read more about using Metsään.fi (in Finnish). 

Forest and VAT tax return on the year of the death

Apply for the right of access to MyTax from the Tax Administration to make managing the taxation of the estate easier. Taxation for the year of the death is treated as if the person had lived until the end of the year.

For the purposes of the forest tax return, the estate should find out if the inherited forest is subject to any forest or forest gift deductions or depreciations, or any reserves for future liabilities and charges. Additionally, it should be investigated if the deceased was VAT-liable. Answers to these issues are best found in the records on taxation left by the decedent and their latest tax return.

Joint administration agreement and powers of attorney

If the beneficiaries of the estate wish to proceed with forest ownership together, they may draw up a joint administration agreement binding on the beneficiaries. The agreement lays down points on indivisibility and mutually agreed operating principles. The Code of Inheritance lists the formal requirements of a joint administration agreement. The agreement can be prepared with the help of a professional or using available templates.

Powers of attorney are required for outside parties. The power of attorney must indicate who is authorised, in which affairs, and how long it will be valid.

Pro forma registration of title (i.e. clarification of ownership)

The pro forma registration of title of the estate lists all the shareholders that own shares of the property. The pro forma registration of title clarifies the administration of the estate and makes agreements on timber sales or selling the forest property easier. Apply for pro forma registration from the National Land Survey of Finland.

Should we stick together?

The beneficiaries of an estate should discuss early on whether they wish to continue forest ownership as an estate or whether it would make more sense to make ownership arrangements. As time goes by, new estates develop inside the undivided estate, making future ownership arrangements trickier.