Those who argue that a debt should be deducted from an estate must prove that the debt exists.
Father died in 2000. In his will, a so-called parental estate distribution was arranged. This means that mother obtained all assets and debts from father's estate. The children obtained their share of the estate in the form of a non-recoverable claim against mother.
When mother dies in 2021, the children file an inheritance tax return. In it, they include a debt of €700,000, consisting of the overbedding debt incurred at father's death (over €300,000) and €400,000 of interest credited to this claim.
Burden of proof
The Inland Revenue refused to deduct the debt, insofar as it related to credited interest, from the estate. Zeeland-West Brabant District Court considers that the heirs bear the burden of proving the existence of this interest debt, but fail to meet that burden of proof.
The heirs argue that they did not depart from their father's will. This will provided that interest on debts would be paid at a minimum of 5% and a maximum of 8%, but only if claimed by the heirs. In the inheritance tax return filed in connection with father's death, the children's claims were reduced by a usufruct. This usufruct was calculated on the premise that interest would be received on the claims 0%. The explanatory note to the inheritance tax return stated “no payment of interest on indebtedness”, but, according to the heirs, that is an unfortunate wording to indicate to their mother that she did not have to pay interest during her lifetime.
Interest or no interest?
The choice of whether or not to charge interest on inheritance debts must be made within the deadline for submitting the inheritance tax return to the tax authorities. At that time, it is not certain which choice is ultimately most advantageous from a tax point of view. The heirs in this case ostensibly chose in 2000 to set the interest at 0%, probably because the result was that less inheritance tax had to be paid. Because mother outlives father by about 20 years, in retrospect, charging interest is substantially more advantageous. Some more inheritance tax would have been due in 2000 (the Inland Revenue cannot reclaim that tax in 2021), but substantially less in 2021.
This ruling shows that it is very important that the settlement of an estate is well documented and that these documents are also kept (much longer than the statutory retention period of - for individuals - 5 years). If a (higher) debt or deduction is invoked at a subsequent death, it must be proved. There are conceivable situations, where the information about the settlement of an estate is still relevant after decades. Even then, the burden of proof will generally rest on the heirs.