Inheritance tax: Legal guide

In the case of inheritance, 'tornas' arise when an heir receives assets valued higher than their rightful share. To balance the distribution, this heir compensates the remaining heirs with money.

This is a common situation when an inheritance includes a house, land, a business, or other assets that cannot be physically divided without losing value. Instead of selling the asset, the family may award it to one of the heirs and compensate the others.

Despite appearing to be a simple mathematical calculation, settlements in inheritance cases can generate conflicts over valuations, payment deadlines, taxes, and guarantees. A miscalculated amount can favour one heir and disadvantage the others.

In this guide, we explain how distributions work, how they are calculated, when they should be paid, what precautions you should take before accepting an offer, and what to do when the responsible heir does not pay.

To analyse a specific share, you can refer to our Probate and inheritance lawyers.

In the context of inheritance, "tornas" (or "tornas de herança") refers to the financial adjustments or balancing payments made between heirs when the distribution of assets isn't perfectly equal. This usually happens when one or more heirs receive more in value than their equal share, and they then have to pay the difference to the other heirs to ensure fairness.

The refunds are compensation intended to equalise the heirs' shares.

Each heir is entitled to a specific share of the inheritance. This share results from succession rules, any will, and the family composition existing at the date of death.

When dividing, however, it is not always possible to assign to each person assets with a value exactly equal to their entitlement.

Imagine an inheritance with:

• A house valued at 240,000 euros.
• Two heirs with equal rights.
• No other relevant assets.

Each heir is entitled to 120,000 euros. If one of them keeps the house, they receive an asset worth 120,000 euros more than their share. To balance the distribution, they must pay 120,000 euros to the other heir. This payment corresponds to the change.

Why is it necessary to pay royalties?

Trusts allow assets to be kept whole while respecting the economic rights of all.

Without this mechanism, many properties would have to be sold simply because they cannot be physically divided. Compensation allows an heir to keep the property, provided they give the remaining heirs the equivalent value of the excess they have received.

The breakdowns are especially frequent when there are:

• Property.
• Agricultural land.
• Family businesses.
• Company quotas.
• High-value vehicles.
• Works of art or collections.
• Other indivisible assets.

The aim is not to reward whoever ends up with the asset. It is to ensure that everyone receives a value proportionate to their respective share.

While the inheritance remains undivided, each heir has a right over the inherited estate as a whole, and not a physical part of each asset. It is through the division that this right becomes concretised in specific assets.

How are the residual shares calculated in the event of an inheritance?

The calculation requires four fundamental steps:

1. Determine the net value of the inheritance.
2. Calculate each heir's share.
3. Identify the assets attributed to each person.
4. Compare the amount received with the value of the respective share.

The basic formula is straightforward:

Value of assets received less share value = amounts payable.

When the result is positive, the heir has received more than their share and must compensate the others.

When the result is negative, the heir has received less and is entitled to a balancing payment.

Practical calculation example

Imagine an inheritance with three children and the following assets:

• House: €270,000.
• Bank account: €60,000.
• Vehicle: 30,000 euros.

The total inheritance value is 360,000 euros.

As there are three heirs with equal rights, each is entitled to €120,000.

The sharing is done this way:

• The first heir receives the house, valued at €270,000.
• The second receives the bank account, to the value of 60,000 euros.
• The third receives the vehicle, valued at 30,000 euros.

The first heir received €150,000 more than his share.

The second received €60,000 less.

The third received €90,000 less.

To balance the share, the first party will have to pay:

• 60,000 euros to the second heir.
• 90,000 euros to the third heir.

After these payments, everyone will have received the equivalent of €120,000.

Does the valuation of the assets determine the value of the equalization payments?

It is not possible to calculate change correctly without a credible valuation.

This is often the point of greatest conflict. The heir who intends to keep a property may argue for a lower valuation. The remaining heirs may present higher valuations to increase their compensation.

To reduce discrepancies, the assessment must consider:

• Location.
• Area and property features.
• Conservation status.
• Existing charges.
• Market value.
• Possibility of construction.
• Rent or other income.
• Associated debts.

The taxable asset value does not necessarily correspond to the real market value. Using it without any analysis can lead to an unbalanced division.

When there are relevant disagreements, it may be prudent to seek an independent valuation. If the process is conducted through probate, the valuation can also be discussed by the interested parties.

To delve deeper into this stage, please consult our article on valuation of assets in the division of an estate.

Do debts factor into the calculation?

Yes. Before calculating the shares, the net value of the inheritance must be determined.

This means considering the assets, but also the debts and charges that should be borne by the hereditary estate.

It may be due to:

• Bank loans.
• Tax debts.
• Funeral expenses.
• Service charges.
• Trade payables.
• Costs necessary for the preservation of the assets.

Imagine a house is worth €250,000, but there is a €70,000 loan attached. The net economic value could be very different from the value indicated in a standalone appraisal.

A distribution that ignores liabilities can force an heir to pay excessive equalization payments and, at the same time, to assume expenses that have not been properly considered.

Where there are significant debts, see also How to share inherited assets with debts.

Who decides who gets the asset?

In an amicable division, heirs can freely agree on the composition of their respective shares, provided they respect applicable rights and correctly formalise the agreement.

They can decide, for example, that:

• A son gets the house.
• The other one receives money.
• A third party receives land.
• The excess is compensated through change.

When there is no agreement, it may be necessary to resort to an inventory. In this process, assets are listed, valuations are discussed, and the method of division is determined.

The inventory is used to end the joint ownership of an inheritance and distribute the assets according to each beneficiary's share.

When should change be given?

The time of payment must be clearly defined in the agreement or sharing process.

The parties may establish:

• Full payment on subscription.
• Payment by a certain date.
• Payment in instalments.
• Payment upon obtaining financing.
• Payment after the sale of another asset.
• Compensation with existing credits between the heirs.

Do not accept vague expressions such as "pay when you can" or "we'll settle up later." A lack of deadlines creates uncertainty and increases the risk of default.

The agreement should specify:

• Exact value.
• Due date.
• Method of payment.
• Number and value of installments.
• Consequences of the delay.
• Guarantees provided.
• Responsibility for costs.

Is it possible to pay the balance in installments?

Yes, when the parties involved reach an agreement or when the solution is accepted within the applicable process.

Phased payments are common when an heir wants to keep a property but doesn't have enough money to immediately compensate the remaining heirs.

A payment agreement should state:

• Total amount.
• Value of each installment.
• Payment dates.
• Interest, when agreed upon.
• Consequences of a missed payment.
• Possibility of early maturity.
• Guarantee on the property or other assets.

The longer the timeframe, the greater the risk for those waiting to receive payment. Therefore, an adequate guarantee should be considered.

What guarantees can be used?

When payment is not immediate, creditor heirs should protect themselves.

Depending on the case, the following may be considered:

• Mortgage on the awarded property.
• Bail.
• Acknowledgment of debt.
• Acknowledgment of debt with executive force, when formalized in the appropriate terms.
• Reserving certain amounts of money.
• Bank guarantee.
• Early termination clause.

The guarantee must be proportional to the amount and the risk. A verbal promise does not protect someone who definitively surrenders their position on the property and is merely waiting to receive payment.

Before signing, confirm that the document allows for effective enforcement of payment in case of default.

What happens if the payments are not made?

Failure to pay may allow the creditor heir to legally demand the amount owed, plus applicable interest and charges.

The solution depends on how the division was formalized and on the existence of a title that allows direct progress to enforcement.

Measures such as the following may be necessary:

• Formal request for payment.
• Legal collection.
• Execution of a guarantee.
• Registration of a legal mortgage, when applicable.
• Seizure of assets.
• Discussion of non-compliance in the inventory process.

The more detailed the agreement, the easier it will be to prove the credit, the payment term, and the non-payment.

Those who are owed money should not let years go by without taking action. Delay can hinder collection, increase conflict, and create additional problems if the property is sold or burdened.

Can the offers be refused?

An heir is not obligated to accept a proposed division of assets that devalues their share or imposes insecure payment conditions.

You may disagree:

• Regarding the value assigned to the assets.
• From the total amount of the payments.
• Regarding the payment deadline.
• Due to the lack of guarantees.
• Regarding the distribution of responsibilities.
• Based on how the debts were considered.

However, refusing without offering an alternative can also prolong the process.

An effective position should explain:

• What is the disputed amount?.
• What assessment is proposed?.
• What amount do you consider correct?.
• What payment terms do you accept?.
• What guarantee do you consider necessary?.

Indivisible assets and goods

Parcels are especially useful when there is an asset that cannot be divided without losing value or utility.

A house cannot be physically divided among three heirs simply because each is entitled to one-third. A plot of land may be divisible, but such division may be legally impossible or economically detrimental.

In these cases, there are usually three paths:

• To award the property to an heir with payment of compensation.
• To keep the property jointly owned.
• Sell and split the price.

Maintaining joint ownership may seem simple, but it requires agreement on usage, expenses, leasing, and future sale. When conflict already exists, it usually only postpones the problem.

To learn about the alternatives, see our guide on division of indivisible assets.

You become illiterate when an heir already lives in the house.

Occupying the property does not automatically mean that the heir has priority in receiving it.

However, residency can influence the negotiation, especially when:

• The heir was already living in the house before his death.
• He provided care for the deceased.
• He has no other place to live.
• He carried out construction work.
• He covered expenses for several years.
• The remaining parties accept the award.

Even in these situations, the value of the other shares must be respected.

It may also be necessary to settle accounts relating to exclusive use, expenses incurred, and work carried out. These amounts should not be informally mixed with the balance payments.

First, the value of the division is calculated. Then, any potential credits and compensations between the interested parties are analyzed.

Do the turners pay taxes?

The tax implications depend on the assets, their value, and how the division is carried out.

When an heir receives real estate assets worth more than their share and pays compensation, there may be tax implications that should be analyzed before signing.

There may also be future effects regarding capital gains, acquisition value and registration costs.

It should not be assumed that, because it is an inheritance, any distribution is automatically exempt from all taxes.

Before formalizing the division of assets, please confirm:

• Property values.
• Each heir's share.
• Excess received.
• Amount of the balances.
• Method of payment.
• Declarative obligations.
• Costs of deed and registration.

An advance simulation prevents the family from discovering tax charges after the deal has already been finalized.

Turns and collation of donations

The accounts can become more complex when one of the descendants received assets or money from the deceased during their lifetime.

In certain situations, these gifts may need to be taken into account to balance the division of assets. This mechanism is known as collation.

The collation process aims to prevent a descendant from receiving a double benefit when the donation was made as an advance on their respective inheritance share.

Before calculating turns, you must confirm if they existed:

• Donations of real estate.
• Relevant transfers.
• Debt forgiveness.
• Money delivery.
• Payment of extraordinary expenses.
• Declaration of exemption from graduation ceremony.

Ignoring previous donations can completely distort the accounts.

It turns into a friendly sharing.

When there is consensus, the heirs can organize the division in a way that suits their needs.

For safe and friendly sharing, please follow these steps:

1. Identify all assets and liabilities.
2. Confirm who the heirs are.
3. Calculate the shares.
4. Assess the assets.
5. Determine who receives each item.
6. Calculate the turns.
7. Establish a deadline and method of payment.
8. Create guarantees, if necessary.
9. Analyze taxes and costs.
10. Formalize the division of assets and complete the registrations.

An amicable division of assets should not be confused with an informal agreement. The higher the value of the assets, the greater the need for rigorous documentation.

To see the general sequence, please refer to How to share an inheritance.

Turns in the inventory process

When there is no consensus, the inventory process allows for the resolution of the division of shares and the termination of the joint ownership.

The following may be discussed in the process:

• Assets belonging to an inheritance.
• Debts and liabilities.
• Values assigned to assets.
• Rights of each stakeholder.
• Method of filling out the shares.
• Amount of the balances.
• Deposit or payment obligations.

The final decision must respect the legal quotas and the method of distribution. The distribution plan specifies the assets allocated and the values necessary to equalize the interests of those involved.

If the lack of agreement already prevents any solution, see how it works. Judicial division of inheritance.

Common errors in calculating and paying compensation.

Turns become dangerous when they are treated as a minor detail.

The most frequent mistakes are:

• Use only the assessed value of the properties.
• Ignore debts and charges.
• Forgetting about donations made during one's lifetime.
• Doing calculations without verifying the quotas.
• Accept payments without a deadline.
• Do not require guarantees.
• Mixing up personal expenses with other personal expenses.
• Ignoring tax consequences.
• Sign before receiving.
• To rely solely on a verbal agreement.

Any of these mistakes can turn a seemingly amicable division into a lengthy legal dispute.

When should you seek legal advice?

Legal counsel is especially important when:

• There are properties of high value.
• There is disagreement regarding the assessments.
• An heir cannot pay immediately.
• There are previous donations.
• There are debts or bank guarantees.
• An heir occupies a property alone.
• There are minors or incapacitated individuals.
• Sharing involves a company.
• There is a risk of default.
• The process is already underway through probate.

The goal of legal support is not just to resolve conflicts. It's to prepare a division of assets that won't create new problems after it's signed.

Conclusion

In the case of inheritance, equalization payments allow an heir to allocate an asset without financially harming the others. However, they only fulfill this function when the assets are correctly valued, the shares have been properly calculated, and the payment is secure.

Before accepting or paying any compensation, confirm the net value of the inheritance, debts, previous donations, taxes, and available guarantees. A seemingly simple calculation can hide differences of thousands of euros.

If you need to calculate trade-ins, contest an appraisal, or prepare a secure division of assets, talk to our team. Probate and inheritance lawyers. For a legal analysis tailored to your case, you can also consult a... Solicitor.