When death occurs the estate of the deceased must be settled pursuant to law. The estate of a deceased person is a legal entity, which assumes any financial obligations and rights that are attached to the person of the deceased.
The estate of the deceased
The heirs must initiate a settlement of the estate within a period of four months from the death. There are four ways this may come about:
The estate has no assets or the assets will only cover funeral expenses.
The spouse obtains the right of beneficial enjoyment of the joint estate.
A private settlement of estate.
A court settlement of estate.
If the heirs do not do their duty and settle the estate, the district magistrate must by law induce them to start the process. The district magistrate may demand a court settlement of the estate.
The district magistrate, who is the competent authority with respect to the settlement of the estate, has the sole right of disposal and is responsible for the duties of the estate until:
the estate has been settled due to the lack of assets held by the deceased,
the surviving spouse obtains the right of beneficial enjoyment of the joint estate,
the heirs obtain permission for private settlement,
the estate is settled by the courts.
The heirs may not make any dispositions concerning the interests of the estate unless prior permission has been obtained from the district magistrate for private settlement. However, a spouse who has obtained the right of beneficial enjoyment of the joint estate remains in sole control of the estate.
The duty to file a tax return rests with the heirs.
Right of succession, will and division of the property left by the deceased
The right of succession is based on kinship, adoption, marriage and the testamentary disposition of the deceased. The property of the deceased accrue to the state treasury when there are no heirs.
There is no reciprocal right of succession between cohabitants. Cohabitants may bequeath property to each other by will.
A will is a written, formal legal instrument, which anyone of sound mind who is over 18 years of age or who has married may make in order to dispose of his or her personal property upon death.
There are strict rules that apply to the form of a will and to testamentary witnesses. A will may be considered void if these rules are not complied with. A will may be altered or added to but, when altered, the same rules must be followed.
If there is more than one will and all of them are considered valid under the law, the most recent will must be followed if they are conflicting.
Those who have a spouse, children or other living descendants may only dispose of one-third of their property by testamentary disposition. Two-thirds shall be shared by forced heirs. If there are no forced heirs, i.e. a spouse, children or other living descendants, you may dispose of all your property by will.
Advancement of inheritance is an inheritance that a living person pays to his or her descendants. This must be arranged formally and inheritance tax must be paid.
An expectant heir may waive the inheritance and the waiver is also binding upon his or her descendants unless otherwise stipulated.
Legal heirs are those who are inheritors of the deceased's property when there is no will. These are:
The children of the deceased and other descendants.
The parents of the deceased and their siblings.
The paternal grandparents and maternal grandparents of the deceased and their children.
The spouse of the deceased.
The forced heirs are only the spouse and the descendants of the deceased, not other legal heirs.
Adopted children inherit in the same manner as biological children. Foster children and stepchildren do not have a right as legal heirs to the foster parent or the step-parent.
Testamentary heirs are those who inherit under a will or are beneficiaries of a gift mortis causa.
A surviving spouse does not have to obtain the approval of the mutual descendants of the spouse and the deceased for the beneficial enjoyment of the joint estate.
If the deceased had children/descendants who are not the children/descendants of the surviving spouse, their approval is needed for the beneficial enjoyment of the joint estate. A husband and wife may draw up a will in order to change this.
A spouse who has the beneficial enjoyment of the joint estate controls the estate and is also personally liable for the debts of the deceased.
A surviving cohabitant is not entitled to the beneficial enjoyment of the joint estate.
Heirs do not become automatically liable for the debts of the deceased.
Heirs who agree on the division of the estate and who wish to undertake personal liability for the debts of the deceased may settle the estate privately. Applications for the private settlement of an estate must be submitted to district magistrates.
If the heirs agree on how to settle the estate and on who will inherit from the deceased, then the estate will be settled privately. Applications for the private settlement of an estate must be submitted to district magistrates.
A district magistrate may require a court settlement of an estate if the heirs do not respond to the magistrate's requirement to begin the settlement process. Each heir may also demand a court settlement of estate if the heirs do not agree on the settlement.
Inheritance tax, assets and liabilities
The surviving spouse or cohabiting partner with right of succession under a will does not have to pay inheritance tax. Other heirs, however, have to pay inheritance tax on what they inherit and will therefore have to fill in a inheritance tax form.
After the inheritance tax has been paid, the heirs can obtain a notarisation from the district magistrate on documents needed in order to register the properties of the deceased in their names.
When the property of the deceased are assessed for inheritance tax, the tax base shall be the market value on the day of death. Real estate shall be valued according to the real-estate assessment value, as registered by the Land Registry of Iceland on the day of death. If the market value of a property is considered to be less, then the heirs can request a new assessment.
Securities listed in a securities market shall be valued at buying rate as registered at the last closing of the market prior to the death. If the shares of a company are not listed in a securities market they shall be valued according to their current price in transactions, otherwise according to their book value in the latest audited company quarterly or interim accounts.
The debts of the deceased, including anticipated taxes, will be deducted before inheritance tax is calculated. The same applies to funeral expenses and necessary costs and expenses connected with the settlement of the estate.
A surviving spouse or a cohabitant and children under the age of 18 may, subject to certain conditions, be entitled to benefits and a pension from the Social Insurance Administration, pension funds and trade unions, or insurance money from insurance companies. Such persons must themselves initiate any application in this regard.
A surviving spouse or cohabitant may apply for cancellation or a reduction of various taxes and levies from the Directorate of Internal Revenue, the regional tax director and from the local municipality.
Various certificates and documents must accompany all applications, and it is therefore important to photocopy all public documents.
It is normal and even necessary to get specialist aid when a will is being drawn up, and for the settlement of the estate of deceased persons.