LOCAL attorneys have substantial experience and knowledge in the field of estate and probate law. We provide comprehensive advice and assistance in relation to inheritance rights and provide assistance in the preparation of wills to ensure that individual’s last wishes are carried out after death. We also take care of the interests of heirs during the division of estates.
Our services can include resolution of disputes that may arise during the settlement of an estate. We can also take care of the finalisation and settlement of an estate before the district commissioner, for example obtaining permission for private distribution and submission of an inheritance report. Our knowledge and experience ensure that the entire process of inheritance and estate transfer is handled professionally and efficiently.
Practical information about succession and succession:
It is important to keep in mind that if a person has a spouse and/or children, they are considered compulsory heirs and can not be disinherited.
Cohabiting partners and stepchildren are not considered compulsory heirs and do not inherit according to law.
However, a person can decide to bequeath a third of his assets to any person or legal entity, with a will.
A married spouse of a deceased person has the legal right to remain in an undivided estate with their joint children. That right does not extend to cohabiting partners. If the deceased had children which are not joint children, a will is required to stipulate the right of the surviving spouse to remain in an undivided estate.
Before death
Compulsory inheritance rights belong to the descendants (children) of the deceased and married spouse. If there is no compulsory right of inheritance, the inheritance goes to the deceased’s legal heirs, which are, i.e. parents, siblings and siblings of parents.
If the deceased had no compulsory or legal heirs, or a will proclaiming the distribution of inheritance, the deceased’s assets go to the state.
There is no mutual right of inheritance for cohabiting partners. However, a partner can grant his cohabiting partner an inheritance in a will. In which case the cohabiting partner does not need to pay inheritance tax, according to Article 2 of the Inheritance Tax Act.
Stepchildren and foster children of the deceased do not have inheritance rights. However, it is possible to bequeath an inheritance to a stepchild or foster child by specifying this in a will.
A will is a formal written document of a person’s last will. Anyone who has reached the age of 18 and is considered mentally healthy and capable can dispose of their assets after death by making a will.
What can be disposed of by will?
If there are no surviving spouses or children, a person’s will can cover all of that person’s assets. If a person has a spouse or children, then he has the right to dispose of one third of his total assets in a will.
Why make a will?
There can be many different reasons why a person decides to document his last will and testament.
A married couple, which have one or more children that are not shared, can ensure their right to remain in an undivided estate by stipulating this in a will. The same applies to the will of a person to grant inheritance rights to someone other than his biological child or a spouse, such as a stepchild. In some cases, individuals also want to stipulate that certain property shall upon inheritance be the private property of their children . I.e., it can be stated in a will that the family’s summer home shall be the private property of the respective children and shall therefore not be transferred to the children-in-law. Furthermore, it could be stipulated in a will that the summer home goes to a certain child, while other assets go to other children.
By making a will, it is possible to carry out a person’s last will and at the same time limit conflicts following his death. For this to be possible, the will must meet certain formal requirements. A simple declaration by the deceased in the presence of witnesses is not sufficient since strict rules govern the accreditation of wills and a will may be considered invalid if those rules are not followed. Persons are urged to consult an expert if they want to make a will . A will can be changed or added to, and the same rules govern such changes as apply when making the original will. If a person has several wills which are all considered valid under law, the will which is most recent will govern the inheritance in case of conflict.
A will can be made by all capable persons and a will is referred to as letter inheritance.
If a person has no surviving spouses or children, a will can cover all assets of that person. .
If a person has a spouse or children, the right to distribute assets with a will is limited to one third of the total assets of the estate at the time of death.
Advancement of inheritance is an inheritance that a living individual pays to their heirs in advance of their death. Depending on the circumstances, such inheritance must be formalised with a will, and shall be submitted to the district commissioner with an inheritance tax report and payment of 10% inheritance tax.
If the district commissioner is not properly notified of the advancement of inheritance, it is considered a gift to the recipient and shall be taxed as general income, which is significantly higher than the inheritance tax, according to Article 1, Paragraph 66 of the Income Tax Act No. 90/2003.
Inheritance tax is imposed when the inheritance tax report has been approved by the district commissioner. The due date for inheritance tax is ten days after the inheritance tax report has been approved.
A surviving spouse does not have to pay inheritance tax. The same applies to a cohabiting partner who inherits assets from the deceased on the basis of a will.
Inheritance tax is only paid on the estate’s total amount which exceeds the tax exemption limit, and the heirs enjoy tax exemption in proportion to their inheritance. The tax exemption limit changes in accordance with the consumer price index every year and is ISK. 6,203,409 in 2024.
Example: If there are three heirs and the estate is divided in 2024, each of them will be exempt from payment of inheritance tax on the first ISK 2,067,803. (ISK 6,203,409 /3)
Assets which have been registered in the name of the deceased can be transferred to the heirs, once the inheritance tax has been paid.
After death
Upon death, the estate takes over the properties, duties and rights of the deceased. An estate is a separate legal entity and certain rules must be followed when settling an estate.
Upon death, it is the duty of the heirs to divide the estates of the deceased. The division of estate shall be documented in the inheritance tax report, which shall be submitted to the district commissioner no later than four months after the death.
Settling of an estate can be carried out in the following ways:
- The surviving spouse is permitted to remain in an undivided estate.
- A private division of the estate performed by or on behalf of the heirs.
- A public division of the estate performed by a court appointed executor.
- The estate is declared without assets, in case assets are either non-existent or only sufficient to cover funeral expenses.
While the estate’s assets have not been disposed of, they are effectively frozen. Only the person nominated to handle the estate, either an heir or a court appointed executor of the estate, has the right to allocate assets, including deposits in bank accounts.
The difference between privat property and marital property when it comes to settling the estate
When a property is marital property, each spouse has a 50% share in the relevant property. When settling the estate of a deceased spouse, only 50% of the relevant marital property forms part of the estate, since the surviving spouse has a 50% share in that marital property. The surviving spouse therefore inherits a third of the 50% share and will ultimately own 67% of that property. Children of the deceased (if any) will inherit two-thirds of the 50% share of the marital property and ultimately own 33% of that property.
When a property is private property of the deceased spouse, that property is considered fully (100%) owned by the deceased spouse. Accordingly, the surviving spouse will not have a claim to a 50% share in the property. The property as a whole is therefore subject to division and the surviving spouse inherits one-third of the 100% share of the relevant private property and will therefore own 33% of that property. Children of the deceased (if any) will inherit two-thirds of the 100% share of the private property and ultimately own 67% of that property.
Joint children
If the deceased was married at the time of death, the surviving spouse can request to remain in an undivided estate.
A cohabiting partner does not have the right to remain in an undivided estate according to the law and this cannot be enforced through a will. The right to remain in an undivided estate is only available to those who have entered into marriage. If the married couple only have joint children, the right of the surviving spouse is unconditional. If the deceased has a child but not with the spouse, the right of the surviving spouse is conditional upon the approval of that child or if the right is stated in a will. If the settling of an estate is completed with the surviving spouse obtaining permission to remain in an undivided estate, that spouse will have sole rights over the estate.
To formalise the right to remain in an undivided estate, it is necessary to fill out a form and submit it to the district commissioner – this form can be found here.
The district commissioner confirms the right and issues a certificate, which the surviving spouse can present to financial institutions and the district commissioner, to transfer assets registered in the name of the deceased to the surviving spouse.
It should be noted that a spouse is allowed to stipulate in a will that the surviving spouse does not have the right to remain in the undivided estate, according to Article 7 of the Inheritance Act No. 8/1962, in which case the request for the right to remain in the undivided estate will be denied.
Married couple who do not share children
If the deceased had a child who is not a child of the surviving spouse, the right to remain in an undivided estate depends on the consent of the child which is not shared.
However, couples can avoid having to seek the consent of the child they do not share by making a will. The will should stipulate the right of the surviving spouse to remain in an undivided estate, and the original of the will must be presented upon the passing of the deceased spouse.
If a will does not provide for the right to remain in an undivided estate, a surviving spouse still has the right to remain in an undivided estate if he has guardianship or legal guardianship of his financially dependent stepchildren. If not, then the surviving spouse needs the consent of the custodial parent or legal guardian of the stepchildren.
What does it mean to remain in an undivided estate?
The right to remain in an undivided estate means that neither the estate nor the assets and liabilities of the deceased will be divided between the heirs. The surviving spouse receives the assets of the deceased and continues to manage the estate. The same applies to the debts of the deceased. The surviving spouse therefore has sole right of dispersal for all assets, which can decrease or increase during the period in which the spouse has control over the undivided estate. The surviving spouse is also responsible for all debts of the estate.
The children of the deceased have no claim to certain assets and/or funds. They only have a claim to a certain percentage of the total assets of the estate, based on the inheritance share, , when the estate of the deceased spouse is settled upon the death of the surviving spouse.
If the surviving spouse remains in an undivided estate, when will the deceased’s estate be settled?
The surviving spouse may remain in an undivided estate until their death, at which point the estate of the deceased spouse will be settled with the passing of the surviving spouse. The surviving spouse must ensure that the assets and property of the estate are handled properly while remaining in the undivided estate, as per Article 17 of the Inheritance Act, there ultimate heirs can request that the estate be divided if the surviving spouse displays unreasonable financial management. Case law has shown that it takes significant grounds to remove the surviving spouse’s right to remain in an undivided estate.
The surviving spouse is not obligated to remain in the undivided estate until their date of death. The surviving spouse is always permitted to settle the undivided estate, whether with one child or multiple children. It is common for the surviving spouse to settle the estate with the children of the deceased spouse, while continuing to remain in the undivided estate with their joint children.
However, the right to remain in the undivided estate is forfeited if the surviving spouse decides to remarry, in which case they must settle the inheritance of the deceased spouse among all the children of the deceased, including the joint children of the deceased and the surviving spouse. If the surviving spouse has remained in the undivided estate with financially incompetent stepchildren, the stepchild may demand division within three months from when they gain financial competence. If they do not do so within that time frame, they can make the demand later, providing a year’s notice, as per Article 14 of the Inheritance Act.
If certain property was the private property of the deceased, does the private property form part of the undivided estate?
Private property does not form part of the undivided estate unless it has been specifically stipulated in a pre-nuptial or nuptial agreement that upon the death of the owner of the private property, the property shall be treated as marital property, according to Article 11 of the Inheritance Act.
If such a stipulation is not included in a pre-nuptial or nuptial agreement, the private property must be divided among the heirs of the deceased, and as such the spouse inherits one-third and the children of the deceased inherit two-thirds of the private property.
Private distribution means that children of the deceased and/or a spouse, along with other heirs as specified in a will, manage the distribution of the deceased’s estate themselves. A request to manage the estate and enter a private distribution shall be submitted to the relevant district commissioner.
If an estate undergoes private distribution, the heirs assume responsibility for all obligations of the estate, and are thus fully accountable for the assets and debts of the deceased, including both known debts and those that are not known at the time of the person’s death.
The heirs are responsible for dividing the estate’s assets and settling its debts. They can sell assets, such as real estate, and withdraw funds from the deceased’s bank accounts, as the settlement for inheritance tax is based on the value of the assets on the date of death. The heirs should carry out this process collectively and agree on how the assets are to be divided among them.
A third party, such as an attorney, can be authorised to manage the distribution on behalf of the heirs.
To formally complete the private distribution, an inheritance tax report, detailing the settlement of the estate, must be submitted to the relevant district commissioner and the inheritance tax must be paid. If the heirs do not receive equal shares of the same assets, for example, if one heir receives real estate while the others receive cash, a specific report, known as a private distribution statement, must be prepared to outline this, and all heirs must sign it. If the assets are minimal, the relevant district commissioner may determine that a private distribution statement is unnecessary, if sufficient information is provided in the inheritance tax report.
There is no specific form for the private distribution statement, but the district commissioner has issued a standardised form for the inheritance tax report.
Based on the inheritance tax report, a tax of 10% is levied on net assets. Inheritance tax is however only levied on the amount exceeding the tax exemption threshold, and heirs enjoy that tax exemption in proportion to their inheritance. The tax exemption threshold is adjusted annually according to the consumer price index and was ISK 6,203,409 in 2024.
Example: If there are three heirs to an estate distributed in 2024, each heir will be exempt from inheritance tax on the first ISK 2,067,803 (ISK 6,203,409 / 3).
The surviving spouse is not required to pay inheritance tax. The same applies to a cohabitant inheriting from the deceased according to a will. Assets that were in the name of the deceased can be transferred to his heirs once the inheritance tax has been paid. The due date for the inheritance tax is ten days after the report has been approved, with the final deadline being thirty days later, according to Article 14 of the Inheritance Tax Act.
Heirs have one year to complete the distribution of the estate from the date the private distribution permission is granted. This process requires the consent of all heirs and if they do not consent the estate shall undergo a public distribution.
Heirs can require a public distribution of the estate, either on the grounds that they do not want to be responsible for all the obligations of the estate, but also if the heirs disagree on the division and it is likely that it will be difficult to reach an agreement on the division of the estate. The district commissioner can also require a public distribution if the heirs have not responded to the district commissioner’s challenge to start private distribution of the estate. At any given time, each individual heir has the right to require public distribution of the estate. Heirs do not need to agree on such a requirement as it is sufficient for one heir to request it.
To request a public distribution, a request must be sent to the district court where the deceased last had legal residence. The district court then appoints a special executor of the estate. The executor is responsible for carrying out the division of the estate and the costs of his work is carried by the estate and paid from its assets. The executor invites the heirs to meetings of the executors and keeps them informed of the division of the estate.
If the heirs declare that they do not assume responsibility for the obligations of the estate, the executor issues a call to creditors, which is published twice in the Official Gazette. The call to creditors is general and directed to anyone who believes they have claims on the estate to submit their claims to the executor within two months from the date of which the call to creditors is first published.
When the executor has completed payments of all claims to the estate or has withheld funds to cover such claims, the executor can complete the public distribution with a distribution to the heirs. If the heirs dispute the distribution, the executor may refer the dispute to the district court for resolution.
If the heirs do not assume responsibility for the estate’s obligations before the executor and it becomes apparent, after the end of the two month claim period, that the estate’s assets do not meet its debts, the estate’s assets will be allocated to meet the claims, as as possible, and the estate will be handled as if it were a bankrupt estate.
It is possible to declare to the district commissioner that the deceased did not have any assets beyond the cost of the funeral, and the division of the estate can then be completed immediately on the basis that the estate has no assets.
In the event of death, cost due the deceased’s funeral is incurred. Before the assets of the estate are distributed to the heirs, costs due to funeral arrangements can be deducted from those assets. It is therefore important to retain all receipts for the funeral expenses incurred.
The district commissioner has issued a standard form for information about funeral expenses, which can be filled in and included with the inheritance tax report.
Deduction of funeral cost is only permitted due to the person to whom the funeral applies, i.e. expenses due to a deceased spouse are not deductible unless it is an unpaid claim of that spouse’s estate. Thus, if an undivided estate is settled when the surviving spouse is still alive, or upon the death of the surviving spouse, it is not possible to deduct expenses for the deceased spouse’s funeral.
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