Can My Child Inherit from Grandparents If I Renounce My Inheritance? Not Necessarily!

In everyday life, it's common to hear cases where, in a three-generation family, when a grandparent passes away, the second generation renounces their inheritance to allow the third generation (grandchildren) to inherit directly. This strategy is often used to facilitate asset transfer and save on estate taxes. However, this approach can unintentionally lead to family disputes or even higher estate tax liabilities.

Impact of Renouncing Inheritance on Estate Tax

According to Taiwan’s Estate and Gift Tax Act, there are specific rules regarding renouncing inheritance:

"For direct lineal descendants as heirs, an inheritance deduction of NT$560,000 per person is allowed. For minors, an additional NT$560,000 per year is deducted until they reach adulthood(18 years-old). However, if an heir renounces inheritance, and a lower-priority heir inherits instead, the deduction remains capped at the original amount before renunciation."

In simpler terms, when an heir renounces their inheritance, even if more people inherit as a result, the total applicable deduction is still based on the original number of heirs before renunciation.

Additionally, Taiwan’s Civil Code states:

"If all heirs of the first order renounce their inheritance rights, the inheritance passes to the next order of heirs."

"If only some heirs of the same order renounce their inheritance, their share is distributed among the remaining heirs of that order."

This means that for an inheritance to pass to the next generation of heirs (such as grandchildren of the deceased), all heirs of the first order (children of the deceased) must renounce their inheritance. If only some renounce, the remaining heirs of the same order will inherit the renounced portion. The following scenarios illustrate how these legal rules apply.

Case Study

Assume that the grandmother passed away before the grandfather, and upon the grandfather’s passing, his two sons (the second generation) are the legal heirs. Depending on whether one or both sons renounce their inheritance, the following three scenarios may arise:

Scenario 1: Only the Older Son Renounces Inheritance

If only the older son(X) renounces, the entire inheritance will go to the younger son(Y). The older son’s children (A and B) will not inherit from the grandfather. This is because inheritance rights remain within the same order of heirs, and since the younger son has not renounced, he receives the entire estate.

When calculating estate tax, only Y's deduction of NT$560,000 applies, since the older son (X) renounced his share and cannot claim the deduction.

Scenario 2: Only the Younger Son Renounces Inheritance

This scenario mirrors the first one: if only the younger son(Y) renounces, the entire inheritance goes to the older son(X). Y's son(C) will not inherit from the grandfather. Again, only one NT$560,000 deduction applies to the older son when calculating estate tax.

Scenario 3: Both Sons Renounce Inheritance

In this case, since all first-order heirs (X and Y) renounce their inheritance, the estate passes to the next order of heirs—the grandchildren (A, B, and C). They will each receive an equal share of the grandfather’s estate.

However, this scenario can easily lead to family disputes. The older son’s two children (A and B) together inherit two-thirds of the estate, while the younger son’s child (C) inherits only one-third. In such case, X family receives more estate than Y family, potentially creating tensions over the unequal distribution.

When calculating estate tax, even though the inheritance passes to three grandchildren, the maximum deduction remains NT$1,120,000 (NT$560,000 × 2), as this was the limit for the original heirs before renunciation. This is the rule that even though there are now more heirs than it was, the deduction is capped at the original amount before renunciation

While renouncing inheritance to transfer assets directly to the next generation might seem beneficial, in reality, it involves complex legal and tax considerations. To avoid unintended tax burdens or family disputes, it is advisable to consult a professional accountant for guidance on inheritance laws and estate planning.