Amendments to Polish inheritance law—analysis and evaluation of proposed changes
Work is underway in the Parliament on a government bill to amend the Civil Code and the Civil Procedure Code in a way that would significantly modify the rules for heirs’ liability for debts inherited from the decedent. The first reading of the bill has already been held and it is expected to be approved by the Sejm soon.
Polish inheritance law follows the rule of general succession. A consequence of this is that heirs are liable for the debts of the estate. This liability may be divided into two stages: before and after acceptance of the inheritance. In the first stage the heir is liable for inherited obligations only out of the inherited assets, but upon acceptance of the inheritance the heir’s liability becomes unlimited. An heir has six months after learning that he has been appointed an heir to decide whether or not to accept the inheritance. If the heir does not act during this time, the heir is deemed to accept the inheritance “directly.” This means that the heir becomes personally liable without limit for all of the inherited debts.
However, the heir may opt to accept the inheritance with the benefit of an inventory, if the heir declares this intention before the court or notary within the six-month timeframe. This declaration limits the liability for the decedent’s debts up to a maximum of the “positive” value of the inherited assets (i.e. before subtracting debts). This value is calculated on the basis of an inventory and valuation of the inherited assets and debts, prepared by the bailiff. In practice, however, acceptance of an inheritance with the benefit of an inventory is rarely done because heirs are generally unaware of the legal consequences of their silence. The high costs of an inventory and the lengthiness of the procedure, sometimes lasting many months, also discourage some people from taking this initiative. As a result, heirs sometimes become saddled with high debts of their ancestors.
Proposed changes
The new regulations are supposed to change this state of affairs by introducing acceptance of the inheritance with the benefit of an inventory as the default rule. Heirs would not have to make any declarations in order to limit the scope of their liability. They would still be permitted to reject the entire inheritance, however.
The mandatory requirement to prepare an inventory before a notary would also be eliminated. Instead, a new institution would be introduced known as an “inventory list.” This would be a private document which the heir could voluntarily file with the court or the notary. The list would need to disclose the assets belonging to the estate and items subject to individual bequest, stating the value of the items, as well as the debts of the estate and their amount. Therefore the list would constitute a statement of the heir’s knowledge on the condition of the decedent’s estate, and the heir would be required to prepare it with due diligence. It would thus be similar to the declaration most heirs now file for purposes of the inheritance and gift tax.
The inventory list would be published through the announcement of the inheritance at the court where the inheritance case is pending or the court for the region where the person filing the inventory list resides.
When paying the inherited debts, the heir would be guided by the inventory list he prepared himself. If it turned out that he had paid only some of the actual debts because he was not aware of the others when drawing up the list and could not have learned of them through due diligence, the heir would be liable for those debts only up to the amount of the difference between the value of the inherited assets determined on the basis of the list and the value of the debts already satisfied. However, if it turned out that the heir did not pay certain debts even he knew or with due diligence should have known about them, he would be liable for those debts up to the amount he would have been required to satisfy if he had properly paid all of the inherited debts.
Introduction of the institution of a private inventory list would not mean that the institution of the official inventory would disappear altogether. It would still be possible for anyone who can substantiate his rights connected with the estate (an heir, the beneficiary of a specific bequest, or a person entitled to a forced share), as well as a creditor, to apply to the bailiff to prepare an inventory. Such official inventory would continue to be decisive on the value of the estate and the decedent’s debts, because if such inventory were prepared it would take precedence over the private inventory list prepared by the heirs.
Evaluation of proposed regulation
The direction of the proposed changes generally should be viewed as positive. For a long time there have been calls in the legal literature and in the case law for a change in the principles of liability for inheritance debts. For example, as Prof. Bogudar Kardasiewicz points out, “The average person does not realise that legal significance may be ascribed to his silence, not to mention that his passive behaviour may result in ‘acquisition’ of economically negative values” (System Prawa Prywatnego (System of Private Law), vol. 10, p. 432).
In effect, as the Supreme Court of Poland has pointed out, the current solution “may be viewed as creating a kind of trap for those heirs unaware of its operation which if they fall into can sometimes result in liability for inherited debts many times greater than the positive value of the inheritance” (judgment of 29 November 2012, Case II CSK 171/12, Lex no. 1294475).
Clearly this is a change which is desired and long awaited.
On the other hand, some of the solutions included in the bill raise doubts—first and foremost the institution of the private inventory. Numerous commentators providing opinions on the proposal when it was being worked on in the government criticised this aspect. The drafters may have allowed heirs too much latitude when preparing the inventory list. The mere idea of using a private document for the inventory does not seem to be a mistake, because it should significantly cut costs on the side of the heirs. But if an heir is to enjoy the privilege of limited liability for inherited debts, when deciding to accept the inheritance he should also make at least a general effort to determine the estimated value of the decedent’s estate. The bill makes the list entirely optional. Practice will show whether this approach actually works.
Moreover, although the heir would be required to exercise due diligence when preparing the inventory list, it is difficult to imagine that under the proposed wording the heir would actually be held liable for failing to exercise due diligence (although theoretically this would be possible). The result is that the satisfaction of creditors could be significantly hindered. Unable to rely on the private inventory (or in the absence of one), creditors would in practice be forced to apply for preparation of an official inventory. All of the costs connected with proving the existence of their claims would fall on the creditors, along with uncertainty as to the ability to satisfy their claims due to the statutory limitation of liability for inherited debts up to the amount of the inventory.
The question in short is whether this change goes too far. As the Polish Bar Council stated in its opinion on the proposal: “While so far the entire risk of accepting the inheritance has generally fallen on the heir (i.e. the potential beneficiary of the inheritance), the proposal in practice would provide for shifting the entirety of this risk onto the creditor (for whom the inheritance represents only a source of potential problems, and never benefits).”
So perhaps it would be wise to introduce a few amendments to the bill. The first thing that could be considered is establishing a period after accepting the inheritance with the benefit of an inventory when the heir would be required to prepare an inventory list (instead of this being fully optional, as the bill now provides). Then, when the period expired, creditors would know whether their claims were included in the list of disclosed debts. Second, the consequences under civil and criminal law of failure to file an inventory list at all, or filing a list that does not meet the requirements of due diligence, could be specified. Along these lines, the form for the inventory list could include a warning that it is prepared under pain of liability for submitting false information.
Notwithstanding these remarks, the proposed changes should be treated as a step in the right legislative direction. One can only hope that it will be just the first step, and not the last, and that the Polish Parliament, in the spirit of the times, will allow greater freedom of inheritance and introduce new legal instruments patterned on the solutions followed successfully in other European countries.
Tomasz Krzywański, Private Client Practice, Wardyński & Partners