Introduction to Estate Planning in Bulgaria for International Families

For high net-worth families with international assets, estate planning in Bulgaria is a significant consideration. Understanding Bulgarian inheritance law is particularly important for foreign citizens who possess real property or movable assets situated in Bulgaria. The Inheritance Act of 1949 primarily governs Bulgarian inheritance law, dictating the distribution of assets, including inheritance of movable and immovable property.

This comprehensive guide aims to clarify international estate planning and Bulgarian inheritance law for those who require legal services. It provides essential information on key aspects such as wills in Bulgaria, intestate succession rules under Bulgarian law, inheritance tax rates, and the probate process. This resource is designed to assist high-net-worth families and foreign citizens in navigating Bulgarian law for effective estate planning.

Understanding Bulgarian Inheritance Law and Wills for Foreign Citizens

Will Formalities and Validity in Bulgaria

Bulgarian law, as outlined in the Inheritance Act of 1949, specifies the required forms for a valid will. There are two main types of wills recognised under Bulgarian law: 

• Handwritten Will: This type of will must be entirely handwritten by the testator, dated, and signed. While it is optional to deposit a handwritten will with a notary public in a sealed envelope and register it, doing so is not mandatory for the will’s validity.
• Notary Will: A notary will must be executed as a notary deed in front of a notary public, with two witnesses present. The will must be signed by the testator, the witnesses, and the notary.

The law governing a will’s validity is determined by the European Union (EU) Succession Regulation, which applies to the estates of both EU and non-EU citizens. According to this regulation, the law of the country where the deceased had their habitual residence governs the succession of assets situated in Bulgaria. However, individuals have the option to choose that their will be governed by the law of their nationality at the time of making the will or at the time of death.

Under the EU Succession Regulation, a foreign will is considered formally valid in Bulgaria if it adheres to the legal requirements of any of the following:

• The state where the will was made.
• The state of the testator’s nationality, either when the will was made or at death.
• The state where the testator was domiciled, either when the will was made or at death.
• The state of the testator’s habitual residence, either when the will was made or at death.
• For immovable property, the state where the property is located.

Enforceability of Foreign Wills and the EU Succession Regulation

For a foreign will to be enforced in Bulgaria, it must meet specific cumulative conditions. Firstly, the will must comply with the EU Succession Regulation concerning the choice of law for succession, as well as the formal and substantive validity of the will. Secondly, the will must be recognised by a decision from a foreign court, which then needs to be recognised in Bulgaria through an exequatur procedure in a Bulgarian court.

The EU Succession Regulation plays a crucial role in cross-border inheritance matters, aiming to simplify and harmonise the legal framework for international successions within the EU and beyond. It establishes rules regarding jurisdiction, applicable law, and the recognition and enforcement of decisions in matters of succession. This regulation ensures that foreign citizens with assets in Bulgaria can have their wills recognised and enforced, provided they meet the necessary legal standards.

Intestate Succession and Forced Heirship in Bulgarian Law

Rules of Intestate Succession under Bulgarian Inheritance Act

If a person passes away in Bulgaria without a will, the distribution of their estate is determined by the intestacy rules of the Inheritance Act (1949). In such cases, the law specifies a clear order of inheritance based on familial relationships. This ensures that the estate is passed on to the closest relatives in a defined sequence.

The Inheritance Act establishes four groups of heirs, applied in a specific order:

• Children: This first group includes all children of the deceased, encompassing both natural and adopted children. They inherit in equal portions.
• Parents: If there are no children or descendants, the parents of the deceased are next in line to inherit.
• Grandparents and Siblings: In the absence of children and parents, the estate passes to grandparents (or more distant ancestors) and siblings. Siblings inherit two-thirds and ascendants one-third.
• Lateral Relatives: If none of the above categories of heirs exist, relatives on the lateral line up to the sixth degree (such as aunts, uncles, and cousins) may inherit. Closer relatives will exclude more distant ones.

The surviving spouse also has inheritance rights under Bulgarian law. The portion they receive depends on which other heirs are present.

Forced Heirship and Reserved Portions under Bulgarian Law

Bulgarian inheritance law includes the principle of “forced heirship”. This principle dictates that a testator cannot freely dispose of their entire estate. A certain portion, known as the reserved portion, is legally guaranteed to specific heirs: descendants (children and grandchildren), parents, and the surviving spouse.

The statutory reserved shares are defined as follows:

• Descendants (Children, including adopted children):
  • One child or their descendants: one-half of the estate.
  • Two or more children or their descendants: two-thirds of the estate.
• Parents (or a sole surviving parent): One-third of the estate.
• Spouse:
  • Spouse as the sole heir: one-half of the estate.
  • Spouse inheriting with parents: one-third of the estate.
  • Spouse inheriting with descendants: the spouse’s reserved share is equal to each child’s reserved share.

These forced heirship rules are mandatory and cannot be circumvented. If a will or donation infringes upon an heir’s reserved portion, the affected heir can petition the court to reduce the will or donation to the extent necessary to restore their reserved share.

Bulgarian Inheritance Tax: Rates, Exemptions, and Calculation

Inheritance Tax Rates and Taxable Persons in Bulgaria

Inheritance tax in Bulgaria is applied to all inherited property, whether through a will or intestate succession. This tax is levied on the estate of any Bulgarian citizen, regardless of where the assets are located (in Bulgaria or abroad), as well as on estates within Bulgaria devolved by any foreign citizen.

However, some individuals are exempt from inheritance tax. Spouses and lineal heirs, such as children, grandchildren, and parents, are exempt from paying inheritance tax. For other beneficiaries, the inheritance tax rates depend on their relationship to the deceased and the value of the inherited assets.

The inheritance tax rates for taxable individuals are determined at the municipal level and fall within the following ranges:

• For siblings and their children (nieces and nephews): Rates range from 0.4% to 0.8% on the portion of the inheritance exceeding BGN (Bulgarian Lev) 250,000.
• For all other beneficiaries (distant relatives and non-relatives): Rates range from 3.3% to 6.6% on the portion of the inheritance exceeding BGN 25,000.

Exemptions and Tax-Free Allowances for Inheritance Tax

Bulgarian inheritance tax law provides certain exemptions and tax-free allowances. Surviving spouses and lineal heirs are fully exempt from inheritance tax. Additionally, a tax-free allowance is available for other beneficiaries who are not spouses or direct line heirs. This allowance applies to an inherited estate share with a value not exceeding BGN 250,000 (approximately €127,823).

Valuation of Assets for Inheritance Tax Purposes

To calculate inheritance tax in Bulgaria, the inherited estate must be accurately valued in BGN as of the date of the deceased’s death. The valuation method varies depending on the type of asset, such as real estate, foreign currency, securities, transport vehicles, and other movable assets and rights.

Deductions for the Taxable Estate

It is important to note that certain deductions can reduce the taxable estate. These include the debts of the deceased at the time of death, legally established and evidenced to tax authorities, and certain funeral expenses up to BGN 1,000. Moreover, assets of the taxable estate can be debited with any rights and receivables which the heirs have transferred to the Exchequer or the municipalities according to the procedure established by the law. Any liabilities of the intercessor at the time of opening of the succession, established in terms of legal grounds and amount, unless property exempt from inheritance tax is acquired against any such liabilities, may also reduce the taxable base.

Gift Tax

Gift tax is levied on the transfer of Bulgarian property as a gift or donation. The tax base is the market value of the property on the day it was acquired by the beneficiary. The applicable tax rates are determined by the municipalities where the property is located and depend on the relationship between the donor and the beneficiary. The rates vary between 0.4% and 0.8% on properties received by relatives in the lateral line (brothers, sisters, and their descendants), and between 3.3% and 6.6% for all other beneficiaries. However, donations between direct line relatives and between spouses are exempt from gift tax, as are certain charitable donations.

Estate Administration and Probate Process in Bulgaria

Overview of Estate Administration Procedures in Bulgaria

In Bulgaria, the administration of an estate after death involves specific procedures to ensure legal transfer to heirs. Upon a person’s death, the estate does not automatically pass to the heirs; it requires formal acceptance. This acceptance can be explicit, through a court application, or tacit, indicated by actions like disposing of assets or paying inheritance tax.

Beneficiaries have the option to limit their liability for estate debts to the value of inherited assets. An executor can be appointed by the testator to manage the estate, settle liabilities, and distribute assets to heirs. In the absence of an appointed executor, the beneficiaries are jointly responsible for managing the estate.

Probate Process and Legal Requirements in Bulgaria

The probate process in Bulgaria is a legal procedure designed to validate wills and ensure the proper distribution of a deceased person’s estate to the rightful heirs. The process begins with filing a petition at the local court in the deceased’s place of residence, requesting the appointment of a probate judge. Following the petition, the court schedules a hearing to assess the will’s validity.

If the will is validated, the court issues a decree confirming its legitimacy, which then initiates the estate administration phase. An estate administrator is appointed, often someone named in the will, to manage the estate, create an inventory of assets, settle debts, and prepare a detailed accounting for the court.

Special Considerations for Non-Resident Estate Planning in Bulgaria

International Inheritance Laws and Bulgarian Property

For non-residents owning property in Bulgaria, it is important to understand how international inheritance laws interact with Bulgarian law, as Bulgarian law may not align with the laws of their home country, potentially leading to complications in asset transfer. Bulgarian inheritance law applies to the estates of both local and foreign citizens who own assets in Bulgaria.

However, non-residents should be aware of potential conflicts of law. Bulgarian law recognises that for movable property, the inheritance law of the country where the deceased had their habitual residence at the time of death may apply. The EU Succession Regulation further clarifies the governing law of the will based on habitual residence or nationality. Conversely, the inheritance of immovable property, such as real estate in Bulgaria, is typically governed by the law of the state where the property is located, which is Bulgarian law.

Tax Planning for Non-Residents with Bulgarian Assets

Tax planning is a crucial aspect for non-residents with assets in Bulgaria. Inheritance tax in Bulgaria applies to all properties, regardless of the deceased’s residency status. This means that non-resident heirs inheriting Bulgarian property will be subject to Bulgarian inheritance tax. As of 2023, inheritance tax rates range from 0% to approximately 7%, varying based on the estate’s value and the heir’s relationship to the deceased.

Strategies for tax-efficient estate planning may include lifetime gifting, which can potentially reduce the taxable estate upon death. Non-residents should consult with our professionals who are knowledgeable in both Bulgarian tax law and the tax laws of their country of residence to optimise their estate plan and minimise potential tax liabilities.

Conclusion

Navigating international estate planning in Bulgaria requires a comprehensive understanding of Bulgarian inheritance law, will requirements, tax implications, and estate administration procedures. For foreign citizens with assets situated in Bulgaria, it is crucial to be aware of the interplay between international inheritance laws and Bulgarian law to ensure effective estate planning and asset distribution. 

For high-net-worth families and foreign citizens, navigating the complexities of Bulgarian inheritance law requires specialised legal expertise. Consult with PBL Lawyers to ensure your estate plans are legally sound and effectively implemented. Book your consultation today to secure your future with trusted professionals in Bulgarian inheritance law.

Frequently Asked Questions