Legal restrictions affecting the purchase of inherited real estate

Buying a property is always a risky proposition. Especially when the seller inherited the property. This entails additional risks for the buyer, depending on the relationship the seller had with the former owner.

In a previous post, we spoke about the risks of buying real estate inherited by an immediate family member. These risks have to do with tax as the inheritor is entitled to fiscal benefits that place restrictions on the sale of the property. If these restrictions are not met, the tax office will make any claim against the current owner of the property.

In this post, we look at another type of risk that arises from a slightly different situation — when the seller acquires the property by inheritance from someone who is not an immediate family member. The most typical example is a single person or widow without children who, via a will or by law, ends up leaving their estate to a non-immediate family member (under Spanish law: a sibling, nephew/niece, cousin, etc.) or even someone with no family ties.

When the seller registers the inherited real estate in the land registry, a restriction is placed on their power to sell the property for a given period. This restriction exists so that if an heir with a preferential right to inherit appears (e.g., a child that had not previously been acknowledged), their rights are protected.

This restriction, which is often not taken into account, can lead to surprises as the banks may decline financing the property purchase in such cases. As always, we recommend seeking the assistance of a lawyer when you purchase a property to obtain the proper legal advice.

Carlos Prieto Cid – Lawyer

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Why you should make a will where you invest in property

From the moment you register your property in a state’s land registry to protect your rights as a property owner, you are subject to that state’s regulations. If the state that rules on your inheritance is not the same as the one governing your property, you can help your heirs by making a will in the state where the property is located.

When you buy a house, you want your property rights to be protected by the law of the land. This is why you register your title to the property in the corresponding land and property registers. In exchange for this protection, you pay taxes. After your death, your heirs will want the same protection, but their title to the property will not be a property deed. It will be an acceptance of inheritance document. This is a document issued by the authorities of a country that may be different from where your property is located.

The differing legal approaches in different countries create the biggest headaches in international inheritances. Who is the heir? What percentage do they inherit? Who has a right to inherit? Such questions can only be resolved by the competent public authorities. As a rule, these are the authorities of your country of residence or nationality. When you have foreign investments, the documents issued by the authorities in your home country have to be interpreted by the authorities in the country where you have assets. This creates additional problems that can be tricky to resolve. You can resolve these problems by making a valid will in the country where your property is located. By doing so, you stop foreign authorities from getting involved in the processing of your estate.

As always, we recommend that our foreign clients, from as soon as they own property in Spain, make a Spanish will to govern their Spanish inheritances as they see fit. Thus, limiting the involvement of non-Spanish authorities in the processing of their estates.

Carlos Prieto Cid – Lawyer

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The risk in buying inherited real estate

Buying a house is a big decision because it’s a big investment. You need to be aware of the consequences and clear about the risks.

Today we’re going to talk about a common scenario: inheriting the primary residence of a deceased parent, spouse or relative. People finding themselves in this scenario need to sign notarial documents to transfer the property by inheritance. They can also reduce the inheritance tax they owe if they state in these documents that they don’t have any intention to sell the property in the next five years. They may not have to pay any tax at all. This is something they are always relieved to hear when they visit the notary’s office. And they can still register the notarial document for accepting the inheritance in the Land Registry (a requirement in Spain) without any problem.

Time passes. These inheritors forget the statement they made so they could pay less or no tax when they accepted the inheritance. Then someone offers them a good price on the property. They decide to sell, and the buyer acquires the property, theoretically free of encumbrances. But this is not the case. Because of the inheritance, the property was subject to a charge recorded at the Land Registry. But everyone overlooked it. However, the Spanish tax authority, which can review tax declarations made when properties are transferred, won’t overlook it. If the tax authority decides that the wrong amount of tax was paid at the time of transfer, it can impose a new payment of the tax, with the property as security to cover any tax liabilities, regardless of who owns the property today. In the case that we spoke about above, the buyer could get a nasty surprise if the tax authority discovers that the conditions for the tax reduction or exemption taken advantage of when the property was transferred by inheritance were not subsequently met. Thus, tax becomes due on this property, and the new owner must pay it, even though they benefited in no way from the original tax break. This is why we always recommend seeking legal advice before signing any conveyancing agreement or preliminary agreement. You need a lawyer to check for any hidden problems that may come back to bite you. The case we talked about today is just one of the many traps that buyers can find they have fallen into when they sign agreements without seeking advice. There are many other scenarios that also entail great risk.

Carlos Prieto Cid – Lawyer

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The advanced healthcare directive: help your family make the decisions you would want

If you become incapacitated, your loved ones may have to decide what medical treatment you should get and whether to turn off life-support. You can make these decisions easier for them by leaving an advanced healthcare directive, also known as a living will.

Who will decide for you if you become incapacitated owing to illness or injury? You can sign a document before a notary or witnesses that designates who will make decisions on your behalf and talk with the healthcare professionals who carry out these decisions. You can also state the personal criteria that should be taken into account for making these decisions, when, owing to your physical or mental state, you cannot directly express you will.

These personal criteria can refer to, for instance, your wishes regarding life quality in terms of your level of pain tolerance or functional independence. You can also specify where you want to spend your last days and in what health situations the personal criteria apply (dementia, irreversible illness, etc.).

Once you’ve specified who decides for you, the decision-making criteria, and when and why decisions should be made, you can give instructions on the health procedures you want carried out. For instance, you can request that your life not be uselessly prolonged by artificial means. In your living will, you can also state if you want spiritual care in your last moments and if you want to donate your organs.

In Catalonia, to facilitate the access of doctors to this personal information, the advanced healthcare directive can be registered in the Department of Health’s Register for Advanced Healthcare Directives. By registering the document, it is included in medical history shared with patients. This information can also be accessed by authorised professionals elsewhere in Spain.

Carlos Prieto Cid – Lawyer

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Avoid causing problems between your heirs over the inheritance you leave them

A common cause of family rifts is the distribution of inheritances. Before we die, it is our responsibility to take one of the many measures available to make sure such conflicts don’t happen.

Joint ownership is by far what creates the most problems we encounter on a daily basis at our law firm. Joint ownership of real estate, bank accounts, vehicles, etc. can tangle the associated financial, administrative and fiscal red tape so much that the property loses just about all profitability and may even lose value.

People rarely enter joint ownership arrangements voluntarily, which shows how undesirable they are. They normally arise out of an unwanted event of legal significance: a divorce, a company winding up or someone passing away. In this post, we look at joint ownership arrangements arising from inheritances.

The most straightforward and economical way of distributing an inheritance is by making a will. To guarantee the effectiveness of the will, first you need to get your lawyer to check its content. Second, you need to execute it as a notarial instrument (done with a notary public).  In a will, an inheritance is usually distributed by means of “legacies”, i.e., the universal heir to the entire estate is required to distribute certain property to certain people. To ensure the heir complies with this obligation, an executor can be appointed.

Another way of sidestepping problems between successors is to make gifts while you are still alive. A similar amount of tax is paid when property is transferred as a gift to when it is inherited. The advantage is that you can finalise everything while you are still alive. The disadvantage is that, unlike with a will, if you change your mind, you can’t change the situation without the help of the beneficiary.

Either way, if we want our memory to live on in a harmonious family, it’s worth distributing our inheritance in the most impartial way possible prior to our death. Our heirs will thank us for it.

Carlos Prieto Cid – Lawyer

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When a loved one passes away, how do we know if we are beneficiaries of a life insurance policy taken out by them?

Many people aren’t sure of how many life insurance policies they have. And the beneficiaries of these policies are often even less likely to know about any benefit they may be entiled to. Therefore, there is a risk that a family member may spend years paying for life insurance with us as the beneficiaries for which we don’t receive the payout.

Because over our lifetime, we end up taking out a lot of life insurance. Not just with insurance companies but also banks and financial institutions, which, rather than offering it to us, require it for taking out loans. Sometimes life insurance is included free with other services, usually financial services.

In Spain, to safeguard against this risk, the Ministry of Justice created the Register of Life Insurance Coverage. This register provides information on whether a deceased person had any life insurance taken out and with which company so that possible beneficiaries can contact the insurance company in question to find out if they were designated as beneficiaries and claim any benefits they may be entitled to under the policy from the insurance company.
This public register is accessible to anyone wanting information on whether a deceased person had a life insurance contract and on the insurance company providing the policy. You can access the records of this register only after someone has died, from 15 days after the date of death, by providing proof of the death. The records are accessible for five years.

Carlos Prieto Cid – Lawyer

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The importance of legal advice

If you have to go to court, you obviously need the services of a lawyer. You can’t usually bring any legal action or even defend yourself in court without a lawyer. However, the services of a lawyer are not limited solely to when you’re summoned to go to court. Indeed, in our experience, the main reason clients have to go to court is because they didn’t seek advice from a lawyer beforehand.

If many such clients had sought legal advice before entering into legal transactions, they probably would have avoided the courts altogether. Very worthwhile because a court case is always an unpleasant experience — even when you win!

Many people think they don’t need a lawyer. Perhaps they think they don’t require a doctor, a painter or a mechanic either. But when you’re seriously ill, you go to a doctor. Why, then, don’t you go to a lawyer when entering into an important transaction? How many times in life will you buy a house? How often will you receive an inheritance or make a will? Are such transactions not important enough to consider seeking advice from a lawyer?

Because the most important function of a lawyer in society is not to initiate legal proceedings. To the contrary, our job is to avoid court cases through providing help and legal advice. (In fact the Latin term for lawyer, ‘advocatus’ or ‘advocate’, refers to a person you go to for advice or turn to for assistance when entering into a contract or legal transaction.)

For example, during the sale of a house, both the buyer and the seller come into contact with a number of experts. At the very least when you buy, you come into contact with a real estate agent, perhaps even a developer and an architect if you’re building your own home. You will also need a notary.

Each of these professionals have their own function. The real estate agent finds a buyer for the property, the developer and the architect build the house, and the notary formalises the contract so you can prove ownership of the property and register it with the land registry.

None of these people, though, has an exclusive obligation to give you independent advice. Each has their own interests but none has a duty to look solely after your interests (as the buyer or seller). If the house is not sold, the estate agent receives no commission. If the contract is not notarised, the notary receives no fee.

However, you pay the lawyer to do nothing more than protect your interests. They are, therefore, the only person you can really trust in the whole process. They are the only person who can freely say to you — without it having any effect on his bank account, ‘you shouldn’t sign this contract!’

Many clients come to us after they’ve signed contracts and problems have arisen. At this late stage, all we can do is try to salvage the situation through an agreement or legal proceedings. Often in such circumstances, the client shouldn’t have signed the contract in the first place. But you can only know this — when to sign and when not to — if you have a lawyer, your advocatus, by your side when you sign.

Carlos Prieto Cid – Lawyer

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Inheriting abroad (2)

In our last post, we spoke about the first steps you need to take when you accept an inheritance as a foreigner in Spain. Today we’re going to look at a very topical matter: which authorities determine who the heirs are. Because, as of summer this year, the authorities of the country of usual residence will be responsible for this, which marks a change from the law in force until now in most European countries.

Around a year ago, we spoke about the important legal changes coming into effect in August 2015 regarding foreign inheritance in all EU countries with a few exceptions in the cases of inheritances of United Kingdom and Denmark nationals ( https://blog.tarracoiuris.com/en/?p=212 ). After this change, the authorities in the country of residence will usually determine the heirs. And, where no will exists stating otherwise, these authorities will apply the law in force in that country. For instance, for a German national residing in Spain at the time of their death, it will be Spain, in accordance with Spanish law, that will determine who the heirs are by applying Spanish regulations. Until now, the German authorities did this by issuing a certificate of inheritance (applying German law) in such cases. So, from when the new EU regulations on the European certificate of succession come into force, the situation will be the complete opposite.

In Spain, once you have established via the competent authorities that you are the legitimate heir, you need to — especially in the case of property inheritance — sign an Acceptance of Inheritance before a notary public. This is an official notarial document that you can use as proof of title for the banks, the Land Registry, the cadastral register, the vehicle register, etc. But before you can use this document to transfer the deceased’s property to your name, you have to pay any tax due on it, either to the regional tax authorities, if you’re a resident, or the national ones, if you’re not.

As all these procedures are very complex, you really do need the help of an expert for the entire process.

Carlos Prieto Cid – Lawyer

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Inheriting abroad (1)

The death of a loved one is always traumatic. Even more so if, as well as having to deal with the loss, you are the heir and have to go through a lot of complicated administrative procedures. Such red tape, a challenge everywhere, becomes an even bigger one when you live in a different country to where the estate of the deceased is located, or when their countries of residence and nationality are different.

In Europe, to initiate the transfer of ownership of the deceased’s property to your name, the first thing you need is a death certificate officially certifying the death. You get this certificate from the civil registry. For this certificate to be recognised in another country (e.g., for when a foreign national dies outside of Spain while owning property in Spain), it needs to be valid internationally, which can be attained with an official Apostille stamp.

In Spain, as well as certifying the death, you also have to certify the existence or absence of any wills executed in Spain. To do this, when you have the death certificate, you need to request a certificate from the Ministry of Justice’s General Register of Wills. If a will was executed in Spain before a Spanish notary public, the General Register will inform you before which notary public and on what date the deceased signed the will in Spain. As it is easy to be unaware of the existence of a will, the General Register of Wills is a great help and a way of protecting our rights. It also serves to certify when no wills have been executed in Spain.

Carlos Prieto Cid – Lawyer

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The new European Certificate of Succession

If at the moment of our death we still have property assets located in Spain, our heirs are obliged to fulfill a number of formalities requirements in order to register this property on their name. These processes will be facilitated in 2015 through the creation of a European Certificate of Succession.

We all want to be together with our beloved ones at the time of our death. And in most cases, these people close to us are going to be also our heirs. Therefore, during the registration of inheritance, it is desirable that the authorities our heirs will have to address to, were not too far away geographically from the place where we spend our last days with them.

Until now, for example, in the event of a German couple who had moved to Spain to spend his retirement in a property house, their heirs had to apply to the authorities in Germany for a certificate of succession, because according to the present laws only German authorities are competent in determining who the heir is. This led to the fact that  the spouse of the deceased, who had moved to live with him or her in Spain, and probably had no longer residence in Germany, was forced to travel to Germany to apply for the certificate of inheritance or had to entrust someone to get it .

A new European law, which applies in all the countries of the European Union, will try to lighten things up in this case we have just described by the new European Certificate of Succession, which is automatically recognized in all member states and may be issued by the authorities of the State  where the deceased had his habitual residence. But, on the other hand, we must take into account that the law of the State of habitual residence becomes the general rule of law applicable to the succession. It is therefore advisable to consult and be be aware of how this law will govern our inheritance and, if necessary, avoid unintended consequences through a notarized will.

Carlos Prieto Cid – Lawyer

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