Tag Archives: will

The new European Certificate of Succession

Posted on by
Reply

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

Read this article in Russian
Read this article in German

The relationship between children and beneficiaries of life assurance

Posted on by
Reply

Life assurance policies taken out in Spain are subject to Spanish law, even if both the policy holder or insured party and the beneficiary are foreign nationals.  The law rules how the designation of a particular beneficiary must be interpreted.

According to the law, if a person’s children are designated the beneficiaries, it is understood that by ‘children’ what is meant is all descendants with a right of inheritance.  However, if the designation favours the heirs of the policy holder, the insured party or any other person, the ‘heirs’ are those who are considered as such at the time the insured party died.  In this provision, the law distinguishes between children and heirs with regard to the beneficiary of the insurance policy.  While the heirs must be the universal successor of the deceased (usually the policy holder) at the time of their death (in the case of life assurance, the policy holder and insured party are usually the same person), the children are the beneficiaries irrespective of whether or not they are the universal successors of the policy holder or insured party.  Beneficiaries who are simultaneously heirs (by way of a will or legal ruling) remain as such, even if they reject the inheritance.

If several beneficiaries are appointed, in the absence of a more detailed designation the sum will be divided into equal shares.  If the heirs are appointed the beneficiaries, the division will be carried out according to their share of the inheritance.  Shares which are not accepted by one beneficiary are divided among the shares of the other beneficiaries.

Acceptance of an inheritance is not required for the acquisition of an insurance payout.

Carlos Prieto Cid – Lawyer

Read this article in Russian
Read this article in German

The relationship between heirs and beneficiaries of life assurance

Posted on by
Reply

Heirs are persons upon whom, according to the law or a valid will, the rights of the testator are conferred after the testator has died.  However, when taking out life assurance, the beneficiary of the insurance payout can be freely chosen, regardless of the inheritance.  The inheritance is bound to the nationality of the testator, while a life assurance policy taken out in Spain is subject to Spanish law.   

It can happen that the sum a beneficiary receives from a life assurance policy is worth more than the total estate.  Taking into consideration the importance of regulating the transfer of assets with regard to an inheritance by drawing up a will, it soon becomes clear that the choice of beneficiary of a life assurance policy should not be disregarded, as the amount of insurance paid out following the death of the policy holder does not generally form part of the estate.

Regardless of the heirs, the holder of a life assurance policy may choose the beneficiary at their own discretion, or change a previous choice without needing the consent of the insurer.  Designation of the beneficiary can be given either in the ‘police’, in a later written declaration disclosed to the insurer, or in the will, where in the latter case all the details needed for the identification of the insurance policy must be given.
The insurance payout only becomes part of the estate if no specific beneficiary was designated at the time the policy holder passed away, and if there are no arrangements in place with which to determine the beneficiary.  In all other cases, the beneficiary receives the insurance payout, irrespective of the whereabouts of the inheritance.  This fact is of particular interest if acceptance of the inheritance is bound with a large number of liabilities, or there is a dispute between heirs.

Carlos Prieto Cid – Lawyer

Read this article in Russian
Read this article in German

 

The risk in buying inherited real estate

Posted on by
Reply

Buying real estate is always an important decision because it involves a significant investment. Thus, you should always think about the consequences and know exactly what you risk in your case.

Each case has its own set of problems. Today I want to consider a very specific situation: the children or the surviving spouse inherit a house or an apartment, where the deceased person had his or her permanent residence. During the signing of the necessary notary documents, to reduce the high Spanish inheritance tax, heirs are happy to listen to the proposal for including a declaration in the document of acceptance of the inheritance saying that they have no intention of selling the property in the next five years: this way, it will save quite a large sum for payment of the tax or even pay nothing, and the instrument of acceptance of the inheritance may also be registered in the land registry without problems.

As time passes, the heirs forget that at the time of the acceptance of the inheritance they have signed this declaration to take profit of this exemption from the tax, which was notarized, and then someone appears offering  a very reasonable price for the property (it has happened often so in the golden days, long before the crisis began). Then the heirs decide to sell, and therefore the buyer acquires the property and agrees to pay a high price. It can even be possible that a bank finances the operation with the warranty that the property the buyer is going to acquire is theoretically free from encumbrances. But this is not quite true: there are responsibilities in respect of the property, which are recorded in the register of deeds but of which very often no one thinks (nor the buyer who acquires, nor the notary who certifies the transaction, neither the bank who risks his money): State tax authorities have the right to review the tax declarations filed in each transfer of ownership, and if they do not agree with the calculation and the amount paid at the time of the acquirement, they can unilaterally make a new calculation of the tax, having the warranty, that the property is encumbered in any case to cover potential liabilities to tax authorities, regardless of who nowadays the owner is.

This would mean in our example that the tax authorities could present to the buyer a nasty surprise if it turned out that the conditions for exemption at the time of acquisition of the property by inheritance have not been met: as the real estate acquired by inheritance using the tax deduction should now be charged with a liability to which the current owner has nothing to do. And the tax, which is calculated by the tax authorities unilaterally to be paid by the children or the spouse of the deceased person, the former owners of the property, may represent a high percentage of its value.

That is why we always recommend not signing any contract or pre-contract of sale without first checking with the lawyer the problems that may arise in each case. This case is just one example of the many troubles, lying in wait for buyers at the time of signing the contract without diligence. However, there are many other cases, which include a big risk. The tax authorities are currently in need of resources due to the crisis and have at their disposal a large number of idle officials, who are currently engaged in audits of all types of legal transactions in the last four years (inheritance, sale, donation, etc.), looking for an excuse to be able to submit payments of additional taxes that are still enforceable, and require the additional appropriate amount.

Carlos Prieto Cid – Lawyer

Read this article in Russian
Read this article in German

Save taxes by planning your inheritance

Posted on by

After years giving advice to foreign residents with property in Spain, we can offer our experience to those with a little forethought who want to save their loved ones a lot of problems and, above all, a lot of money, by planning the inheritance. A good tax planning can significantly reduce expenses and taxes payable by the heirs. This is true in all cases, but especially when dealing with a legacy of non-residents, that is, assets in Spain who are or have to be registered to the name of people without tax residence.

If you have property in Spain (real estate or personal property, such as deposits in banks or cars) you must expect that your descendants or the people you have appointed in a will as heirs, will have to arrange various legalizations after your death to officially become ownerships of the inherited assets (so that the heirs of these estates can actually take profit of them, that is, sell them or obtain a mortgage). Each of these instruments is taxed. If we want to avoid problems to our heirs, we can plan a few things so that our heirs can simplify everything at the moment of the acceptance of inheritance.

A possibility is to try to transfer the property during our life to save taxes: but we must be sure which taxes are also to be paid in the case of a free transfer or a donation of real estate, to avoid that this transfer of ownership in lifetime does result more expensive than the acceptance of inheritance in case of death. In a purchase contract, there is another tax, but it can have also as a result a very significant amount. As a rule, in case of non-residents who have purchased the property many years ago, the sales tax can be cheaper than the gift or inheritance, but each case must be examined separately.

For non-residents it is a typical procedure to pass the net property to the younger during the life of the older ones. We recommend to formalize a transfer of bare ownership, because despite the age of the parents it is a bit cheaper anyway than to sell the whole property (nuda proprietas or bare ownership plus usufruct) and much cheaper than a gift or an inheritance of the object (pay attention: we are talking exclusively about non-resident: for the resident, thanks to the recent tax reforms, the inheritance is seen as the best mode of transmission as a rule). If we formalize a sale of the bare ownership to the eventual heir, the taxable return for the transfer (that means the purchase price declared in the deed), is the value of this bare ownership, actually the result of the full value of the property minus the value of the usufruct, because the older ones just maintain this usufruct on and what the purchaser gets then is only the bare ownership (ownership without usufruct). We save taxes because the value of the usufruct is deducted, although this value is usually very low due to the age. The usufruct, which is not transferred in this moment, can be deleted after the death of the parents without tax costs.

In any case, it is highly recommended to get advice from a lawyer, as only he can provide proper advice and legal assistance when translating the will of the parties in the legal and technical language, formalizing the definitive agreements, preparing the deed of the notary and foreseeing the fiscal implications of the business. We want to reiterate that the role of lawyer and notary in Spain is totally disconnected (unlike in other countries). Here in Spain, the notary must never represent the interests of a party, even consultation is not allowed. He is only one official, who certifies the businesses that are already negotiated, accepted and formalized and who controls that all required taxes are properly paid by the parties. For this very reason, the involvement of a lawyer is so important, because he represents only your interests and gives you independent advice.

Carlos Prieto Cid, Lawyer

Read this article in german

Spain reported to the European Court of Justice because of the tax discrimination against foreigners

Posted on by

The European commission has brought the Kingdom of Spain to the Court of the European Union on 27.10.2011, because the Spanish tax regulations generally  discriminate foreigners with no official residence when acquiring properties in Spain through an inheritance or a gift; they have to pay much more tax on an inheritance or a gift acceptance than the residents.

The European Commission had requested Spain to amend its provisions on inheritance and gift tax, which allow for a higher tax burden on non-residents and foreign assets.  The commission sent Spain a reasoned opinion on 5 May 2010 (IP/10/513).  Spanish legislation was amended, but was considered still not compatible with EU law.  The commission has therefore decided to send Spain a complementary reasoned opinion, in which it requests further amendments to be made in order to achieve full compliance with EU law. As can be seen from the European Commission’s request in February 2011, provisions in the various Comunidades Autonomas (Spanish regions with their own legislative powers) are incompatible with the free movement of workers and capital under the terms of the Treaty on the Functioning of the European Union.  The commission’s request was sent in the form of a complementary reasoned opinion.  The Kingdom of Spain had two months to send the Commission a satisfactory response, but the Commission has finally decided to bring Spain to the European Court of Justice.

Since the founding of the Single Market, the European Union has protected the so-called “four freedoms”: the free movement of goods, capital, services and people.  This means that in principle, trade between member states is therefore free from any restrictions, and EU citizens can enjoy the free movement of workers and right of residence.   It also guarantees that any businessperson residing in an EU member state may also offer and provide their services in other member states, and that the transfer of any amount of funds and securities is not only permitted between member states, but also between member states and countries outside the EU.  However, the exercising of the latter, the free movement of capital, can be affected when the regulations on capital tax within the EU (and even within member states) differ so greatly.  This also applies to regulations on inheritance tax.  In Spain, inheritance and gift tax is regulated both at national level and by the autonomous communities.  In practice, regulations set by the autonomous communities mean that tax is considerably lower than under national regulations.  If a gift or inheritance does not come under the jurisdiction of an autonomous community, only national regulations apply.  This is particularly the case if the recipient of the inheritance or gift lives abroad or it involves foreign assets.  Taxes on non-residents and foreign assets are accordingly higher.  The European Commission views this as a breach of the freedom of movement of workers and capital, which are guaranteed under the terms of the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively).

Carlos Prieto Cid, Lawyer

Read this article in German