Forced Heirship under Italian Law

Forced Heirship under Italian Law

Italy is a civil law country and title to property succeeds from one generation to the next according to the provisions of the Civil Code. Property may pass by the laws of “headed” succession (without a will), or by will or other testamentary instrument.

Forced Heirship

Forced heirship is an aspect quite specific to Italian Law, insofar as it poses stringent limitations to the freedom of a person to dispose of its assets post mortem, and to some extent also in his/her lifetime. Below we will consider its main provisions and practical examples.

Under the Italian Civil Code, when a person dies, several persons named by the law—the so called “called to inheritance,” which is the literal translation of “chiamati all’eredità”—are entitled to become heirs and entitled to the estate of the deceased.

In order to become heirs, persons “called to inheritance” (chiamati all’eredità) are required to accept the inheritance,[As explained fully below, the rights of the heirs differ according to whether or not the decedent left a will, in that Italy limits the right of a testator to give his assets to anyone other than his spouse and descendants by his Will.] unless they are declared “unworthy to succeed” [See article 463 of the Italian Civil Code.] by an Italian Court following a claim made by another heir or any interested person.

Under Italian law, the spouse, the children born in and out of marriage and the ascendants of the deceased are defined “forced” heirs (so-called “legittimari”) as they are mandatorily entitled to receive a predetermined share of the deceased’s estate, which is called the reserved portion.[See article 536 of the Italian Civil Code.]

The total amount of the reserved portion, to be shared amongst the forced heirs (legittimari), is calculated in the following manner. The debts of the deceased must be deducted from his or her estate, whilst the properties disposed of by gift by the deceased during the lifetime – without any time limit – must be fictitiously added, according to their value determined by the rules set out under articles 746 to 751 of the Italian Civil Code (the so-called collazione).[See article 737 of the Italian Civil Code.]

Therefore, collazione of immovable property is done either by restoring the property in kind to the estate or, by ascribing the value of the immovable at the time the succession is opened to the donee’s share.

Collazione of movable property is done only by ascribing to the donee’s share the value of the asset received by gift at the time the succession is open: that is, the value of the property at the date of death, not the date of the gift.

However, the donor may expressly exempt the donation from collazione (the so-called dispensa dalla collazione) if the disposition of assets represented by such donation does not exceed the share the deceased could have freely disposed of. The exemption can be either explicit or implicit.

Under the forced heirship regulation, donation includes any contract or act (including the transfer of properties to trustees under the Hague Convention) that a forced heir directly or indirectly benefits from. However, the expenses for maintenance, education and illnesses [See article 742 of the Italian Civil Code.] as well as the donations of small value received by the spouse [See article 738 of the Italian Civil Code.] shall not be counted to such effects.

For example, if the value of the estate of the deceased is one million Euros, debts are 500.000 Euros and the value of the donations made during his lifetime is 300.000 Euros, the total amount of the reserved portion is 800.000 Euros (=1.000.000-500.000+300.000).

Based on this total amount, the share to be transferred to each forced heir is calculated in accordance with the provisions of the Italian Civil Code, as follows:

  1. If the deceased is married and has no children, his or her surviving spouse is entitled to one-half of the deceased’s estate. It means that the testator may freely dispose of the other one-half during his lifetime or on his or her death. In addition to the reserved portion, the spouse is entitled to live in the house where the family resides and to use all the furniture in the home for life.
  2. If the deceased leaves only one child and no surviving spouse, the child is entitled to one-half of the estate. However, when two or more children survive, they are entitled to two-thirds of the estate, which must be divided equally amongst them.
  3. The amounts of the reserved portions described above are reduced in case of surviving spouse and children. In the event the deceased leaves a spouse and one child, they both have right to one third each of the estate. Therefore, the testator may freely dispose of one-third only of the estate during his or her lifetime or on his or her death.
  4. However, if the deceased leaves a spouse and two or more children, by law one-fourth of his or her estate is for the spouse and one-half is to be equally shared amongst the children. In this case, the testator may have validly disposed of one-fourth of his or her estate during his or her lifetime or on his or her death to other beneficiaries.
  5. If the deceased does not leave any descendants, his or her ascendants are mandatorily entitled to: (i) one-fourth of his or her estate, the surviving spouse being entitled to one-half; or (ii) to one-third of the estate of the deceased in case of no surviving spouse.

In case the estate of the deceased includes any specified assets, such as immovable, the value to be considered for the above-mentioned purposes is the value of the asset at the death of the deceased, which may be determined by an expert.

In order to restore the reserved portion, the Court may order that the asset received by the involved heir, the legatee, or the done, be divided between the transferee of the asset and the prejudiced heir.

In case the asset cannot be conveniently divided, it must be assessed if the legatee or donee has an interest in the asset in excess of one-fourth of the disposable portion. In this case, the asset must be left in the inheritance, subject to the right of the legatee or donee to receive the value of the disposable portion.

In case the legatee or donee has an interest in the asset not greater than one-fourth of the disposable portion, he or she may retain the asset but he or she is obliged to a monetary compensation in favour of the forced heir to restore its reserved portion (See article 560 of the Italian Civil Code).

If the legatee or donee is a forced heir he or she may retain the asset, provided that its value does not exceed the total of the disposable portion of his or her reserved portion.

Should the reserved portion be prejudiced by any dispositions of the testator, the forced heir may claim for re-apportionment according to the following mandatory rules. First, against the will’s dispositions under which the testator has appointed an heir or a legatee; and second, against the donations made during the testator’s lifetime, starting from the most recent to the oldest dates.[See article 559 of the Italian Civil Code.]

To restore the reserved portion, the Court may order: (i) the restitution of the object received by the involved heir, the legatee or the donee; or (ii) monetary compensation from the claimant.

In the light of the reserved portion protection described above, forced heirs cannot be disowned by the testator, nor excluded from the inheritance, nor may any donation the testator may have made, legacy or other legal device prejudice their portion.

This principle entails that any forced heir disowned or excluded from the inheritance may challenge in Court the clause of exclusion provided for by a will or any disposition of assets which prejudices his or her reserved portion. https://pavesioassociati.it/

 

forced heirship

Carlo Pavesio

Pavesio & Negri-Clementi
Underestimating the Accrual of Inheritance with Foreign Assets: A Common Mistake

Underestimating the Accrual of Inheritance with Foreign Assets: A Common Mistake

Accrual of inheritance involving assets abroad often underestimated

An international accrual of inheritance is given when for example a German testator holds assets abroad or vice versa a foreign testator holds assets in Germany. Due to the different national regulations in each country the international assets of e.g. Germans involve significant civil and fiscal-law risks if not structured carefully. Therefore it is advisable to concern oneself with this subject during one’s lifetime and to take corresponding measures if possible.

The complexity of international accrual of inheritance is frequently underestimated. As a fundamental rule, accrual of inheritance with a foreign connection and thus an “international accrual of inheritance” is given as soon as a German testator holds assets abroad (e.g. a finca in Spain), or upon the death of a foreigner holding assets in Germany. The international assets of Germans involve significant civil and fiscal-law risks if not structured carefully.

The reason lies in the fact that, as a fundamental rule, the national law of succession in each country regulates who will become an heir, the level of inheritance shares or compulsory portions, which formal regulations apply to wills and the manner in which heirs can prove their rights. The national regulations of the individual countries are very different in this respect. These differing regulations can mean that the same accrual of inheritance is assessed and treated differently from country to country. In addition, certificates of inheritance from one country are in part frequently not accepted in other countries. As a result, it may be necessary for heirs to make parallel applications for certificates of inheritance in various countries.

Which substantive law (of succession) is applicable in the event of international accrual of inheritance (given the absence of precautionary measures while still alive) is a matter that frequently cannot be clearly ascertained, as this question is based on the respective private international law (IPR) of the country concerned.

Example case 1:

A French national has her last place of residence in Germany and leaves behind (just) a substantial bank balance in Germany.

Under German IPR, French law of succession is applicable; from the perspective of French IPR, German law of succession applies.

The reason for this lies in the differing connecting factors used to determine the applicable law in the individual countries. While German IPR is based on nationality as a fundamental rule, French IPR uses the connection of the testator’s last place of residence to determine the applicable law regarding the movable property.

Nevertheless, the question of applicable law is of elementary importance as shown above

Example case 2:

The married couple Hartmut and Anita both have German nationality. They have movable and immovable assets in Germany, Switzerland and Spain. They have their regular place of residence in Switzerland. The married couple have a common daughter with whom they have, however, fallen out, with the result that the married couple have drawn up a joint will (without a notary) in which they disinherit their daughter.

From a German perspective, German law of succession would be applicable in the event of the death of one of the two spouses; from a Swiss perspective, Swiss law of succession would apply. This has far-reaching consequences, as Swiss law fundamentally does not recognise joint wills drawn up “uno acto”, meaning that from a Swiss perspective – not from a German one – the daughter has not been effectively disinherited and could claim her statutory share of the inheritance.

To avoid such collisions between the differing legal systems, it is advisable to concern oneself with this subject during one’s lifetime, and to take corresponding measures if possible. https://www.heuking.de/

Dirk W. Kolvenbach

Dirk W. Kolvenbach

Heuking Kühn Lüer Wojtek
forced heirship

Gerd Kostrzewa

Heuking Kühn Lüer Wojtek
Vera Niedermeyer

Vera Niedermeyer

Discriminatory inheritance and gift tax regime for non-residents in Spain?

Discriminatory inheritance and gift tax regime for non-residents in Spain?

Under Spanish regulations, mortis causa transfers and inter vivos gifts are subject to inheritance and gift tax (“IGT”). Spanish resident individuals are subject to IGT on their worldwide assets acquired, while non-residents are subject to this tax exclusively on their assets in Spain or rights that may be exercised in Spain.

What you need to know about inheritance and gift taxes in Spain

The taxable base of the recipients (heirs, legatees and donees) is the net value of the assets received. Burdens and encumbrances imposed directly on the assets, which effectively reduce their value or capital (such as pensions and annuities), duly documented debts (mortgages, pledges, local taxes) and specific expenditures (including medical costs and burial expenses) would be deductible.

IGT in Spain is regulated by the state and the autonomous regions. Act 22/2009 establishes the mechanism to determine whether state or autonomous region legislation applies in each case. Generally, the legislation of autonomous regions is more favorable to the taxpayer, as it usually establishes a higher allowance applicable to close relatives.

In relation to mortis causa transfers, the applicable law will be the law of the autonomous region where the deceased had his habitual residence at the time of death. If the deceased was not a tax resident in Spain, state legislation would apply.

While there are few tax reductions under state regulations, autonomous regions usually have high allowances. For example, in the autonomous region of Madrid, there is a 99% allowance on mortis causa transfers between parents and children. Thus, if the deceased had his habitual residence in Madrid, tax-resident heirs would only pay IGT of 1%, while non-resident heirs would pay the full amount of IGT for the same assets received.

Regarding inter vivos gifts, the applicable legislation depends on the beneficiary’s tax residence. If the donee is a resident in Spain, the legislation of the autonomous region where the donee has his habitual residence [For this purpose, anti-fraud provisions consider that donees’ tax residence is where they had their habitual residence in Spain for most of the time within a five-year period.]  will prevail. However, a specific rule applies if the assets transferred consist of real estate located in Spain. In this case, the applicable law would be that of the autonomous region where the real estate is located, but if the real estate is located abroad, Spanish state law would apply. Likewise, if the donee is not a resident in Spain, state law would apply (regardless of the nature of the Spanish assets or rights donated).

Tax rates

Under Spanish state law (applicable when the deceased is a non-resident or when the heirs or beneficiaries are non-residents in Spain), the applicable tax rates for determining the final tax liability for IGT are progressive, ranging from 7.65% to 34% (in cases where the taxable base exceeds €797,555.08).https://www.cuatrecasas.com/en/global/

 

Inherited Business Assets in Russia: Problems and Risks

Inherited Business Assets in Russia: Problems and Risks

Russian legislation does not provide any specific regulations to protect business assets after the death of testator which leads to impossibility to inherit business as a whole complex. There are risks of losing the business till the heirs accept the inheritance. For more details please follow…

What Problems One May Face with Inherited Business Assets in Russia?

In accordance with the Russian laws the inheritance comprises all the assets owned by the testator by the moment of death. If the inherited estate includes the business assets (shares, participatory shares in Russian or foreign legal entity) the heirs and the business itself may face a number of difficulties. Russian laws do not take into account the following points:

  • type of assets;
  • place of their location;
  • number of heirs;
  • heirs age, social, cultural, educational background.

Moreover, there is no definition of “Business” in Russian law so it is impossible to inherit the business as a whole complex but only via transferring to the heirs separate elements of it.

Also Russian laws provide only standard instruments for inheritance issues – inheritance by operation of law and making a will. Trusts and foundations are not recognized in Russia (but of course Russian persons may be settlers and beneficiaries of such institutions established under the foreign law).

The facilities of the instruments allowed by law are limited. For example, it is impossible to inherit the beneficial rights to the assets and the spouse’s share (The property acquired by the spouses during their marriage shall be their joint property according to the Family Code of the Russian Federation. The shares of the spouses are considered as equal, unless the alternative is provided by marriage contract.

The freedom to transfer the business assets under will is limited by the right of the following forced heirs:

  • minor or disabled children of the testator;
  • disabled spouse and parents;
  • disabled dependants of the testator

The forced heirs shall inherit at least half of the share each of them is entitled to in the case of legal succession.

This half of the share cannot be inherited in accordance with the provisions of the will. Also the testator cannot indicate in the will the following items:

  • the conditions for the heirs to be considered as the owners of the inherited business assets (for example attaining of a certain age, receiving the education) or
  • to give the instructions to the heirs on the manner of managing the assets in future.

So there is a high risk that the inherited business assets will be transferred to the heirs not in accordance with the wishes of the testator or be transferred to the persons who actually do not have required professional skills for managing business.

Risks Arising within Six Months Period of the Inherited Business Assets Acceptance

The heirs are entitled to accept the estate (inherited business assets) within six months period from the death of the testator (in some cases this term may be prolonged). And the estate shall be considered to be owned by the heirs from the moment of the testator’s death. But in practice the heirs cannot exercise their right to manage the business assets, i.e.:

  • attend the general meetings of shareholders;
  • receive dividends, etc

until they have received the certificate confirming their rights. The confirming certificate shall be issued by the notary who deals with the inheritance case upon expiration of six months period from the testator’s death (except for the cases when the notary is entitled to issue the certificate earlier).

So the uncertainty in shareholding structure exists during the mentioned six months, i.e. it may be difficult to clear up in advance the following:

  • who are the heirs;
  • whether the heirs have the intention to accept the inherited business assets or not.

Due to it the company which shares are being inherited may have the following difficulties and risks:

  • difficulties in convening and holding the general meeting of the shareholders for taking decisions and solving urgent problems (as there is no information on the persons entitled to participate in such meeting);
  • if nonetheless the general meeting was held there is a high risk of contestation of the taken decisions in future. The contestation may be provided by the new shareholders upon receiving the notary certificate.

This problem is relevant not only to the heirs of the business, but also to the management (members of the BoD, CEO) as there are no persons who can give the necessary instructions and make decisions.

Also it is worth mentioning that the period of uncertainty in shareholding structure may last for a very long time, i.e.:

  • heirs may not be aware that the estate includes business assets;
  • heirs may not inform the company on the fact of acceptance of the estate and receipt of the notary certificate;
  • the company or the shareholders alive do not have the access to the following information:
    – to the inheritance case,
    – to the information whether the will exists or not,
    – to the provisions of the will.

The situation becomes critical if the diseased was not just the shareholder of the company but also the CEO. In this case the company’s activity will be actually paralyzed as there are no corporate bodies entitled to take decisions required in day-to-day dealings of the company.

Managing the Inherited Business Assets on Behalf of the Heirs

If the estate includes shares and other assets to be managed, it is possible to establish the fiduciary management of the inherited business assets for the period until the heirs accept the estate and the notary issues the certificate confirming the rights of the heirs. The conditions of such fiduciary management are:

  • to be established by the notary or by the executor of the will;
  • exists only until the heirs accept the estate and not longer than nine months from the death of the testator if the management was established by the notary.

So it is recommended for the persons having business assets to make a will and indicate in it the authorities of the will executor. It will help to avoid the situations when:

  • the notary is not interested in execution of a fiduciary management agreement and does nothing, or
  • the notary enters into agreement with persons/companies not being professionals (as the activity of such managers is not licensed and there are no formal requirements for them), or
  • the heirs contest the inheritance issues in court for more than six or nine months, and
  • there is no authorized person to manage the assets during proceedings in the case in court.

Anyway in case the inherited business assets require managing after the heirs acceptance of the estate (for example in case the heirs are minors) then the business of the diseased may face a lot of problems as the transactions with the property of minors may need the approval of the tutorship authority.

Whether the Consent of Other Shareholders is Required for Transferring Shares of Inherited Business Assets to the Heirs?

Articles of Association of a limited liability company may provide that the participatory share in such company can be transferred to the heirs of the diseased only with the written consent of other participants of the company.

So in theory the rights of the heirs to receive a participatory share may depend on the will of other participants.

Under the practice of Russian courts the participants can approve or not the heir to be a new member of the shareholder structure only upon expiration of the six months period from the testator’s death. This may prolong the period of uncertainty in the shareholder structure.

The participants may give their consent by issuing one of the following documents depending on the provisions of Articles of Association:

  • Minutes of the general meeting of the participants to be signed by all of them (the share of the diseased shall not be taken into consideration);
  • Consent to be executed as a single document signed by all the participants;
  • Written statements to be signed by each participant.

The heir is considered to be a new member of inherited business assets shareholder structure automatically if the participants remain silent within 30 days from the receipt of request for approving of the heir to be a new member of the shareholder structure.

If the participants of the company deny the heirs right to receive the diseased share in the Authorized capital, the shares shall pass to the company itself. In this case the company is obliged to:

  • divide the shares between the existing participants of the company or,
  • dispose the shares to the third parties within one year if it is not prohibited by the Articles of Association.

In this case the heirs are entitled to receive the compensation for the shares. The shares cost  should be calculated on the basis of the last accounting statements of the company prepared prior testator’s death. https://www.alrud.com

Laws of Inheritance for Hindus in India

Laws of Inheritance for Hindus in India

The Indian laws of inheritance are privy to the general populace as per their religion. There different laws existing in India for inheritance vary for Hindus, Muslims and Christians etc.

Laws of Inheritance for Hindus

The article discusses in detail the various laws of inheritance for Hindus in India. The Hindu laws have been codified by the Hindu Succession Act, 1956. Besides, laying down the rules for inheritance and devolution of the property, the legislation provides for other basic governing principles for the succession among Hindus. The laws governing inheritance in India for the Hindus have been discussed in this article.

The laws of inheritance for Hindus are contained in the Hindu Succession Act, 1956 (hereinafter referred to as “HSA”), which is applicable to all Hindus, Jains, Sikhs, Buddhists and to any other person who is not a Muslim, Christian, Parsi or Jew. Any person who becomes a Hindu by conversion is also governed under the Act.

General Conditions

The HSA overrides all customs, traditions and usages being followed by Hindus. However The HSA is not applicable to cases of testamentary disposition of property and only applies to cases of intestate death of an individual, i.e. the deceased dies intestate without any testamentary disposition of the property.
A child in womb at the time of death of the intestate, who is subsequently born alive, has been granted the same rights to inherit the property as if the child was born before the death of the intestate. A person who commits the offence of murder or abets the commission shall be disqualified from inheriting the property of the person murdered.

The heirs entitled to the property and the order of preference among them is specified and provided by the HSA. The HSA broadly divides its provisions for inheritance on the basis of gender, i.e. laying down separate rules for both males and females.

Property of the Hindu Undivided Family

With regard to the interest of a Hindu male in the Hindu Undivided Family (hereinafter referred to as “HUF”), the same shall not be governed by the rules of succession provided by the HSA, rather the same shall devolve upon the other surviving members of the HUF. Such interest is not governed by the succession principles in the prescribed order. The head of the family becomes the Karta of the family, who has the authority of handling and maintaining the property for the interest of the family. A specific provision of the HSA contained in Section 30 allows a Hindu to dispose of his interest in the HUF through a will.

Escheat

The HSA provides for the devolution of the property of an intestate Hindu upon the Government, if there are no heirs qualified to succeed to such property in accordance with the provisions of the HSA. The Government takes charge of the property, for which there are no heirs to inherit in accordance with the provisions of the HSA and in consonance with the rule against perpetuities.

Developments in the Law

The HSA has been amended to strengthen the position of Hindu females in succession. With the amendments brought to the HSA by virtue of the Hindu Succession (Amendment) Act, 2005, the daughters by birth become a coparcenor in her own right and shall have the same rights as a son with regard to the coparcenary property and shall also be subject to the same liabilities as a son with respect to the coparcenary property. The amendments made the position of Hindu females stronger as compared to the earlier position and vested inheritance rights on them, which were at par with the Hindu males in multiple respects. https://www.linkedin.com/in/atul-dua-7457a24/?originalSubdomain=in