Family business succession through an Austrian perspective

Family business succession through an Austrian perspective

Family business succession – We all know the topic from numerous books, movies and TV series. Thomas Mann’s “Buddenbrooks”, HBO’s “Succession” or books about real business families such as the Krupps or Henkel – the rise and sometimes also the fall of these families, their companies and the personal fates associated with them fascinate and move a large number of people.

The Importance of Family businesses

Whereas some publications just serve the peoples sensationalism (Thomas Mann excluded) the real part of the fascination with family businesses lies in the fact that they are actually an essential part of many people’s lives. Family businesses are part of families. Around 1.9 million people in Austria are employed in family businesses. The owner family usually has a decisive influence on both social and political issues in the region in which it operates.

Numerous charitable projects are initiated and supported by family businesses. Family businesses assume responsibility far beyond their companies, for the families of their employees and for the region, and thus represent an important backbone of the Austrian economy.

It must be acknowledged that family businesses are such attractive employers and business partners precisely because the owner family represents a stable constant with handshake quality that is also willing to assume responsibility and which actions are strongly based on values.

The successful handover

In the coming years, more family owned companies will be handed over than ever before. Also, the fact that Austria currently does not levy gift or inheritance tax encourages the transfer of family assets.

Austria provides for several corporate options to structure family businesses. Depending on size and owner family partnerships, companies with limited liability or even private foundations may be a suitable solution. Such corporate structures may be supported by a family-charta or family boards in order to safeguard that the family’s principles remain recognized in strategic business decisions.

If we now consider that, in addition to the question of who should take over the company, family businesses also have to decide how the values and ideas that have historically grown in the company, which have made the company what it is, which have virtually created the company’s own, family DNA, should be continued and lived by the next generations, the question of a “successful handover” quickly reaches a level of complexity that goes beyond questions of corporate law and taxation.

The family dialogue

The good news is that one can trust that despite the complexity of these issues, the owner family itself knows the answers to these questions best.

Indispensable to this is the willingness for an open dialogue about the possible structuring of a succession within the family. Within this dialogue the family can exchange ideas about common values and goals. The next generation is called upon to contribute its ideas and wishes just as much as the handing-over generation. In the best case, old and proven ideas should be complemented by new ones to form a future-proof whole.

One product of such an exchange can be a family constitution, which represents a kind of morally binding intergenerational contract. Another product of such an exchange can be the assignment to a lawyer and tax advisor to examine and implement the very structuring desired by the family.

The great advantage of this approach is that the family members involved will be much more accepting a solution worked out independently in this way than a solution presented to the rest of the family by one family member’s advisor.

Of course, an experienced advisor can assist families in drafting a family constitution and/or structuring a succession plan. However, such a consultant should by no means act in an advisory capacity, but should be the facilitator of a constructive and thus value-creating dialogue within the family.

Conclusion

There is a reason why family businesses have been so successful and innovative for generations – each owner family was able to find its own unique way to success. This fact should give trust in the succession structuring process and shall also guide and strengthen the next generations. https://schindlerattorneys.com/

 

family business succession

Philipp Hoyos

Schindler Attorneys
family business succession

Clemens Schindler

Schindler Attorneys
Daniela Jöbstl

Daniela Jöbstl

-
-

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,1 unless they are declared “unworthy to succeed2 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.3

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).4

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 5 as well as the donations of small value received by the spouse 6 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.7

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/

 

family business succession

Carlo Pavesio

Pavesio & Negri-Clementi
  1. 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.[]
  2. See article 463 of the Italian Civil Code.[]
  3. See article 536 of the Italian Civil Code.[]
  4. See article 737 of the Italian Civil Code.[]
  5. See article 742 of the Italian Civil Code.[]
  6. See article 738 of the Italian Civil Code.[]
  7. See article 559 of the Italian Civil Code.[]
Swiss Family Foundations: Ensuring Stability, Protection, and Continuity

Swiss Family Foundations: Ensuring Stability, Protection, and Continuity

The Family Foundation is used hesitantly in Swiss succession and estate planning, although in recent years, the establishment of a foundation has been increasingly evaluated again. 

A robust estate planning ensures a reliable regulation and avoidance of conflicts amongst heirs. In each case, a tailor-made structure must be determined. While a testator may want to commit family assets over several generations to his family, another may seek avoidance of long inheritance proceedings or high inheritance taxes. Yet, other families seek anonymity and asset protection. A foundation may also be used in cases where an entrepreneur has no descendants suitable for succession or if he wants to ensure long-term continuity of his company.

The use of a Family Foundation

A Swiss testator is faced with narrow rules limiting his or her estate planning options. Relatively high compulsory portions (forced heirship rules) encumber a free transfer of assets to heirs of the testator’s choice. Therefore, the use of a family foundation has rarely been considered in a pure Swiss family situation. However, since families are often spread over different countries and continents and assets are located in various jurisdictions, contributions of assets to foundations maybe an optimal solution.

The main purposes of a Swiss Family Foundation

The Swiss Civil Code permits the establishment of family (maintenance) foundations “to meet the costs of education, equipment or support of family members or similar purposes“. The purposes have in common that assistance is to be provided to family members in certain situations, such as in adolescence, when setting-up their own household, or live on their own, and in case of need.

Educational costs include both the cost of basic and of continuing education at universities, apprenticeship schools and other educational institutions. The term equipment as of today includes payments that serve to establish, secure or improve a livelihood, in particular when starting a household, getting married or taking up self-employment. The concept of endowment is to be interpreted broadly and understood to be an allocation of assets of a certain size and value. As is the case for benefits under the title “education”, distributions do not require an actual need or emergency situation of a beneficiary. The support of family members finally requires a situation of need of the beneficiary.

Beneficiaries are individually determined family members

The Civil Code prohibits the permanent confinement of assets in favour of a particular family combined with unconditional distributions for an indefinite period. Thus, a Family Foundation may grant a special right to receive benefits to an individual or to individually determined family members instead of family members in general. A founder may reserve for himself or for certain individuals rights to use, enjoy or exploit the assets contributed to the foundation and/or its earnings. These individuals may include heirs who are willing to renounce their compulsory portion in favour of the foundation or other related persons such as cohabiting partners, relatives, or friends.

Special rights my include a usufruct on all or part of the foundation’s assets, residential rights or payments in favour of a specific person. Although family members cannot receive an unconditional benefit in their capacity as a beneficiary, it is possible to provide the spouse, the descendants or grandchildren with general distributions for their cost of living, if they are individually determined in a special right.

Business Foundations

A Business or Holding Foundation is a special form developed by practice and not explicitly regulated by law. A business foundation is characterized by its proximity to the economy. If an entrepreneur has no descendants suitable for succession, the settlement of a Business Foundation could be a temporary bridging measure until the succession is settled. The establishment of a Business Foundation can on the other hand ensure the long-term continuity of the company. https://blumgrob.ch/

family business succession

Natalie Peter

Blum Grob
Statutory Succession and Last Will – What is What?

Statutory Succession and Last Will – What is What?

Statutory Succession and Last Will

Many property owners as well as owners of other assets ask themselves whether it is advisable to make provisions for their own death, or whether it is better to simply leave succession to the (German) law.

Nevertheless, the ability to take such a decision in an informed manner requires knowledge of the rulings contained in the law. Only those who know the statutory mechanisms can achieve an optimum balance between the actual as well as the legal alternatives of the available structuring modalities. The structuring options are often complex and are not infrequently determined to a decisive extent by details.

Cases that appear similar at first glance can ultimately require completely different treatment, as the circumstances of the individual case are frequently decisive. Nevertheless, it is naturally that a private person cannot know all the details of (German) law of succession. Frequently however, half the battle is having a sense for any possible problems and then being able to ask an expert for advice if necessary.

German Inheritance Law

In terms of “being sensitive to the problem”, it is good to know that German inheritance law is based on the principle of universal succession. The consequence is that the statutory law of succession regulates succession as a whole. In this respect, the law of succession works on the basis of the so-called stirpes or also order system in terms of determining the statutory heirs.

The individual orders are designated one after the other. Initially, the first order based on the testator is designated, followed by the other orders in ascending order. Each order designated earlier excludes the later one. The single orders are defined as descendants of the testator (first order), parents of the testator and their descendants (second order), grandparents of the testator and their descendants (third order) etc. The surviving spouse is also designated as heir as a fundamental rule.

Nevertheless, the level of his/her inheritance depends on the presence of the various orders. In this respect, a registered (same-sex) partner that could be entered into Germany until October 2017 is placed on an equal level with the spouse.

The order system is also supplemented by the stirpes principle or by the law of succession by line. For the first order, this means for example that a closer descendant excludes his/her own descendants; these will therefore not come into consideration as heirs; they only replace the closer descendant in the case that the latter falls away. If, for example, the testator leaves a son and a grandson, the surviving son excludes the grandson. Equally close heirs are taken into account in equal shares within the stirpes (sharing of inheritance based on the number of persons).

Example case 1:

The only asset owned by the testator is a property and he dies without children. He leaves behind his mother. His father and his only sister have died. His sister has an illegitimate child. Nevertheless, he had no contact to this child during his lifetime as a result of family disputes.

Based on the statutory law of succession, the heirs to the property in this case are the testator’s mother and the illegitimate child of his deceased sister – despite the fall-out.

If, while alive, a person decides that the statutory law of succession should not apply, the possibility exists of making “independent rulings”. The regulatory instruments available are the will and the contract of inheritance. In principle the will and contract of inheritance are of equal value. Nevertheless, they differ in terms of the formal requirements for their drawing and partly in terms of their legal effects.

The so-called “handwritten will” is an unilateral declaration of intent, and the person drawing it up must write and sign it in his/her own handwriting in order for it to be effective. It should also include the date and place of drawing up, although this is not a prerequisite for being legally effective. In contrast to the contract of inheritance, it does not require authentication by a notary public.

The so-called “joint will” can only be drawn up by spouses as well as by registered (same-sex) partners. Other than with the handwritten will, a joint will is effective if handwritten by only one of the parties making the will. Nevertheless, it must be signed by both decedents.

At the same time, there is a need for caution in this context: the dispositions made in a joint will frequently could contain reciprocally binding effects and, in certain circumstances, can no longer be changed by the surviving partner following the death of the first to die. To avoid undesired legal consequences here (possibly at a later date), it is important to take great care when drawing up the will and to include clear rulings on binding effects etc., so as to avoid unintended consequences.

In all cases, a contract of inheritance will only be effective if authenticated by a notary public and, due to its contractual character, has a binding effect as a fundamental rule.

In addition to any rulings to be made concerning the estate, persons frequently wish to make gifts to family members or third parties while still alive, in order to control and clarify various situations during one’s lifetime. Nevertheless, consideration should be given to the fact that interests can frequently change over the course of time. If this has not been taken into account when formulating the gift and no corresponding precautionary measures taken, unpleasant surprises can frequently be the result later.

Example case 2:

The married couple and parents own a large item of real estate on which a single-family house has been built. The married couple have two adult children, a daughter and a son. The daughter is already married and has a child.

The daughter wishes to build a house on the parents’ real estate together with her husband, as the real estate is sufficiently large for this. To this end, the real estate is partitioned and the daughter receives half ownership of the original portion of the real estate as a gift. The gift agreement contains no other rulings. 10 months later, the daughter dies suddenly as a result of a traffic accident. The daughter has died without having drawn up a will.

In the absence of a will by the daughter and/or any fall-back clauses in the gift agreement, the daughter’s husband and child inherit the portion of the real estate on the basis of statutory succession. The parents have lost the portion of the real estate, originally belonging to them, for ever, as they have not made any rulings to the contrary.

To avoid unintended consequences it always makes sense to ask an expert for advice. https://www.heuking.de/

Dirk W. Kolvenbach

Dirk Kolvenbach

Heuking Kühn Lüer Wojtek
family business succession

Gerd Kostrzewa

Heuking Kühn Lüer Wojtek
Vera Niedermeyer

Vera Niedermeyer

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
family business succession

Gerd Kostrzewa

Heuking Kühn Lüer Wojtek
Vera Niedermeyer

Vera Niedermeyer