Succession and Last Will

Succession and Last Will

Succession in Switzerland – Last Will

According to the general provisions of the Swiss International Private Law Act, Swiss courts or administrative authorities at the decedent’s last domicile shall have jurisdiction over probate proceedings and inheritance disputes. The jurisdiction of a state who claims exclusive jurisdiction over real estate within its territory remains reserved. The estate of a person with his or her last domicile in Switzerland will in principle be subject to Swiss law.

Order of succession in Switzerland

The Swiss Civil Code determines the order of succession. The closest heirs of a decedent are the descendants. As a rule, the children shall inherit in equal parts; adoptive children have the legal status of natural children. Their own issue takes the position of predeceased children.

In case the decedent does not leave any children, the inheritance shall devolve to the issue of the parents. Their descendants in all degrees per stirpes shall substitute a predeceased mother or father. The surviving spouse or registered partner is legal heir as well.

Swiss law states statutory entitlements for legal heirs (so-called forced heirship portion). Hence, the legal heirs are entitled to a certain percentage of the decedent’s inheritance. This percentage depends on whom the legal heirs have to share with in the estate.

Last will

In order to arrange for a succession different from the intestate succession, a last will or inheritance contract may be drawn up. Nevertheless, a last will, just as an inheritance contract, will have to comply with the statutory entitlements of the legal heirs. According to Swiss law, a last will shall be valid as regards its form if it is drawn up in the form of a public deed or in holographic form.

A foreigner may, be it by last will or inheritance contract, subject his or her estate to the laws of his or her home country (professio iuris). Such disposition shall, however, become null and void if, at the time of death, the decedent was no longer a national of that state or if in the meantime he or she had become a Swiss national.

The Hague Convention on the Conflicts of Laws relating to the Form of Testamentary Dispositions will shall govern the form of a last will. Therefore, a testamentary disposition shall be valid from a formal point of view, if its form complies with the international law:

  1. of the place where the testator has drawn it up;
  2. of a nationality possessed by the testator, either at the time he made the disposition or at the time of his death
  3. of a place in which the testator had his domicile either at the time when he made the disposition, or at the time of his death
  4. of the place in which the testator had his habitual residence either at the time when he made the disposition, or at the time of his death
  5. as far as immovables are concerned, of the place where they are located. https://www.linkedin.com/in/walter-h-boss-b9810610/
succession

Walter H. Boss

Walter Boss

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Protecting real estate after death through a Canadian NPO

Protecting real estate after death through a Canadian NPO

Protecting real estate after death through a Canadian NPO

If you are considering acquiring a domestic vacation property, you can avoid common pitfalls and take full advantage of opportunities by using appropriate structures to preserve your assets and do so on a tax-effective basis.

Structuring Real Estate

My client, David, was concerned that with the growth in the future value of summer vacation properties near Toronto, Canada, there will also come increased tax liability associated with such a vacation property. David asked how to structure the ownership of this property, so that the transfer ultimately to his heirs could be done with minimal cost in terms of tax and administration.

I explained that on the death of each Canadian resident, he or she is deemed for income tax purposes to have disposed of all property, including ones such as this Canadian vacation property, and to have realized proceeds of disposition equal to the then fair market value of such property.  Similar rules apply in respect of a gift of the property during his lifetime.  In other words, capital gains tax may become payable on such transfers.

Furthermore, when his Will would be probated, the value of this Canadian vacation property will be taken into account in calculation of the applicable probate fee (1.5% of the value of the assets covered by the Will).  Moreover, the filed Will would become a public document.

If he were to use a trust to hold this Canadian vacation property, the trust would be deemed to have disposed of this property every 21 years for proceeds of disposition equal to the then fair market value.

Canadian NPO

Instead, I recommended that David establish a non-share capital, not-for-profit corporation (“NPO”).  David and his spouse would run the NPO like a recreational club.  To be cautious the NPO would lease the vacation property to David and his spouse, and they would pay a minimum rental at least equal to the operating expenses.

As the NPO will continue after they die, there will be no capital gains tax on either death (the life interests merely expire).  In addition, there would be no probating of Wills necessary.  Their children as the successor directors and members would continue to run the NPO.

If the NPO were to sell the property, there would be no capital gains tax payable.  The proceeds could be invested in another property to be used as a club and the tax deferral could continue.

If the proceeds were distributed, say, on a winding-up of the NPO, the member(s) would be considered to have realized capital gains on any increase in value above the initial cost when the property was purchased. https://www.grllp.com/

Lorne Saltman

Lorne Saltman

Gardiner Roberts

Common law marriage, same sex marriages and divorce

Common law marriage, same sex marriages and divorce

Common Law Marriage

A right at common law to marry exists unless state law affirmatively changes the right. Common-law marriage can be contracted in eleven U.S. states: Alabama, Colorado, Iowa, Kansas, Montana, New Hampshire, Oklahoma, Rhode Island, South Carolina, Texas, Utah, and the District of Columbia. The requirements for a common-law marriage to be validly contracted differ in the eleven states which still permit them.

A common-law marriage is recognized for federal tax purposes if it is recognized by the state where the parties currently live or in the state where the common-law marriage began. If the marriage is recognized under the law and customs of the state in which the marriage takes place, the marriage is valid. Whether a state will recognize a common-law marriage from another state varies by state.

For instance, in Virginia a marriage’s validity is determined by the law of the state where the marriage took place, unless the result would be repugnant to Virginia public policy. Virginia does recognize a common-law marriage that is valid under the laws of the jurisdiction where the common-law relationship was created. If a couple runs the risk of being married at common law, they should consider a pre or post martial agreement.

Same-Sex Marriages

Same-sex marriage is legally recognized nationwide in Argentina, Belgium, Canada, Denmark, Iceland, the Netherlands, Norway, Portugal, South Africa, Spain, and Sweden. In Mexico, same-sex marriages are only performed in Mexico City, but these marriages are recognized by all Mexican states and by the Mexican federal government. Israel does not recognize same-sex marriages performed on its territory, but recognizes same-sex marriages performed in foreign jurisdictions.

In Brazil, the state of Alagoas performs same-sex marriages. Also, in other states, a same-sex couple may convert their civil union into marriage with the approval of a state judge. If approved, that marriage is recognized in all the national territory. As of 2012, proposals exist to introduce same-sex marriage in at least ten other countries.

In the United States, the federal government will recognize same-sex marriages validly conducted under the laws of a state that recognizes same-sex marriage (i.e., California, Connecticut, the District of Columbia, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington).

In California, Registered Domestic Partners (“RDPs”) may also enter into a pre-nuptial agreement. Pre-nuptial agreements for Domestic Partners can have added complexities because the federal tax treatment of Domestic Partners differs from that of married couples. It should be noted, if state law extends full community property treatment to RDPs, each partner must report one-half of the combined income derived from community property on his federal income tax return. This applies whether received in the form of compensation for personal services or income from property. California, Nevada, and Washington apply full community property rights to RDPs.

The Defense of Marriage Act (“DOMA”) denies federal benefits to same-sex married spouses, including the right for a U.S. citizen to petition for an immediate relative visa for their spouses. When DOMA was enacted in 1996, Congress defined “spouse” under all federal statutes to refer to only a husband or wife of a person of the opposite sex. The Immigration and Nationality Act (“INA”) does not contain an explicit definition of spouse, however, because immigration is a matter of federal law, the definitions set forth in DOMA apply to the U.S. Citizenship and Immigration Services.

However, it has been announced that the Department of Justice will not defend DOMA in certain cases and a U.S. district court has declared the law unconstitutional. Most recently in United States v. Windsor the United States Supreme Court ruled that section 3 of DOMA is unconstitutional. Section 3 requires that for purposes of federal enactments, marriage is limited to the union of one man and one woman and the word spouse is defined as someone of the opposite-sex who is a husband or wife.

As a result of Windsor, the provisions of the Internal Revenue Code as well as other federal laws will be applied in the same manner to married same-sex couples as they are to married opposite-sex couples–at least for those married same-sex couples residing in states that recognize their marriages. It is unclear whether the provisions will also apply to married same-sex couples who are residing in a state where the marriage is not recognized. Thus, to the extent that same-sex couples’ marriages are recognized at the federal level, it appears that married same-sex couples will have the same federal tax treatment as married opposite-sex couples.

Recently, the Congressional Research Service issued a report entitled “The Potential Federal Tax Implications of United States v. Windsor (Striking section 3 of the Defense of Marriage Act (DOMA)): Selected Issues. While Windsor is significant by providing federal benefits to same sex couples, it also may have some adverse tax implications e.g., expose the couple to the “marriage penalty”, i.e., having a higher tax liability when filing taxes as a married couple than their combined tax liability when filing as two single taxpayers.

Other married same-sex couples may benefit from a “marriage bonus” when they have a lower tax liability when filing as a couple than their combined tax liability when filing individually. In Windsor, where a same-sex couple married in Canada, the Court held that the decedent’s estate was entitled to the marital deduction for assets passing to her surviving spouse.

Couples entering a same-sex marriage or a civil union should consider a premarital agreement to address the same issues as opposite-sex couples.

Divorce

Foreign divorces are generally recognized under the discretionary principle of comity. However, “no State is bound by comity to give effect in its courts to the divorce laws of another State repugnant to its own laws and public policy.”

Domicile and residency in the foreign country at the time of the divorce and service of process, or adequate notice, are often important factors considered by state courts in determining whether to award comity to foreign divorces.

  1. For example, in the context of immigration laws, the Fourth Circuit has recognized that “the domicile of the parties has long been recognized as the primary, if not the exclusive, basis for the judicial power to grant divorce.”
  2. It is also important that the foreign country recognize the divorce as valid. Accordingly, whether a state court will recognize a foreign divorce requires a facts-and-circumstances analysis that will depend upon the domicile of the parties, the jurisdiction of the foreign court, and the procedures utilized by the foreign jurisdiction to award the divorce.
  3. Generally, “the talaq, while a valid means of divorce in Pakistan and Iran, is not recognized in the U.S. when said by a Muslim to his non-Muslim wife. . . . The talaq when said to a Muslim woman and confirmed by a foreign government is usually recognized.” https://www.mwe.com
Leigh-Alexandra Basha

Leigh-Alexandra Basha

McDermott Will & Emery
succession

Maud Udry-Alhanko

McDermott Will & Emery

Financial consequences of Death and Incapacity in Spain

Financial consequences of Death and Incapacity in Spain

Certain situations involve personal and financial consequences that one can foresee before they arise. A proactive approach entails foreseeing and regulating the consequences of death; and disability. What should I be aware of in each case? And which tools are available to me?

What are the main tools available to me in Spain to control the effects of my death, or of supervening incapacity?

There are very important personal and financial consequences attached to both death and certain life events or circumstances (like supervening incapacity), especially in the context of a family business, which can be shaped by the arrangements you make of your own free will.

Although most people are aware that they have the chance to control the use and distribution of their assets when they die, by providing a will, there are still not very many who devote the necessary time and resources to making proper plans and arrangements for their succession in all the related areas and possibilities. People often shun the idea of thinking about and controlling such a definite future event as death, and are normally even more reluctant to think about and control potential cases of supervening incapacity.

While it is not easy to embark on a thought process on these issues, if it is confronted as a responsibility, it will be an opportunity to gain a clear idea of your wishes, make sure they are fulfilled, and give peace of mind to the people in your family and business environment. This thought process will, in all likelihood, end with the signature of various legal documents which will be the means to realize your wishes.

Financial consequences of Death

Death generally entails the transfer of a person’s assets, rights and obligations to their heirs. A person’s legacy is guided by their wishes expressed principally in a will, or in the absence of a legal document setting out their wishes, by the provisions in the law.

While there are certain legal limits, such as forced heirship, which depend on the applicable law (and therefore on nationality and/or residence) the maker of a will has a considerable amount of freedom to make their own decisions. It is therefore crucial in succession planning to give thought to what your wishes actually are, and then make arrangements for those wishes, by asking and answering questions of the following type:

  • Are there any circumstances I am particularly worried about concerning my family or financial structure? Such as, for example:
    1. Administration of the assets of minors or incompetents.
    2. Unequal treatment among my descendants.
    3. Special protection for my spouse or long term partner (particularly if they are not the parent of my descendants).
    4. Protection of assets with regard to family members by marriage.
    5. And so on
    6.  
  • Do I want certain assets to be kept in the family after the next generation?
  • How and on what terms would I like to leave my assets?
  • I am not Spanish but do I have considerable assets in Spain?
  • Does the current structure of my assets fit the structure needed to fulfill my last wishes?
  • Are my wishes legally and economically viable?

These are just some of the key general questions that must be thought about to arrange for the will maker’s wishes, which may need to be controlled using the instruments provided in the legal system, such as: special administration of assets for minors, usufructs, fideicommissary or trust-type arrangements, appointing nominees, controlling the ultimate destination for assets, codicils etc., as allowed by the applicable law.

From a strictly formal standpoint, we wish to point out that the wills of Spanish nationals executed abroad are recognized as valid in Spain provided that their form is in accord with Spanish law or with the law of the place where the will was executed.

Further, for foreigners with assets in Spain, it will generally be recommendable for them to execute a codicil in Spain before a notary, which only contains provisions on the arrangements for assets located in Spain, and for that codicil to be registered at the Spanish registry of wills (Registro de Actos de Última Voluntad); in the absence of such a codicil, the arrangements for the assets in Spain will be governed by the provisions in any will executed by the foreigner which is valid according to his national law or the law of the place where it was executed.

Supervening incapacity

Greater life expectancy has increased the occurrence of age-related dementia, which in many cases is degenerative, often leaving sufferers unable to make their own decisions, and the occurrence of strokes, for example, which can result in the same type of impediment, temporarily or for life.

Aware of this fact, Spanish lawmakers drew up, some ten years ago now, Law 41/2003, of November 18, 2003, on the financial protection of people with disabilities, which gave anyone with sufficient capacity to act, the ability, in anticipation of being declared incompetent by the courts, to leave instructions concerning their person or assets in a notarized deed, including the appointment of a guardian or an administrator for their assets and measures for their supervision. This is known as self-guardianship.

Under these types of arrangements, decisions that were previously the domain of judges can now be taken by anyone.

As a result, to carry out proper financial planning, you will need to answer questions such as:

  • What will happen to my assets if I become incapacitated through an accident or illness?
  • Who will manage them?
  • Who will act on behalf of the shares in the family business?
  • How and with what type of control or supervision?
  • Who will take the decisions in relation to my personal care?

Further, aware of the reluctance of family members to have people suffering from those impediments declared incompetent, Spanish law allows a power of attorney granted by a person with full capacity to act to be able to continue in force, if they so wish, in the event of supervening incapacity, and also allows a power of attorney to be granted which will only come into effect if the grantor becomes incapacitated. In which the grantor can also say how their incapacity must be determined (it is usual practice in these cases for the principal to provide that their incapacity will be determined by producing two doctors’ certificates from independent institutions declaring that there is a physical or mental failing that prevents the principal from making their own decisions).

Lastly, Spanish law allows a living will or advance directive to be drawn up so that anyone can provide instructions on their healthcare, to be implemented if they have a terminal illness (within the applicable legal limits, since active euthanasia is not permitted in Spain).

The documents described above (self-guardianship, power of attorney in anticipation of incapacity and a living will or advance directive) are registered at various registries, to make sure they will be applied if the circumstances triggering them occur. http://arantxatobaruela.com

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/