An introduction to forced (protected) heirship Mitigating forced heirship rules

An introduction to forced (protected) heirship – Part 2

Mitigating forced heirship rules

The application of forced heirship rules depends on the laws of each jurisdiction. Some techniques may alleviate the impact of forced heirship rules. Professional advice should be taken before any strategy is put into place.

1) Using trusts
Sometimes a trust can be used to mitigate the impact of forced heirship rules. For example, in Cyprus, one can nominate beneficiaries of a trust. The property is then gifted to legal owners (the trustees) and forced heirship rules no longer apply. However, in Belgium, the law blocks the use of trusts to circumvent forced heirship rules.

2) Lifetime transfers
Lifetime transfers may be used to sidestep forced heirship rules. In Germany, gifts to third parties are ignored upon death if predefined period has passed since making the gift. However, in France, protected heirs are still entitled to challenge lifetime gifts.

3) Company ownership
If assets – either real estate (immovable property) or investments (movable assets) – are held by a company, it is the ownership of the shares and not the ownership of the assets that is in question. Rules for share ownership can be quite different from those applying to real property.

4) Territoriality
Portugal applies the principle of territoriality to succession. The law only predetermines succession for assets held within Portugal, not those domiciled abroad. Therefore, holdings owned overseas are neither subject to assessment nor restrictions in Portugal.

5) Gift and inheritance tax
Immediate family members (spouse, children, grandchildren, parents and grandparents) are exempt from tax on gratuitous transfers due to gift and/or inheritance in Portugal. All other gratuitous transfers are assessed stamp duty at a flat rate of 10%. Stamp duty is also territorial in nature and is levied only on Portuguese-based assets.

6) Brussels IV and succession in the EU
Brussels IV marks a significant advance in EU succession rules which should result in faster, easier and less expensive procedures. Some of the most important advantages are:

■ Being able to choose the law which will govern your estate reduces uncertainty for those who have connections with more than one country;
■ The ability to opt out of forced heirship rules; for example, before Brussels IV, a Maltese national with a property in France would have been obliged to leave it to his wife and children due to French forced heirship rules. Under Brussels IV, he can choose the law which applies to the succession of the property – so, if he wants, he can even leave it to someone else in his Will.
■ A European Certificate of Succession has been created to allow heirs, executors and estate administrators to prove their status and facilitate the exercise of their rights/powers in other member states throughout the European Union.

Three EU countries – Denmark, Ireland and the UK – have opted out of Brussels IV in order to apply their own rules.

This is the second of a two-part series

By Dennis Swing Greene
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Dennis Swing Greene is Chairman and International Tax Consultant for euroFINESCO s.a.