E state planning is one of the key reasons for a Latin American wealthy individual to create a trust or a private interest foundation abroad. However, where such person lives in a country that imposes forced heirship or post-mortem alimony, estate planning can only be achieved by a Latin American settlor if the trust and the assets were located in a jurisdiction that would reject an order by a judge from the last domicile of the settlor. So, what is forced heirship? Which countries in Latin America have forced heirship provisions? What are the relevant percentages and how are they calculated?

In essence, forced heirship can be described as a restriction to the freedom to write a will. It provides that a certain percentage of a person’s assets (and in some countries the gratuitous transfers done during his life) must be transferred in equal parts and without delay to his forced heir at the time of death of that person.

As forced heirship is a part of the public policy of the countries, any will against it is null and void. As mentioned, the sole way to avoid it is to have assets located abroad and to create a structure in a country in which this restriction is not recognised.

Not only is forced heirship affected by the percentage of the assets transferred from the decedent to the forced heir, but also by the time of the transfer of the asset and/or any restriction on its use or transfer. As an example, imagine a trust in which the settlor provides that all of his assets should be transferred to his sole forced heir (for example, his only son) though not immediately after his death, but rather only when his son turns 45. In case the settlor dies when his son is 35 years old, that would mean his son will have the right under the trust instrument to receive all the assets, but in a ten-year-period. This is clearly contrary to forced heirship rules, regardless of the heir receiving all the assets.

Furthermore, unless expressly authorised, all forced heirs must receive an equal portion of the forced portion. This means that a trust that is created in favour of all the forced heirs, yet with an unequal distribution among them, would not be compliant with forced heirship unless the law of the country specifically authorises such unequal distribution (usually called ‘improvement’). In the latter case, a part of the asset must be transferred to the forced heirs, but there is a right to favour one or some of them over the rest (this system is based on the law of Spain).

Unlike certain European laws, forced heirship in Latin America is a right to receive a portion of the assets and not a mere credit against the person that received the assets under the will. Where a will provides that a person that is not a forced heir receives a larger portion than the freely disposable one (the part of the estate that is not subject to forced heirship), the will is null and void in that respect.

As the forced heirship is calculated across the assets of the estate, once the portion of the surviving spouse is deducted, and, in most countries, once any gratuitous transfer made during the life of the deceased is included (there are specific legal actions against the ones that received donations for amounts that exceed the freely disposable part), it is clear that philanthropy is restricted by forced heirship rules. Anyone receiving a donation from an individual that is subject to forced heirship rules is, eventually, liable to actions by the heirs of the donor in order to reduce such donation.

Finally, it should be noted that any agreement in relation to the future estate is null and void. The transfer or resignation of rights on the estate can only be validly made after the death of the deceased.

The main aspects of forced heirship and post mortem alimony obligations are summarised in the chart on p43.

Where a differenced forced portion is established in favour of ascendants, descendants and spouse, the general rule is that, where there are descendants and surviving spouse, the larger forced portion will be applicable. The same applies where there are ascendants and a surviving spouse. Finally, if there are no descendants and no ascendants, the lowest forced portion is applicable.

Although previously mentioned, it is worth stressing that these percentages apply to the assets after the assets of the surviving spouse arising from the dissolution of the marriage are distributed to him or her.

The table on the previous page shows that:

In the case of Panama, not only is there no forced heirship, but also Panamanian private-interest foundation law specifically addresses forced heirship rules of the founder’s jurisdiction stating that the Panamanian judge would not consider such rules applicable to the foundation. It should be stressed that the general rule is that Latin American countries will respect forced heirships of other countries and there are multilateral international conventions that provide so (as an example, the Montevideo Treaty on Probate Process and several Mercosur treaties can be mentioned).

The general rule is the decedent’s domicile law without the right to the designation of a different governing law in the will instrument. This is public order policy and cannot be put aside. In several countries, its law provides that real estate is ruled by the law of the country, no matter the decedent’s domicile. Of course a change of situs can be tried (i.e. creating a company located in a different country that owns the real estate property), but such structures can be easily attacked.

As explained in a previous article on foreign trust recognition, if a trust is created abroad and there are assets in a Latin American country, these assets can be distributed in a greater proportion to the local heirs to compensate for the assets abroad that they are not receiving. The perfect example is Vogelius (Buenos Aires City Civil Chamber of Appeals, 2005). Mr Vogelius transferred to a trust the basement, garage and first floor of 149 Abbey Road, Camden, London NW6 and appointed two of his children (out of a total of five) as beneficiaries of such trust. The widow and other children of Mr Vogelius (that were not appointed as beneficiaries of the trust) started the probate procedure in Buenos Aires (last domicile of Mr Vogelius) and requested that the beneficiaries of the trust be considered as receiving a prepayment of the estate to be distributed. Therefore, the other assets of Mr Vogelius had to be distributed in greater proportion to the ones that were not beneficiaries of the trust to compensate such benefit.

Although the Convention on the Law Applicable to Succession to the Estates of Deceased Persons (concluded on 1 August 1989) is not in force, it should be noted that Argentina is one of the four countries that signed the convention on 24 January 1990, which was sent to the National Congress on 19 March 1992, but it was never ratified.

This is a part of the national law that evolves in a very slow fashion. In most countries, forced heirship has been in place for over 100 years without major changes. But where there are changes, in most cases the rules have been relaxed, reducing forced portions and providing exceptions. In any case, it is reasonable to assume that South American countries will have forced heirship for many years to come.