ABOUT THE AUTHOR: Nicolas Malumian TEP is a
Partner at Malumian & Fossati and author of Trusts in Latin
America (OUP)
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?
What is forced heirship?
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.
Which countries in Latin America have forced
heirship and what are the percentages of the forced portions?
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.
National variations
The table on the previous page shows that:
athere is no forced heirship in Mexico and Central
America, but there is post mortem alimony. Therefore, it should be
considered that there could be some relatives with the right to
claim an alimony payment made with the assets of the estate, or
that the will can be null and void if such right is not duly
considered (similar to the rights arising from the UK’s The
Inheritance Provision for Family and Dependants Act 1975 or
Sections 684 to 695 of the Civil Code of Québec, Canada),
and,bAs a rule of thumb, the Northernmost countries of
South America have lower and more flexible forced heirship
rules.
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).
Applicable law
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.
What to expect in the future
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.