Succession planning, key to avoiding conflicts and minimizing taxes

Throughout life, it is almost certain that all of us will face some succession experience.

Thomas Osborne
Thomas Osborne
23 November 2022 Wednesday 10:38
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Succession planning, key to avoiding conflicts and minimizing taxes

Throughout life, it is almost certain that all of us will face some succession experience. However, there are still many who do not plan their inheritance, which can turn the succession process into a real headache, as warned by one of the most prestigious law firms in the field, Gabarró Advocats-Herències.

Since 2020, these professionals recall, the inheritance tax has undergone two important modifications. The first, in force since May 2020, involved a very significant reduction in the bonus on the existing tax quota for the children of the deceased, which went from a variable bonus of 99 to 20% depending on the amount inherited, to a bonus that in the highest bracket is 60% and non-existent in the lowest bracket.

As if that were not enough, they explain, the new system of valuations by reference values, promoted by the Government this year 2022, has indirectly increased the quotas again by a minimum of 20%, which in many cases reaches 40%. Bearing this in mind, the experts at this firm do not hesitate to point out prior succession planning as the best option.

“Obviously, this exaggerated increase in the tax, which, ultimately, can mean an increase in the fee that can double or triple the fee that was paid in 2020, requires careful succession planning of all its civil and tax aspects. , in order to avoid that our heirs have serious problems to face this tax burden.”

Through the preparation of a fiscally efficient will, with the use of perfectly legal option economies, we will be able to leave our heirs with the necessary tools to be able to reduce the installments, and, consequently, to be able to face their payment. Regardless of the fiscally effective will, they point out, it is necessary to analyze the use of other planning instruments, whether living donations, mortis causa donations, donations with suspensive or resolving conditions, succession agreements... In short, always according to the experts, "each case It must be studied in a particular way, since no two plans are the same, and each estate, each case, deserves its own tailor-made solution”.

Even if we have not planned the inheritance at the time of succession, they remember that there are always alternatives to minimize taxes, but, we must be clear, they warn: "Planning provides us with many tools for the time of succession and, if not, we have because it has not been planned, our alternatives and savings are reduced”. However, we will always have some important tools that our Civil Code provides us with, and that at the time of succession can be very useful to minimize taxes, such as fragmenting the inheritance, commuting the usufruct of the widow, delivering legitimate rights or renouncing to a pre-legate to accept the inheritance, among others.

In the event that a family business is included in the inheritance, it is necessary to analyze very carefully whether you are entitled to a 95% reduction in inheritance tax, since, with the 2020 reform, if you choose to apply this reduction general child bonuses cannot be applied. And if the Tax Agency reviews our file and concludes that we are not entitled to the family business reduction, the general bonus that we would have benefited from as children cannot be rehabilitated, and, consequently, we lose both.

In addition, it must be taken into account that, so that we do not lose the bonus for children at the time of inheritance if we apply the reduction for family business, perhaps the possibility of giving up the shares or shares of this company should be considered and analyzed company, always subject to certain conditions that guarantee the person making the donation the financial security they need for the rest of their lives or that cover certain eventualities. A case that, as they explain, "unfortunately happens more than we would like" is that the heirs consider giving up the inheritance because they are not able to pay the inheritance taxes.

The number of Catalans who renounce their inheritance, according to the professionals at Gabarró Advocats-Herències, "has multiplied by four in recent years, reaching, in 2021, the last year for which we have data, around 10,000 resignations". Depending on the hereditary or private real estate or movable assets (financial assets) of the heir, the response to this problem may vary, they emphasize: "Although it is true that, when there is patrimonial solvency, our opinion is that the vast majority of times you need to be so drastic. Almost every time someone has visited us with this idea in mind because they can't pay the taxes, we have managed to find a solution, either looking for formulas to reduce tax payments or arranging for the sale of a part of the inherited estate before paying taxes. and keeping the rest.

However, in some cases they have applied the initial relinquishment, with which the patrimony has remained within the family, but providing some control of the patrimony to the person who has relinquished it. Something different, they comment, is when the resignation is raised for fear that the deceased's debts exceed the hereditary assets. In these cases, the advice they give from the office is always to accept for the benefit of inventory, "so that we only respond for these debts with the hereditary patrimony, and closing the door, consequently, on the possibility of having to respond with the personal patrimony of the heir.

Undoubtedly, the greatest added value that this firm can provide is its hyper-specialization, specialization within specialization. Catalan inheritance law, they explain, is very well regulated by law, and knowing it in detail means winning lawsuits, taking advantage in a negotiation and/or paying less taxes. “Over the years, we have tried to bring together the best hyper-specialists in each discipline of inheritance law in the office, so we are not a group of professionals dedicated to advising on inheritances, but for each department we have sought to attract the most valued professionals. And today we are a very solvent team, both in the technical and human spheres”.

They emphasize that they always deal “with the intimacies of people and their families, in a difficult moment, in which a relative has been lost, and, inevitably, there will be a duel. If, in addition, there is conflict, the duel is double. If the taxes cannot be paid, the headaches and anxiety are extreme. And if they sue them or are going to sue them, it doesn't help them either. These are moments, they explain, always complicated for their clients, who need security, trust and friendly treatment in keeping with their emotional situation. It is the firm's philosophy, they conclude, to act in this sense.