The nationality and civil residence of the testator is a decisive issue to determine the applicable law in succession
One of the most important issues in successions is the applicable law. Inheritance institutions such as the widow’s usufruct, the hereditary reserve, or the legitimate inheritance are regulated very differently from one legal system to another.
The arrival of new residents in Andorra, each with their specific national law, makes this issue increasingly relevant.
For this reason, it is crucial to be clear about which law will govern the succession. However, sometimes the determination can raise doubts. Indeed, even within the same country, different laws can coexist for succession. In Spain, apart from the common law, there are specific civil rights in Aragon, Catalonia, Galicia, the Balearic Islands, Navarre, and the Basque Country. Furthermore, after 10 years of residence in a territory without any declaration, one acquires the civil residence of that territory.
On the other hand, at the European Union level, Regulation 650/2012 states that the testator can choose the applicable law for their succession by opting for the law of their nationality. In contrast, Andorran succession law stipulates that the national law will apply unless, exceptionally, the foreign testator has a significantly closer tie to Andorra.
And the reader might wonder, what is meant by a “significantly closer tie”? We cannot provide an answer because we are dealing with an undefined concept that must be assessed on a case- by-case basis. However, in many cases, we can say with certainty that this situation does not apply.
We are thus faced with a complex issue, where the best decision a future testator can make is to seek advice from a legal professional. This professional’s guidance must effectively capture the testator’s wishes in writing, within the limits allowed by the law, and of course, must consider potential doubts about which law will apply to the succession. In this respect, Augé Legal & Fiscal has a team of polyglot professionals and collaborates with various foreign law firms to provide comprehensive advice to its clients.
Consider the case of a married person with children, born in Catalonia, who lives in Madrid for 11 years, returns to Catalonia for another 5 years, then moves to Andorra and wishes to make a will. All these circumstances must be considered. If this person wants to leave all or most of their assets to their partner, they might think that making their wife the heir and leaving the legitimate part to their children already expresses their intention. However, a good advisor will point out that a clause relating to the widow’s usufruct should be added, in case the succession is governed by Spanish common law.
In addition to the civil aspects of the succession, fiscal aspects must also be considered. If the heirs are not residents of Andorra, there are perfectly legal testamentary formulas that can mitigate the fiscal impact for the heirs. In this case, the territorial differences in inheritance taxes are notable, with various tax rates depending on the countries, but also within the same countries. It should not be forgotten that the inheritance tax in Spain is a tax transferred to the autonomous communities.
Indeed, many countries – if not the majority – impose the gains obtained upon death, either through a specific or general tax. However, it should be noted that the tax regulation – not the civil one – applicable to the gains obtained is that of the heir’s or heirs’ state of residence, not that of the deceased. This fact, often overlooked, has led to the mistaken belief that the deceased’s move to another state without an inheritance tax would avoid any fiscal implications for future heirs: while such a move opens the door to interesting planning that, when well- directed, can significantly reduce taxation, it does not de facto eliminate it.
In this sense, even if the heirs decide to move their tax residence outside of Spain, they might be subject to the Spanish Inheritance Tax if they receive certain assets – especially, real estate located in Spanish territory. Likewise, although the applicable civil regulations depend on the civil neighborhood of the deceased, the applicable tax regulation is centralized in the state when the heir is not a resident of Spain, even applying rates higher than 30%.
We reiterate that inheritance planning, both at the civil and fiscal level – of course, with the help of expert lawyers and tax advisors – takes on considerable importance when different jurisdictions come into play, ensuring the peace of mind for both future heirs and the deceased. It is therefore a dual advisory service, both civil and fiscal, that the different departments of Augé Legal & Fiscal offer their clients.
Pere Cristòfol & Marcos Sutil