It is Always the Right Time to Plan Your Legacy
Our inheritance law system is often surprising in many respects, and its fundamental principles frequently do not align well with today’s family relationships or types of assets. It is easy for matters related to one’s own estate planning to be left too late, even though proactive preparation is crucial in this area. Good planning and the support of a legal professional help to avoid the most serious pitfalls. Necessary documents should be prepared well in advance.
Contrary to common perceptions, the significance of inheritance law in our society is not diminishing. Year by year, the importance of accumulated wealth grows: inheritances are increasing in size. Disputes related to inheritances and the associated legal formalities pose a genuine societal challenge. This issue concerns not only the individuals entitled to the assets but also the assets themselves. After years of probate or estate settlement processes, assets may lose their marketability: real estate deteriorates and assets remain idle and unproductive. In the worst cases, an entire lifetime’s work can be lost due to a failed or unfortunate process.
How can I plan ahead?
The fate of an inheritance can be determined either by the Inheritance Code or by a will. Additionally, life insurance forms its own basis for disposition. Formally speaking, however, life insurance involves an insurance benefit rather than an inheritance. The assets are transferred from the insurance company to the beneficiary in accordance with the terms of the insurance policy.
The order of succession according to the Inheritance Code is sometimes illogical and, above all, rigid. It does not always reflect the wishes of the deceased. Additionally, not everyone has close relatives to whom the estate would naturally pass by law. However, the provisions of the Inheritance Code can be overridden by a will. Typically, a will is used to, for example, strengthen the rights of the surviving spouse and to anticipate inheritance taxes. From a tax planning perspective, effective strategies include usufruct deductions and the allocation of assets among several beneficiaries to reduce tax progression.
Life insurance policies can be used to create inheritance solutions that are even more radical than wills. On the other hand, insurance instruments can sometimes behave unpredictably when combined with the Inheritance Code, wills, and marital property rights.
Is there an even more effective way to plan an inheritance?
The above applies to situations where the estate has already been established. However, this is only one side of planning: the most effective planning is actually managing the size of the estate.
As the estate grows, so does the likelihood of disputes and complications. As heirs become more vigilant in protecting their interests with the support of their lawyers, the chances of a swift and amicable division decrease. For example, inheritance taxes become payable regardless of whether the estate is divided or not.
It is essential to take sufficiently proactive measures. Assets can be transferred during one’s lifetime through gifts and sales. In the case of sales, there is also the option of an underpriced sale, which often allows avoidance of gift tax. It is also possible to provide for the maintenance of one’s own heirs tax-free.
Significant inheritance and gift tax reliefs for generational transfers applicable to business and farm transfers should be explored in advance. If a generational transfer is not completed in time, the result may be fragmentation of the assets and full inheritance taxation.
Not only is inheritance law full of surprises, but above all, it is the reality we live in. My work in family wealth law has shown me that unexpected issues do arise. With sensible planning, at least the worst pitfalls can be successfully avoided.
