What is Succession Planning
In generic terms, succession planning can be defined as the set of operations aimed at the most efficient possible transmission, from a financial or tax perspective, of an individual’s estate in the event of death.
Why is it sensible to plan succession during one’s lifetime
Among other purposes that may, in theory, underlie this planning, in most cases, there is an interest in avoiding potential family disputes. Indeed, a “peaceful transmission” will allow the parties involved to save time and money on legal disputes. On the other hand, the desire to keep assets, or part of them, within the family sphere, benefiting certain heirs (within the limits imposed by law), is among other reasons that lead more people to plan succession during their lifetime.
Lifetime Sharing
A paradigmatic example of succession planning is lifetime sharing, which translates into a donation (as the name itself indicates, it is made during the donor’s lifetime), of all or only part of the assets, to one or more of their presumptive legitimate heirs, provided that the consent of the others is obtained.
Legitimate heirs of the donor are: the spouse, descendants, and ascendants.
Lifetime sharing is a way to anticipate the commencement of enjoyment by the heirs of the assets that will belong to the estate and to obtain consensus among them, since the law requires the consent of all. It should be noted that the anticipation of the transmission of the donor’s assets through lifetime sharing does not necessarily imply the immediate loss of the possibility for the donor to continue using and enjoying them until their death.
At the time of sharing, the donees undertake to pay the remaining presumptive legitimate heirs the portion that belonged to them in the received assets (equalization). If these are not paid immediately, the equalizations are subject to monetary updates.
The Will
The law defines the will as the unilateral and revocable act by which a person disposes, after death, of all their assets or part of them.
It is a unilateral business because the declarant’s statement of will does not need to be brought to the knowledge of the recipients, and it is also singular since the law prohibits joint wills, in which two or more people are involved. It is also a personal act because it cannot be made through a proxy. Contrary to lifetime sharing, the will and everything defined in it will only take effect after the testator’s death.
Through the will, its author can provide for the fate of their assets, with clauses commonly instituting heirs of the entire estate or part of it.
Types of Will
The will is freely revocable by its author and can take one of two forms: the public will and the closed will. The former is made by a notary, in the presence of the testator and two witnesses; the latter is written and signed by the testator (or by another person at their request), or written by someone else at the testator’s request and signed by them, and must then be approved by a notary according to notarial law, under penalty of nullity.
For Foreign Citizens
Testaments are conceivable for choosing the law they want to apply to their succession, as permitted by the European succession regulation, which often can even be a foreign law with which the testator is more familiar, namely their personal law.
A question often raised, because allowed by some foreign legal systems, has to do with the possibility of bequeathing in favor of pets. In the Portuguese case, these do not actually have succession capacity. However, there are alternatives to achieve this purpose, which may include conditional bequests.
Limits to the Will
The testator is forbidden from disposing of more than one-third of the estate (in some cases half or even two-thirds), as the law reserves the remaining part for legitimate heirs, who can only be deprived of it in special cases. This portion of assets that the testator cannot dispose of because it is legally reserved for legitimate heirs is called a legitimate portion.
Transmitting a Specific Asset to a Specific Heir
In cases where the testator would like a specific asset (or assets) to go to a specific heir, the legitimate portion can be replaced by a legacy to that heir (legacy in substitution of the legitimate portion). The testator fills it with the desired asset or assets—however, in these cases, this legacy must be accepted by the heir, as by accepting it, they lose the right to the legitimate portion.
Spouses
Specifically regarding spouses, since September 1, 2018, they have been allowed, in a prenuptial agreement, to mutually renounce the condition of legitimate heirs of each other when the applicable marriage regime is the separation of property.
Common-Law Partners
Despite the protection and effects recognized by law for common-law relationships, their members are not considered heirs of each other. Therefore, with or without children from the relationship, the will is highly relevant in ensuring the future of the partner.
Executorship
Anticipating what may be the testator’s concerns, including often the desire to free family members from the (often burdensome) bureaucracy associated with the estate, to monitor the fulfillment of the will and/or its execution, and ultimately to reduce intra or extra-family conflicts, testamentary provisions deserve special attention.
The executor is appointed by the testator and is responsible for monitoring the fulfillment or executing all or part of the will. The executor does not have to be an heir or legatee of the testator; they do not necessarily have to accept the executorship—however, the testator can assign a fee for its exercise in the will—and their duties can and should be specified in the will, possibly corresponding to the functions of the estate administrator. In this case, their responsibilities include reporting the death to the Tax Authority and submitting the Stamp Duty declaration.
Taxation
In terms of taxation, the nature of the successors must be distinguished since tax law exempts the spouse, descendants, and ascendants from Stamp Duty taxation. For tax purposes, the law equates common-law partners with the deceased’s spouse, also exempting them from tax. For other heirs and legatees, the applicable rate for hereditary acquisition is 10% of the value of the assets, which will be calculated in accordance with the Stamp Duty Code.
