Alternatives for the Succession of our Estate

Explore the most effective and efficient alternatives for personal asset succession.

By: Estefanía Alemán – Partner

In my professional practice, I often encounter the following questions:

1. Who has the right to inherit my personal assets or those in my parents’ name? This depends on the estate planning structure established, such as a Trust, Private Interest Foundation, or Will. If none of these structures exist, the heirs of the assets will be the individuals designated by the law of the deceased’s domicile.
2. What is the fastest and most efficient mechanism for the succession of my assets? Establishing an estate planning structure like a Trust or Private Interest Foundation.
3. What is the least expensive mechanism for the succession of my assets? Transferring the assets during one’s lifetime.

Next, I discuss four (4) alternatives for the succession of personal assets, and address the questions above:

Alternative no. I: Private Interest Foundation or Trust

Transferring assets to an estate planning vehicle, such as a Private Interest Foundation or a Trust, is the most efficient and orderly way to plan the succession of our personal assets. Assets under a Private Interest Foundation or a Trust are transferred to the beneficiaries of these vehicles in an extra-judicial and automatic manner when the distribution event established in the foundation regulations or trust instrument occurs. For a Private Interest Foundation or a Trust to function efficiently in favor of its beneficiaries, it is necessary that the rules governing these vehicles are detailed and clearly established in the foundation regulations or trust instrument.

The minimum annual maintenance fee of a private interest foundation or an estate planning trust may range between US$ 1,000.00 to US$ 1,500.00.

Alternative no. II: Will

A Will can be holographic, open, or closed. A holographic Will is when the testator writes it in his or her own handwriting, dates it, and signs it. The holographic Will must be formalized and presented for this purpose to the circuit judge of the testator’s last domicile, or the place where the testator died, within five (5) years from the last day of the testator’s death.

The open Will must be granted before a notary, and three competent witnesses. The notary will draft the Will and read it before the witnesses for the testator to declare if what is established in the Will is his or herlast will.

The sealed Will be drafted by the testator, and he or she will appear before a notary with three witnesses to seal the Will in an act before the notary.

For the execution of the Will, the following steps are required:

1. Granting power of representation to a lawyer. Ideally all heirs must grant the power of attorney to a lawyer..
2. Submission of the application to open the testamentary succession proceeding. The application must be accompanied by the Will.
3. The circuit court issues a resolution admitting the process for procedure, and declaring as heirs the individuals (natural or legal) that have been instituted in the Will.
4. The interested party must publish in a national circulation newspaper an Edict issued by the court. The Edict is a call for all individuals who believe they have a right over the hereditary assets to appear in the process within ten business days from the day following the publication of the Edict.
5. Once the term described in the previous point has expired, at the request of the empowered attorney, a date will be set for the inventory and appraisal of the assets to be presented to the court.
6. The inventory is conducted extrajudicially, unless there are minor heirs involved. In the latter case, the inventory process will take place in the courtrooms. The inventory details all the assets that make up the estate (real estate, vehicles, stocks, etc.), along with their respective value.
7. The Judicial Code mandates that the inventory is made and signed by a court expert, and an expert from the interested party. The interested party is responsible for paying the fees of the experts. There is no fixed fee schedule for expert fees. They normally charge a percentage of the total assets.
8. A resolution is issued that approves the inventory, setting a term of three business days for objections or comments to be presented.
9. A resolution is issued that fixes the value of the hereditary assets.
10. A resolution is issued that orders the adjudication of the assets to the heirs and sends the necessary communications to the relevant parties (Public Registry, banks, etc.), so that the assets are handed over to the heirs or registered in their name, as appropriate.

Note: In the case of a holographic Will, before submitting the application for opening the succession process, the Will must be formalized before the tribunal. In the case of a sealed Will, before submitting the application for opening the succession process, the Will must be opened and recognized before the tribunal.

The approximate duration of a testate succession process is between 8 months to one (1) year. The cost of a succession process includes the fees of lawyers and experts. According to Agreement No. 49 of April 24, 2001, lawyer fees for a testate succession process are 15% when the assets involved in the succession have a value up to US$ 50,000.00, and 10% when the net liquid funds of the succession is US$ 50,001.00 and above. In practice, it is common for the percentage of lawyer fees to be negotiated below those established in Agreement No. 49 of April 24, 2001.

Alternative no. III: Transfer of Assets During Life

This refers to the process when a person transfers assets they own to other individuals during their lifetime. For example, when parents transfer assets they own to their children during their lifetime.

This process is the least expensive alternative. It is effective when the assets can be individually distributed among each person (i.e., among each child), allowing each child to enjoy the asset without interference from the other. However, the alternative can be problematic when an asset is transferred to several individuals. For example, when a real estate property (i.e., house or apartment), or stocks are transferred in favor of several children. Under this scenario, when a parent passes away, and a real estate property or stocks have been transferred to each child, the children must make a joint decision on what to do with the real estate property or the stocks. There are cases where differences in opinion among the children prevent them from enjoying and benefiting the assets that were transferred by their parents.

Alternative no. IV: Intestate Succession Process

This refers to the process in which a person dies without having established a succession plan for all or some of their assets.

The procedure for the process of intestate succession is as follows:

1. The interested parties must submit certificates that establish the kinship with the deceased and notarial certifications that prove that the deceased did not grant a Will.
2. The circuit court accepts the Application for Opening the Intestate Succession Process, and sends it to the Public Ministry to issue an opinion on the viability of opening the process.
3. After receiving the response from the Public Ministry, the corresponding circuit court issues a resolution declaring the succession process open.
4. The circuit court issues an Edict that the interested party must publish in a national circulation newspaper, so that within ten business days all individuals who believe to have a right over the hereditary asset may appear before the process.
5. Subsequently, the inventory and appraisal of the deceased’s estate mass, including assets and liabilities, are conducted.
6. The Judicial Code mandates that the inventory be made and signed by a court expert and an expert from the interested party. The interested party is responsible for paying the experts’ fees. There is no fixed fee schedule for expert fees. They normally charge a percentage of the total assets.
7. Once the inventory and appraisal of the estate mass are completed, the court issues a resolution approving the inventory and setting a term of three business days for any interested party to present objections or comments.
8. The court approves the inventory and appraisal and sets the estate’s value.
9. Finally, the court issues a resolution adjudicating the hereditary assets to the heirs.

The duration of the intestate succession process also ranges between 8 months to a year, and the applicable fees are the same as for the testate succession process.

For more information, contact us at bd@icazalaw.com.