Real estate inheritance in Spain

Interview with Nadja Vietz, a lawyer with an office in Barcelona ( Nadja Vietz has German, Spanish, and American lawyer’s licenses and is, among other things, an expert in real estate and international inheritance law with a Spanish-German reference.

Nadja Vietz

Nadja Vietz

Nadja Vietz, many of our clients own property in Spain, but have their main residence in Germany. This situation brings up a lot of insecurities regarding the legal aspects of passing on and leaving properties.

Which inheritance law applies in the first place?

Until recently, German law applied the law of nationality to any cross-border estate cases. A German testator could be certain that German law governed his succession.

This changed on August 17, 2015. According to the EU Succession Regulation (EU Regulation No 650/2012 or Brussels IV), the country in which the testator had his last habitual residence at the time of his death rules the whole legal succession after the death. Article 23 of the Regulation determines “habitual residence,” assessing the circumstances and the center of life of the deceased during the years preceding his death and at the moment of death. Different criteria are to be taken into account, in particular the focus of the family, professional and social contacts, as well as the duration and regularity of the deceased’s presence in the state concerned and the reason for that presence. A close and stable connection to a certain state constitutes habitual residence in that state. Any intentional stay for more than six months will have to be considered habitual residence.  The determination of habitual residence can be difficult because it can change the moment someone changes his residence. The same difficulties arise in cases where someone lives for regular periods in different places and maintains close ties to each location.

So, anyone who lives abroad or plans on doing so in the future but also wants national law to apply to his inheritance should make use of the option of choice of law made possible by Brussels IV in order to avoid bad surprises and disputes among the heirs, and the accompanying legal uncertainty and delay.

This choice of law must be made by a provision included in a person’s will (hand written or by notary’s public deed), and can be done at any time. Even if a person has a will, he or she might want to check the old will and, if necessary, supplement it by a choice of law clause in order to avoid any bad surprises.

Should I make a Spanish will? Do I have to pay attention to certain formalities?

After careful review by an experienced advisor, signing a will in front of a Spanish notary public can prove to be useful, especially since it is possible to have the Spanish will cover only the assets located in Spain. The existence of a will drafted in Spanish, which also complies with the local formal requirements, helps to avoid having to provide certified translations of all German documents, such as the certificate of inheritance or German will, which would also need to be provided with the Hague Apostille.

This facilitates the execution of a cross-border estate and is particularly important because the Spanish inheritance tax is payable within six months after the death of the testator, which requires a previous declaration of acceptance of inheritance. The existence of a Spanish will signed in front of a notary avoids all kinds of bureaucratic and time-consuming formalities.

It is important, though, that the Spanish will not revoke an existing German will. At the same time, if a German will is created subsequently, it should not revoke the Spanish will either. The Spanish will furthermore needs to be signed in front of a public notary and registered at the Central Register of Testamentary Dispositions in Madrid.

However, signing of a Spanish will in front of a notary public that will be governed by German law should be done only after seeking advice from an experienced professional in order to avoid mistakes in applying German law concepts or the incorrect use of German legal terms or concepts, which could complicate matters when executing that will later.

We advise against hand-written testaments. In order to use such hand-written testament in Spain, for the acceptance of the inheritance or any amendments to public registries, the heir will need to apply for a German certificate of inheritance which needs to be provided with the Hague Apostille.

What else can be done to help the heirs? What has to be avoided?

When signing the Spanish will, you need to keep in mind the requirements for acceptance of the inheritance by public notary deed. When strictly applying the applicable German law to the will, such an acceptance is not necessary if the will is indeed governed by German law. Practically, a Spanish notary as well as any official authorities will require an acceptance of inheritance by the heirs that is signed by a notary public.

If there are several heirs, the individual assets will be assigned in the public notary deed of acceptance of inheritance. This deed – together with the notarized will – legitimatizes the individual heir in front of Spanish authorities. The property register makes any necessary changes in public registries and requests payment of bank balances, after having paid the Spanish inheritance tax.

Taking into account the practical aspects we need to also keep in mind that not only do the main heirs have to sign the acceptance of inheritance in front of the Spanish notary, but all children or forced heirs will have to as well. This could prove to be complicated since some of those heirs are not in contact with each other and it might become nearly impossible to summon all of those people to the notary signing. In the sense of speeding up procedure, it is therefore advisable to limit the will to the main heirs, as permitted by German inheritance law.

In this context it has to be noted that the notarization of a Spanish will alone does not equal any fiscal planning or lead to any possible reduction of at times high tax burden in Spain. Expert advice is recommended to accept the inheritance in a cost- and time-effective way. The “Berlin Will,” which is very popular in Germany, can particularly lead to an avoidable high tax liability in Spain. Naming any distant relatives or unmarried partners might also be inadvisable, as doing so can lead to high inheritance tax burden without application of any exemptions.

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We read an article about the so-called Power of Attorney of Inheritance (Source: SZ Newspaper 2010 Auslandsimmobilien Richtig vererben: ) What’s your opinion about that? What are the advantages and disadvantages of this Power of Attorney of Inheritance?

According to German law, this trans-mortal or post mortal power of attorney can lead to practical difficulties. If its purpose is to use it in Spain, Spanish law will necessarily apply to that power of attorney. However, according to Spanish law, the power of attorney expires at the moment the granting person deceases! Only if the power of attorney includes an explicit choice of law, in this case of German law, is it possible to make limited use of that PoA in Spain, even after the death of the testator.

In practical life, such a German post mortal power of attorney will not be recognized in Spain, which makes it even more important to carefully plan and create a will in an intelligent way. At the same time, one should consider granting general power of attorney to authorize a trusted person to take care of financial and personal matters, preventing circumstances in which the granting person will not be able to take care of Spanish assets anymore. This power of attorney needs to meet Spanish form requirements in order to be valid.

What do I, or better said, my heirs need to keep in mind regarding Spanish inheritance tax?

Spanish inheritance tax liability is established either for any Spain assets or – if the heir also has his residence in Spain – for all worldwide assets of the heir. It is important for heirs not to miss the 6-month deadline in which they have to file a Spanish inheritance tax return with Spanish tax authorities regarding any Spain-based estate assets. There is no double tax treaty regarding inheritance between Germany and Spain, but inheritance tax paid in Spain can be credited in the German tax return.

The Spanish tax rates can be high, depending on the degree of relationship, but the value of the inheritance and the estate and exemptions for children and spouses are low compared to Germany. A European Court of Justice ruling of September 3, 2014 declared the extremely high Spanish inheritance tax rules for non-residents invalid. In its ruling, the European Court of Justice declared the regulation invalid which foresaw application of Spanish law instead of the law of each autonomic region to EU-citizens with residency outside of Spain, and their estates in Spain. Such regulation led to discriminatory treatment of EU citizens with limited tax liability in Spain because they could not take advantage of the different tax reductions and exemptions that were applicable in each autonomic region. Those tax reductions are applied now to non-residents as well depending on the autonomic region. However, some of these regions already have enacted new laws with different tax rates for residents and non-residents.

Spanish inheritance tax can be reduced considerably with good planning and wise will drafting. Different personal situations require different solutions.

We heard that some people inscribe their heirs right at the purchase of the property in the property register? Does that make sense? Is it eventually possible to donate later on?

This could make sense to avoid high inheritance tax payments in Spain and to make use of possible tax exemptions. However, it is important that such registry of future heirs will not be considered a donation in Spain, which would entail gift tax liability in Spain. The donation should be made in Germany by using the German tax exemption amounts, and certain formalities have to be respected.

If the property is being donated later on, a donation tax has to be paid. The existing German tax exemptions for donations between family members that allow intelligent estate planning do not exist in Spain. Even though the donation between direct and close relatives is only taxed moderately, planning based on fiscal law is recommendable. Also, it must be noted that an increase of value of the property has to be taxed separately in case of the donation.

Thank you very much for this information. How and where are you best contacted to get legal advice?

Best by mail or telephone +34 93 487 58 94. Upon agreement, I’m also available for a first meeting in our office in Av. Diagonal, 463 bis in Barcelona.