1 – Do the Balearic Islands have its own civil law?
The Spanish Civil Code (Código Civil) is not applicable in all its parts to the entire territory of Spain. Rather, in certain areas and since ages, different civil law systems apply side by side (that of the Balearic Islands, Aragon, Catalonia, the Basque Country, Navarre, Galicia and the Castilian Civil Code), which deviate from the CC in parts and are to be applied with priority to the circumstances covered therein.
2 – What are the specific features of the Balearic civil law?
The civil law of the Balearic Islands has developed through the centuries-old history of the islands to its current version and has been repeatedly expanded and modified by the Balearic Parliament. It currently regulates important areas of private life and thus contains specific regulations for inheritance, matrimonial property regimes, etc.
3 – What is the significance of the newly adopted inheritance law?
The autonomous community of the Balearic Islands has powers laid down in the Spanish Constitution and in its autonomous status to maintain, amend and develop its own civil law (Art. 149.1.8 of the Spanish Constitution and Art. 30.27 of the Statute of the Autonomous Community of the Balearic Islands).
Until now, despite these far-reaching powers, the Balearic Parliament has been rather reluctant to reform existing legislation or pass new laws, in contrast to other autonomous communities with such civil law powers.
With the new inheritance law, for the first time, Balearic civil law is not only amended but also developed (from a compilation of thirteen articles in reference to inheritance arrangements to a law consisting of 80 articles).
4.- What are inheritance arrangements?
An inheritance can be settled in three ways: through a last will o testament, through intestate succession (if there is not such will) or through an inheritance contract.
Balearic civil law now provides that the inheritance can be transferred either in whole or in part during one’s lifetime by means of various forms of inheritance contracts. This is undoubtedly a very special feature of Balearic civil law, as Spanish civil law not only does not provide for this, but even expressly prohibits it.
5.- Why are inheritance agreements so useful?
There are many reasons for an inheritance agreement, such as:
- Often parents want to help their children to put their lives on their own feet, to buy a flat, to start a business or to pay off a loan…It should be borne in mind that life expectancy is much higher nowadays and that the inheriting children are themselves already of an advanced age when the inheritance occurs. It therefore seems to make more sense to receive financial help from the parents when their children enter adulthood, when this help is particularly needed.
- On the other hand, there are many cases of elderly people who no longer want to or can manage their assets, who no longer want to take care of the management of rented flats, the exploitation of farms or businesses, and prefer to place the responsibility in the hands of their younger descendants.
- Another conceivable case would be that of a person who has a serious degenerative disease and knows that he or she will no longer be capable of acting in the next few years. In this case, it may sometimes make sense to transfer part of their assets to those who will have to care for the sick person and avoid the need for any disposition of the assets to be authorised by the courts.
- Finally, an agreement on inheritance avoids the often aggressive, protracted and costly inheritance disputes in the family.
6.- Where does the sudden boom in estate agreements come from?
In the past, such inheritance agreements were disadvantaged from a tax point of view. Transfers of estates during the lifetime of the testator were not taxed as such, but as gifts. This tax treatment of estate agreements is probably due to the above-mentioned fact that they are expressly prohibited in Spanish civil law, disregarding the fact that, as described above, specific regionally limited regulations on estate planning did exist.
The considerable tax disadvantages here are obvious, both for the donor (or testator) and for the donee (heir). On the one hand, the taxes for gifts are often higher than for inheritances, but it is particularly important to emphasise that in the case of gifts, unlike inheritances, the donor may have to pay income tax on the increase in the value of the property to be given away between its acquisition by the donor and the time of the gift.
This approach has now been changed by a ruling of the Supreme Court of 9 March 2016 (here in connection with a Galician model similar to the Balearic estate planning) and the ruling was also considered applicable to the Balearic succession agreements, meaning that these estate plans are now no longer at a tax disadvantage and are therefore increasingly being used.
7 – Why was the new Balearic law necessary?
The increasing popularity of inheritance contracts met sparse legal regulation and a lack of doctrine and case law, which led to a high degree of legal uncertainty, especially with regard to questions of revocability, the situation of underage donees, etc. Thus, disputes on inheritance contracts concluded during the testator’s lifetime often ended up in court.
Consequently, it was necessary to further develop the already existing law in this regard and adapt it to the requirements of the modern society of the Balearic Islands in the 21st century in order to provide legal instruments to the legal actors and the administrations (especially the tax authorities).
8.- What are the aims of this law?
As already stated, the aim is to modernise and update the law of inheritances, on the one hand, and to make it more flexible, on the other hand, in order to be able to meet the different needs of the Balearic population in matters of inheritances.
9.-Does this law apply in the same way for every Balearic Island?
No. The reality on each of the islands also determines their legal reality. The Balearic Civil Code consists of three books – one for Mallorca and Menorca and one for Ibiza and Formentera. For example, the civil law of the islands of Ibiza and Formentera has its own character and principles, especially in the law of succession.
10 – What forms of inheritance planning are provided for the different islands?
MALLORCA AND MENORCA
The donor transfers the assets to the donee who is appointed as universal heir.
“DEFINICION LIMITADA A LA LEGITIMA”.
The beneficiary waives his or her right to a legal portion in return for the gift or donation. This is undoubtedly the most common variant of inheritance planning.
The beneficiary renounces any right from the inheritance in return for the gift or donation, (including the right to the legal portion if not previously renounced).
IBIZA AND FORMENTERA
“PACTO DE INSTITUCIÓN A TÍTULO UNIVERSAL”.
The status of heir is conferred on the person appointed. Immediate transfer of assets or not.
“PACTO DE INSTITUCIÓN A TÍTULO SINGULAR”.
The status of legatee is conferred on the person appointed. Immediate transfer of assets or not.
“FINIQUITO DE LEGITIMA GENERAL”
The beneficiary waives his or her right to a legal portion in return for the gift or donation.
“FINIQUITO DE LEGITIMA ESPECIAL”
The beneficiary waives the right to the compulsory portion only in respect of a part of the deceased’s assets in return for the gift or donation.
11. – And what has changed for foreign residents of the Balearic Islands?
The condition of “vecindad civil balear”, i.e. Balearic citizenship, which according to some rulings and case law was previously necessary for the establishment of an inheritance contract, and which only persons with Spanish nationality could obtain per se, has been removed.
However, this was not the only reason why foreign citizens of the Balearic Islands were previously banned from concluding inheritance contracts.
In general, Article 36 of the European Inheritance Regulation 650/2012 has been interpreted in such a way that for persons living outside their home country, the generally applicable civil law in the country of residency, in our case the Spanish “Código Ciivil” (and not the regional Balearic civil law), applies in any case. As we have already stated, this Spanish civil law does not provide for inheritance contracts thus this form of inheritance planning was not available for foreigners living in the Balearic Islands. This interpretation was rejected by the ruling of the Supreme Court of the Balearic Islands 1/2021 of 25 January 2021, which seemed to allow inheritance contracts also for foreign residents of the Balearic Islands and the debate seemed to have come to an end. However, it should be expressly pointed out that a decision made on the 20th of January 2022 by the “Dirección General de Seguridad Jurídica y Fe Pública” reinterpreted the above-mentioned Article 36 of the European Inheritance Regulation to the effect that the application of a law other than the Spanish “Codigo Civil” is not permitted for a foreign resident on the islands. Problems can therefore sometimes arise when registering an inheritance contract in the property register. Foreign residents should therefore seek extensive professional advice before drawing up an inheritance contract.
12. – When does the new law come into force?
Two months after its publication in the Official Gazette of the Balearic Islands (BOIB).