Inheritance pact

As has been indicated, through the succession agreement it is possible, as the most relevant matter, to make inheritances, by virtue of which the person or persons instituted are conferred the quality of universal successors of the heir, with irrevocable character, being in addition the quality of heir conferred in inheritance inalienable and unattachable. Thus, by means of the inheritance constituted in succession pact, the grantors of the same can name their heirs in the same way as they would do it in a will, but with the specific particularities that have already been exposed.

Likewise, inheritances may present the following specific typologies that differentiate them:

• Inheritances may be simple when only the person being inherited is attributed the quality of heir (which does not prevent the present donation of specific assets in his favor), while they will be cumulative when in addition to conferring the quality of heir, all the present assets of the heir are attributed to the person being inherited, which in practice opens the door to the possibility that through a succession agreement a person may transmit all his assets that he currently owns, without this transmission being deferred to the time of his death, which will have its tax consequences as will be explained later on.
• Also, as already noted in other sections, the inheritance will be considered mutual if it contains a reciprocal institution of heirs between the grantors in favor of the one who survives (widely used in practice between spouses). Likewise, in this type of mutual inheritance, it can be agreed that when the survivor dies (i.e. when the last of the grantors who subscribed the agreement dies), all the inherited assets will pass to another person (in the example of marriage, in practice, when both parties die, they usually designate their children as heirs).  
• In addition, the inheritance may also be agreed upon on a preventive basis, which implies that it may be unilaterally revoked by means of a will or subsequent inheritance agreement.
  

In view of the main variants that the inheritances made in inheritance agreements may present, it is necessary to continue analyzing this figure and other particularities that it presents. Thus:

First of all, it is necessary to note that, in accordance with the Catalan civil law, the heir may reserve assets, amounts of money or the part of his estate that he considers, to dispose of them freely in a donation, codicil, testamentary memorial or subsequent succession agreement. Likewise, the heir will be able to assign to the payment of the corresponding legitimate rights the goods or money that he considers opportune, taking into account, however, that such assignment does not grant to the legitimaries any right on it during the life of the heir.

Another issue of vital importance that is undoubtedly necessary to take into account is that when a valid succession agreement containing an inheritance is granted, it revokes the will, the codicil, the testamentary memory and the donation by cause of death prior to its granting, although they are compatible with it (Thus, if an heir is instituted in a succession agreement, its grantors must take into account that all the dispositions mortis causa related to their inheritance rights, made previously, will become ineffective). However, those made subsequently, if the inheritance is preventive or had been allowed in the same one by means of a reservation of disposition (figure that has just been treated), if they will be effective.

As regards the transferability of the quality of heir, the succession agreement, being an agreement between its grantors, is based on the principle of non-transferability, so that, if the heir instituted in the succession agreement predeceases the deceased, the inheritance becomes ineffective, unless otherwise agreed in this respect.

However, if there is no provision to the contrary, if the heir instituted in inheritance is a descendant of the deceased and predeceases him leaving called heirs to his inheritance, he transmits to them his quality of contractual heir, taking into account that, if there are several children or descendants heirs of the heir predeceased abintestato, the heir may choose one, in irrevocable public deed or in testament, as substitute of the inheritance.

<ejemplo>A modo de ejemplo, para que se comprenda mejor esta disposición, la normativa catalana establece que, si no se dice lo contrario, si en un pacto sucesorio un abuelo llamado Jaime nombra heredero a su hijo Juan (el cual a su vez tiene 2 hijas llamadas María y Ana, es decir, 2 nietas de Jaime), y Juan fallece antes que su padre Jaime, María y Ana devienen herederas contractuales de su abuelo Jaime. Y, asimismo, si Juan hubiere fallecido sin testamento, su abuelo Jaime podrá, mediante una escritura pública posterior o un testamento, designar como su heredera a cualquiera de ellas.<ejemplo>

Finally, it is necessary to indicate that, with regard to the opening of the succession, it is necessary to take into account that once the heir has died, the heirs instituted in the succession agreement cannot repudiate the inheritance (unless the heir is a person who did not grant the agreement), but they can accept it with benefit of inventory.

In accordance with the provisions of the Civil Code of Catalonia, in order for succession agreements to be valid, they must be granted in a public deed, which may also contain family protocol stipulations and other non-succession stipulations, but not last will provisions.

Therefore, in order to execute a succession agreement, it will be necessary to go to a Notary Public to execute the corresponding deed, which must comply with the legal requirements established by the Catalan Law and the notarial regulations, as well as include all the stipulations and covenants that the grantors wish to include.

In this regard, it is also necessary to state that:

1. In the succession agreements granted with a preventive character (which allows its later revocation unilaterally by any of the grantors), or that contain a reservation to dispose or give, the time of the granting shall be recorded in the deed in question.
2. The grantors of a succession pact who are not the beneficiaries of the future succession may delegate in a special power of attorney the appearance at the act of formalization of the pact, as long as the public deed of power of attorney reflects the full content of their will.
   

With regard to the publicity of the succession agreements, it is necessary to indicate that they must be recorded in the Register of Last Will and Testament Acts, in the form, term and scope established by the regulation that governs it (see Annex II of the Decree of June 2, 1944, which definitively approves the Regulation of the organization and regime of the Notary's Office). 

To this end, the Notary Public who authorizes the deed by virtue of which the succession agreement is constituted must make the pertinent communication. Likewise, the existence of the succession agreements may enjoy the following registry publicity:

• The inheritances and particular attributions ordered in the succession agreements may be recorded in the Land Registry, during the lifetime of the deceased, by means of a note in the margin of the registration of the real estate in question.
  

• If the inheritances or particular attributions include or have as object nominative shares or social participations, they can be recorded, during the life of the deceased, in the respective entries of the register book of nominative shares or of the register book of partners.
  

• Finally, if the purpose of the succession agreement is the maintenance and continuity of a family business, the existence of the agreement may be recorded in the Commercial Registry to the extent and in the manner established by law for the publicity of family protocols, without prejudice to the inclusion of the statutory clauses referring to the same.

One of the issues that undoubtedly differentiates the succession agreement from the will is the possibility of modifying it, since unlike the former, in which the grantor can unilaterally modify or revoke it at any time, succession agreements can only be modified by agreement of all the grantors.

This is clearly and exhaustively established in Article 431-12 of the Civil Code of Catalonia, which states that the succession agreement and the provisions contained therein may be modified and resolved by agreement of the grantors formalized in a public deed.

Having said this, as particular issues applicable to its modification, it is necessary to further specify:

• That the power to modify and terminate succession agreements by mutual consent is extinguished after the death of any of the grantors (so that it can no longer be modified thereafter).
• Notwithstanding the above, if more than two persons concurred in the granting of the succession agreement, only the consent of those affected by the modification or termination is required (so that, eventually, the concurrence of all the initial grantors will not be strictly necessary).
• In order to consent to the acts of modification or termination of the succession agreement, one must have full capacity to act (i.e., be in full exercise of cognitive and volitional mental faculties), except in the case of a modification that favors a minor or incapable grantor, in which case the grantor himself may consent to the modification to the extent of his natural capacity, through his legal representatives or with the assistance of a guardian.
  

Notwithstanding the aforementioned general rule, there are a number of circumstances in which unilateral revocation by any of the grantors is possible. Such circumstances are as follows:

1. When there is a cause expressly agreed upon by the grantors that allows it.
2. For a breach of the burdens imposed on the party favored by the covenant.
3. Due to the impossibility of fulfilling the purpose for which the agreement or any of its provisions were made (for example, when the purpose of the succession agreement was to regulate the succession of a family business and the latter has already disappeared due to the cessation of its activity).
4. Due to a substantial, supervening and unforeseeable change in the circumstances that produced its basis.
   

Likewise, it is possible to unilaterally revoke the succession agreement when any of the causes of unworthiness of succession occur (see in this regard the specific causes expressed in Article 412-3 of the Civil Code of Catalonia, among which, for example, an attempt on the life of the deceased, serious injuries or crimes against the moral integrity of the deceased, among others, stand out).

As regards the manner in which the unilateral revocation power must be exercised, it is necessary to indicate that such revocation will have to be expressed in a public deed and notified to the other parties to the covenant, and the persons affected by the revocation may oppose it in the same authentic form (i.e. by executing the corresponding public deed) within one month from the receipt of the notification (or, if such notification cannot be given, by judicial means within one year from the revocation). In case this opposition does not take place, the agreement or disposition will remain without effect. 

Finally, with regard to marital or cohabitation crises, it is necessary to specify that the nullity of the marriage, the marital separation and divorce, or the extinction of a stable partnership, of any of the grantors does not alter the effectiveness of the succession agreements, unless otherwise agreed in the deed of incorporation of such agreement.

With regard to the nullity of succession agreements, it is necessary to point out that the causes of nullity can be differentiated between:

• Those that we can call formal, such as, for example, inheritance agreements that do not correspond to any of the types established by the Catalan Civil Code, those granted by non-legitimized persons or those that do not comply with the legal requirements of capacity and form.
• Of those others that we can call material or substantive, such as when the agreement or its stipulations have been granted with deceit, violence or serious intimidation, with error in the person or object or with error in the purpose or motives.
  

As regards the term for the exercise of the nullity action, it is necessary to indicate that before the opening of the succession agreed in the succession agreement, only the grantors of the agreement will be entitled to exercise it, while subsequently, that is, once the person in question has died and his succession has been opened, all the persons who may benefit from the declaration of nullity will be entitled to exercise the judicial action of nullity, having a term of 4 years to do so as from the death of the deceased.

In any case, it should be borne in mind that the nullity of an agreed provision does not determine the nullity of the other provisions made by the same grantor or by the others, unless they are correspective provisions or it is clear from the context of the agreement that the provision would not have been made without the provision declared null and void.

The constitution of a succession agreement and the subsequent designation of inheritance or of particular attribution generate a patrimonial acquisition in favor of the designated person, which can be materialized during the lifetime of the heir or upon his death, as we have already seen throughout the different questions related to this institution.

For tax purposes, in both cases this acquisition of assets will be considered as a gratuitous acquisition mortis causa, which will determine that it will be subject to Inheritance and Gift Tax. This is established in Article 3 of the Regulatory Law of this tax (Law 29/1987, of December 18) stating that the acquisition of assets and rights by inheritance, legacy or any other inheritance title constitutes a taxable event of the same, as well as the interpretation that the General Directorate of Taxes has made of said regulations on the matter (See binding consultation V1521-14 of June 10, 2014).

As regards the taxation of the inheritance agreement for Personal Income Tax, it is necessary to state that in accordance with article 6.4 of its regulatory law (Law 35/2006, of November 28), the income that is subject to Inheritance and Gift Tax will not be subject to Personal Income Tax.

However, from the point of view of the transferor (i.e., the grantor of the agreement), if there is a transfer of assets or rights, this will cause an alteration in the composition of its assets (i.e., a capital gain or loss for the difference between the acquisition value and the transfer value of such assets or rights), which will be subject to taxation for this tax.

In order to execute a deed of succession agreement, it will only be necessary to contact the notary's office and make an appointment on the day and time most convenient to the grantors. On the agreed date and time, the grantors will simply have to go to the notary's office with the necessary documentation (see section on necessary documentation) to sign the corresponding deed, which will be drafted based on the minimum legal content required and the forecasts and needs of the clients in question.