Darío Romero, tax attorney
This week on Cachando Chile on the Air we had a very interesting guest who led us through Chile’s rather confusing laws on inheritance. If you live in Chile—as in like “forever” and “til death do us part”—there are some things you’d better wrap your mind around right now. As in YOU do not get to decide who inherits your estate.
Got your attention now? Read on…
If you’re from continental Europe, chances are that this will all make perfect sense to you, BUT, if you’re from the UK, US or any other common law country, it’s time to pay attention here because otherwise you could be in for some very rude surprises indeed. Not only can you not take it with you–but you can’t decide where it ends up either.
As a Chilean tax attorney, Darío Romero of the Albagli Zaliasnik law firm deals with these things every day. When I sent out a cry for help with understanding these issues, he gallantly stepped forward and volunteered to walk us through the different twists and turns of the Chilean inheritance maze.
It turns out that the system is far more complicated than I thought, and I panicked at the thought of trying to fulfill my promise of writing it up for Cachando Chile, so I crossed my fingers and gave another shout out… and wouldn’t you know it? Darío rode in to the rescue once again. And based on what I’ve seen and heard, I would say that if you find yourself in need of tax and/or inheritance-related legal services and want someone who can lay it all out for you in impeccable English, Darío is definitely your guy! (You can contact him by clicking on his name above).
So let’s get on with the grill & drill:
Margaret Snook: What is the most straight-forward explanation of Chile’s inheritance law? My understanding is that it’s based on quarters; that the surviving spouse gets 1/2, the children share ¼, and that the individual has the option of designating the destination of the remaining ¼… Is that true?
Darío Romero: There are different scenarios depending on the number and type of heirs and whether a will is involved or not. This is kind of complicated, but let’s start with a more in-depth look at the spouse with children scenario.
First things first:
If the deceased does not have a will, 100% of the inheritance is divided as provided by law, as follows:
- When the deceased is survived by a spouse and children, the general principle is that the spouse gets twice as much as the children, i.e., if there are 3 children, the spouse receives 40%, and each child gets 20% of the estate. However, there are 2 caveats:
- If one child and a spouse are involved, each gets half of the estate; and
- The minimum part of the inheritance a surviving spouse is entitled to is 25% of the estate, no matter how many children are involved. This rule would apply if there are more than 6 children and 1 surviving spouse.
- If there are children but no surviving spouse, then the inheritance is divided equally among the children.
- When the deceased is survived by a spouse and his/her parents (this also applies to grandparents and great grandparents, however unlikely this might sound), but no children, the spouse is entitled to 2/3 of the inheritance, and the parents receive 1/3.
- If only the spouse is alive, and no children or parents survive, he/she is entitled to 100% of the inheritance; the same is true when the deceased’s parents are alive, but there are no living children or spouse.
- If at the moment of the person’s death, there are no surviving spouses, children, or parents, then the estate passes to the siblings of the deceased. The inheritance is generally split in equal portions, unless the decedent had half-brothers or half-sisters, in which case they receive half of the inheritance that the full siblings receive.
- In the case that no spouse, children, parents, or siblings exist at the time the decedent passes away, then the inheritance can go to other relatives (uncles, cousins, up to the 6th collateral degree) of the decedent.
- In absence of all of the above, the Chilean state receives the entirety of the estate.
If the deceased has a will, then 50% of the inheritance is split up according to the rules set forth above—which cannot be changed by the will—and the remaining half is split into quarters
One quarter is called “de mejoras” and can be freely assigned to the person’s spouse, children or parents (any of them can receive the full quarter if the will stipulates it);
Another quarter is called “de libre disposición” and can be assigned to whoever is deemed fit, regardless of whether or not that person is a relative.
Issuing a will in Chile is a highly formal procedure that requires the presence of a Notary Public who reads the will out loud in the presence of the grantor. Wills issued abroad can be recognized as long as they have been issued in accordance with the laws of the place of issuance.
MS: As someone from the US, my personal feeling is that in a traditional marriage, a couple works together to earn their money, raise their family, and build their assets together over the course of their lifetime together, so why should the surviving spouse lose any of that because they have become widowed?
DR: This question has several answers.
1) A lawyer would reply that you are mostly (and not completely, please note) incorrect if the couple is married under Chile’s communal goods [joint property] or “sociedad conyugal” status…
MS: Wait a moment please. We should explain that when people marry in Chile, the law requires them to specify which of three options they prefer with respect to their property.
- Sociedad Conjugal (joint property)
- Separación de Bienes (what’s yours is yours and what’s mine is mine)
- Participación de los gananciales (something of a combination of both)
- More info is available (in Spanish) at the Library of Congress on Civil Marriage
DR: So, when a couple is married with “sociedad conyugal,” when one of the spouses passes away, the communal goods are split in half before determining the estate the rest of the people will inherit
Suppose a spouse passes away and has assets of a net worth of $100. The communal goods are split before the inheritance, and the spouse should be assigned $50 on this account. The remaining $50 is split according to the rules set forth above. So, if the couple has 3 children, out of $100, the spouse would receive $50 for the communal goods and $20 (twice the children’s share, which in this case is 40%) for the inheritance, while the children should receive $10 each. Therefore, in this case, the spouse would still own $70, which is not that awful.
If the couple is married under any other system, the spouse would only receive $40 of the original $100.
2) I know this does not solve your moral question, but a frequent tax recommendation is to bequeath as much wealth to your children as possible. There is a very good reason to do this, as the same estate would be taxed twice if the estate were passed on to the spouse and then the children.
Estate tax is progressive, with a maximum rate of 25%. If a significant amount of the estate is bequeathed to the surviving spouse, when the spouse passes that on to the children, it is taxed again, which could result in a substantial amount of the family’s estate being paid to the government in a short time.
3) These legal provisions have a historical explanation. In Chile, there used to be a rather nefarious system called “mayorazgo” in which the eldest male descendant inherited 100% of the estate, ran all of the family’s business, and provided for the family (including the widow). This of course caused the surviving spouse (assuming the spouse is a woman, as women did not inherit much wealth in those days) to become dependent upon the benevolence of their eldest son.
There are also more profound cultural reasons behind our current inheritance system. The message to Congress for the approval of the new Civil Code, back in 1855, spoke of “providing for those to whom you have given life or those who have given life to you.” This may respond to a very deep notion that wealth should remain within the family, despite the owner’s intentions.
MS: In other, more complicated family situations, it seems that the parties involved are best able to determine who in the family is in greatest need and/or most deserving of an inheritance.
Here’s a hypothetical situation. What happens in Chile in the case of an older woman with no income of her own who becomes widowed. Does she have any recourse to be able to hang on to the money that she and her husband earned and saved over the course of their marriage? One person left a comment on the blog about a woman who was forced to sell her home so that her children could receive their inheritance. Is there any way to prevent that?
DR: That would depend on the amount and type of heirs and whether or not her husband left a will. The case of the lady who was forced to sell her home is not uncommon.
Suppose the husband only left a house, no will, and there are 3 children. Each child would be entitled to 20% of the house, and the widow would get 40%. Chilean law states that any heir can request the partition of the estate, which means that the house would have to be sold, and the proceeds would then have to be given to each of the heirs.
There is some recourse; the surviving spouse has preference for the reception of the family home. Also, if the spouse’s quota is less than the value of the home, he/she can request to be granted a lifelong right of use.
MS: Where does life insurance come into this equation? Is it considered part of the estate and therefore factored into the inheritance amount?
DR: No, life insurance is not considered part of the estate, as the decedent never owned the indemnity—it is paid by the insurance company to the spouse or children upon his/her death. Life insurance payments are not subject to income tax either.
MS: What are Chile’s laws about financial gifts during life? The Economist article talks about “clawback laws” that can override gifts made years prior.
DR: Clawback laws exist in Chile when the minimum statutory portions of the inheritance are infringed by financial gifts, or in other words, when the donor has given a larger part of his/her estate than he/she could legally have disposed of by means of a will, i.e. larger than the family ¼ “de mejoras” and the free disposition ¼ “de libre disposición.”
For example, if a decedent gave 80% of his/her assets to one of 4 children (plus a surviving spouse), then the other heirs would be entitled to request the annulment of these donations. Remember that whenever a will is involved, the maximum amount a decedent can freely bequeath is up to 50% of the inheritance.
MS: What happens to any assets the couple has in another country, where the inheritance laws are different? Can those assets be separated and protected?
DR: That is a very complicated question, as several factors have to be analyzed and weighted in order to give an answer:
- Where the decedent was last domiciled (i.e. where the decedent resided with the intent to remain in that place) at the time of death.
- The nationality of the decedent. The Chilean relatives of Chilean nationals who pass away abroad cannot be deprived of the amount they would have received if Chilean law had applied.
- If a will is involved. If a foreigner passes away out of Chile and does not leave a will, his/her Chilean relatives would have the same rights stipulated by Chilean law.
- If any Chilean relatives are involved.
- Where the assets are located.
In these international matters, the interaction between the laws of the other country and the laws of Chile must be analyzed in depth. The same situations can have very different effects depending on what other country is involved
MS: One last question (for now): What happens in the case of a married couple, both foreigners, who have permanent residency in Chile, live here, and have no Chilean relatives. Does Chilean law control their estate or that of their home country?
DR: In that case, if Chile is their last place of permanent residence at the time they passed away, Chilean law would control their estate. Of course it is possible that their country of citizenship could claim control of the estate.
MS: So there you have it. The tip of the inheritance iceberg. Got assets you want to protect? Sounds like the time to talk with someone in the know and get your will drawn up pronto!