Life brings different situations and some of them are unfortunately not very happy. Safety and security – that's what anyone would want for their loved ones. Yet many people do not address what will happen to their property when they are gone. They thus put their family in an unenviable situation.
Soul legend James Brown died in 2006. He left behind not only a major legacy in the world of music, but also the property and publishing and copyright rights worth tens of millions of dollars. A fortune that everyone would want to inherit. And so it was. What followed was 15 years of wrangling, when the singer's grandchildren, children and ex-wife sued for the inheritance. And why all this? James Brown left no testament or other form of last will that his survivors would respect.
Even simple solutions in the form of a testament or an inheritance contract can make a difficult time for relatives at least a little easier.
Dealing with what happens to your property after your death is a thankless topic that few people want to talk about. On the other hand, few people would not want to provide for their family as best as possible in case they carelessly step into the road. Yet, only about every second person prepares for the transfer of property in the event of an unfortunate incident. This was found in our NextŽeny survey conducted among high-income earners. Only 10% of the wealthy respondents have a more comprehensive solution to similar issues – for example, in the form of a home family office, family foundation, etc.
Even if you don't have the complicated family relationships that James Brown had, it is not at all unusual for some of the more complex probate proceedings to take several years. In practice, we have even encountered a case that lasted almost two decades. This, of course, leaves relatives in uncertainty.
When the law comes
In the absence of a testament or an inheritance contract, or if the fate of the property is not regulated by other special institutes, the settlement of the inheritance is governed by a statute, which lays down clear rules as to who inherits what share of the decedent’s estate.
Under the statute, heirs are divided into six classes. If there are no heirs in the first class, the property passes to the second-class heirs, and so on. In most cases, the property passes to heirs of the first class, which includes spouses and children (and their descendants, if any). The spouse and children then share the inheritance equally. However, in the case of marriage, the property is assessed within the community property (CP) and only the part of the property that belonged to the decedent is included in the decedent’s estate after the CP settlement, which takes place in the probate proceedings. Under the unregulated CP regime, it is therefore usually half of the family property.
We can show this, for example, in the Boháč family. Mr Boháč has a wife and two children – a daughter and a son. Mr Boháč and his wife did not sign any pre-nuptial agreement, nor do they have a contractual property regime within the CP. They also made no testament. In the event of Mr Boháč's death, the property transfer will therefore be addressed strictly under the statute. Considering the CP, the property is first divided into two halves, with the wife retaining the first half and the other half belonging to Mr Boháč going to the inheritance and being divided equally between Mrs Boháč and each of the children. As a result, 4/6 of the community property will go to Mrs Boháč, 1/6 to her son and 1/6 to her daughter.
Classes of heirs:
The decedent’s children and his spouse inherit, each of them equally. If any of the children does not inherit, his/her share of the inheritance is acquired equally by his/her children (and more distant descendants of the same ancestor).
The decedent’s spouse, the decedent’s parents and those who lived with the decedent in the common household for at least one year before his death and, as a result, cared for the common household or were dependent in maintenance on the decedent, inherit. Second-class heirs inherit equally, but the spouse always inherits at least half of the decedent’s estate.
The decedent’s siblings and those who lived with the decedent in the common household for at least one year before his death and, as a result, cared for the common household or were dependent in maintenance on the decedent, inherit. If one of the decedent’s siblings does not inherit, his/her share of inheritance is acquired by his/her children equally.
The decedent’s grandparents inherit equally.
Only the grandparents of the decedent’s parents inherit. The grandparents of the decedent’s father are entitled to half of the inheritance, the grandparents of the decedent’s mother are entitled to the other half. Both couples of the grandparents will equally divide between them the half to which they are entitled. Specific rules apply to the accrual of shares if any of the grandparents is not alive.
The children of the decedent’s siblings’ children and the children of the decedent’s grandparents inherit, each of them equally. If any of the children of the decedent’s grandparents does not inherit, his/her children inherit.
Family property under the statute
If there are no first-class heirs, the other family members inherit according to class. Thus, inheritance under the statute may often not correspond to what a person would have wanted during his lifetime, and in practice the legal succession can have quite significant consequences for the distribution of the family property.
Imagine, for example, a situation where your only son takes care of and invests a significant part of the family property. He's in his prime, he's doing well, he doesn't have children yet, but for over a year he's been living with a woman you don't really know and have only seen a few times. If an unfortunate event were to occur at this point and the son left no testament, the son's partner, who is in the second class of heirs, would inherit a significant part of the family property and thus divide the inheritance with you as parents. Such a situation can easily end in contentious, lengthy and, above all, painful probate proceedings.
There are also frequent questions about the inheritance of children from different marriages, which affects practically half of the population in our country due to the divorce rate. So, for example, if Mr Boháč were married for the second time, upon his death half of the property would go to his new wife (if they have community property), but the other half would be inherited between the new wife, her children, and any children of Mr Boháč from the previous marriage. After the death of Mr Boháč's second wife, only his younger children from his second marriage will inherit a substantial part of the property that Mr Boháč built up when his business was flourishing. Any older children from the first marriage (often more involved in the business because of their age) will inherit jointly only ¼, while younger ones from the second marriage (even minors) will inherit the remaining ¾ of the whole. In our experience, clients are usually not aware of this either.
Many people also do not realise that if they have children with their partner but are not married, then the position of the partners is not optimal and secured. The inheritance passes almost exclusively to the children and the partner is without any security. In such cases, we often look for solutions that can adequately provide for the family in the event of the death of a partner.
When it comes to a partner, this can be avoided quite easily – by making at least some kind of testament. That's the bare minimum. A testament must (save for very exceptional cases – such as being stranded on a desert island with an imminent threat to life) be made in writing. You can write and sign it in your own hand, or type it up on a computer, print it out and sign it. However, you always need to sign in your own hand the printed testament, or even a testament that someone else has handwritten for you and declare in front of two witnesses present at the same time that it is your last will.
But beware of situations that can cause problems. For example, if witnesses were not in the same place at the same time, or if a person who cannot be in the capacity of a witness testified about the testament, the testament would be invalid. This is also the case in the extreme situations where witnesses in a dispute over the right of succession simply do not remember the circumstances of the acquisition of the decedent's estate years later or distort it, which has fatal consequences for the heir under the testament.
Both forms of a testament made in this way are so-called private instruments and it is up to the heir to defend its qualities, even before a court. This again puts him in an unenviable situation and the risk of lengthy probate and court proceedings. A separate chapter involves cases when the testament is lost or concealed by a relative because it is disadvantageous for him/her. Here too, complications arise, and the resolution of the inheritance is prolonged.
At the notary's
It is therefore preferable to make a testament in the form of a public instrument before a notary. Such a testament eliminates the risk of its loss and also questions of authenticity. However, if you are to inherit something from your grandmother on the basis of a notarised testament, you may not yet have your inheritance certain. Any testament can be easily revoked or changed and anyone else can be appointed as heir. So, if the grandmother makes a testament before a notary, but then changes her mind, makes a new testament and appoints as heir, for example, a neighbour who has been visiting her regularly for the last few months, in the probate proceedings the property may then go to that neighbour. Even the date on the testament is therefore an important element that can greatly confuse and complicate the probate proceedings.
But there are other ways to decide what happens to your property after you die. The new Civil Code of 2014 has also made it possible to divide the decedent's estate by means of an inheritance contract. So you can still agree with your relatives during your lifetime to whom and what property you want to bequeath after your death and then draw up a contract with a notary.
Unlike a testament, the inheritance contract cannot be revoked or amended by the decedent, and any amendments must always be agreed by both parties. The inheritance contract thus guarantees greater certainty for the heirs. However, from the heir's point of view, even this contract may not guarantee that the decedent will not sell the property during his lifetime, and thus there will be nothing to inherit. Moreover, it is not possible to cover the entire property in the inheritance contract. The statute allows only ¾ of the property to be divided among the heirs in this way. By law, the decedent must subject the remainder of the property to a testament or succession under a statute.
The administrator will help
As we have already indicated, probate proceedings are not a sprint, but a long-distance run, which is not without problems in the case of inheritance where assets (apartments or shares in companies) need to be administered. This can again be shown, for example, in a family of four with two young children. A wife is an entrepreneur and owns a successful company where she is also the managing director and manages the company herself. But she dies suddenly. However, the business goes on, the company has its employees, its liabilities, it has to pay invoices and deliver goods. But until the inheritance is resolved, who will decide on the running of the company?
In such cases, it is advisable to appoint a possible administrator of the decedent’s estate before the notary during one’s lifetime. It is also possible to give him/her instructions on how to administer the decedent’s estate and to award him/her a fee for the administration. After the decedent’s death, the administrator of the decedent’s estate administers the decedent’s estate until the end of the probate proceedings.
In the example we have mentioned, the wife-entrepreneur could, for example, specify in advance before a notary that the company will be administered by her husband or one of the managers of her company in the event of her death, and the administrator of the decedent’s estate will then arrange this by the relevant decisions. This will ensure the smooth running of the company even in the event of an unexpected tragedy.
In our experience, the appointment of an administrator of the decedent’s estate is not used very often by people, yet it helps to address the complex situation of survivors in the event of a family tragedy. Situations in which the administrator is needed are quite common, and in practice, especially in complicated probate proceedings, it is necessary to go through the complicated process of appointing an administrator with the competent notary. We can therefore again recommend that you deal with everything early and with a calm head, which will significantly ease the life of your relatives at times when you can no longer help them.
Since 2014, the Civil Code has offered options in the area of property protection and management that were until then the exclusive domain of the Western world. In the Czech Republic, entrepreneurs can also rely on the advantages of the property management structure, which is based on the experience of the richest families – for example, the family of oil magnate John D. Rockefeller or Microsoft founder Bill Gates.
The Czech Republic offers progressive institutes of inheritance law, as well as endowment funds and trusts, which have quickly gained considerable popularity thanks to their appropriate incorporation into the tax system. They offer effective solutions to help families protect their property for the future, including from the impact of family events or unexpected tragedies that could fragment the family property.