Transfer of family property
How to properly transfer family property? A question that everyone asks themselves at some point in their lives, but the issue of transferring family property is usually postponed until later. However, as time passes and each individual grows older, the question and its solution become more important. The situation becomes more complex when the owner has larger assets and more potential family members who may or may not be involved in future relationships. Above all, each owner wants his or her property to be transferred in a way that will both provide for the family and benefit the family as well as the individuals. Within this article, I will attempt to outline the basic aspects of the transfer of family property that can make it easier for an individual to set up this complex process, to grasp it in the right organizational way, and to fulfill the purpose they intend.
Author of the article: ARROWS (Mgr. Vendula Růžková, LL.M., MBA, office@arws.cz, +420 245 007 740)
This article was written in 2022. If you are looking for up-to-date information on this topic, please do not hesitate to contact us at office@arws.cz or by phone at +420 245 007 740. We will be happy to advise you.
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Czech legislation offers a number of appropriate instruments in this respect. These can then be broadly divided into applicable instruments:
- In the event of death
- During the owner's lifetime
Transfer of property on death
With this transfer structure, the owner is the owner of all property until his or her death. In the event that the owner does not want to, or does not have time to, deal with the issue of transfer of property during life, the basic structure for the division of the subject relations is offered by the law of succession. In these cases, the family property is divided according to the legal rules among the survivors in accordance with the inheritance groups.
However, this solution is not always optimal and reflects the will of the owner or the will or expectations of the family members. Inheritance law therefore offers other instruments which may better satisfy the needs of the owner with regard to future arrangements. Apart from the default legal succession, owners can use the institution of a will or a contract of inheritance. These instruments of succession law can then be used by persons who do not wish to place the fate of their property in a legally prescribed procedure, but instead actively create a plan in the event of their (premature) death.
Transfer of property during the owner's lifetime
It is not always appropriate to dispose of the property according to the basic arrangement by means of a statutory succession or other inheritance law instrument. For example, where it does not reflect the requirements of a fair distribution of property within the family or the expectations of the individual. In this situation, the owner may adjust the distribution of the property in other ways at his discretion. The owner should ideally do so in cooperation and agreement with the other members of the whole family. The owner does not have to leave the transfer of property until after his death, but can already transfer the family property gradually during his lifetime.
The sale of the family property to a third party may also be a way of achieving the transfer of the property during the owner's lifetime. However, in the case of family companies, it is often desirable and wanted, both from the point of view of the owner and from the point of view of the other family members, to preserve them for the next generation. It should be noted that if the owner decides to pass on his assets to the family during his lifetime as part of a gradual transfer, this is a long-term, complex and difficult process. It is certainly worth contacting experienced professionals who have experience in succession planning to help with this process. They can then recommend the most appropriate handover structure to the owner after familiarising themselves with the overall situation as well as the family relationships.
Gradual transfer of property
In the context of a gradual transfer of family property, it is essential for the owner to clarify who will take over the property in question and the reasons for doing so. The owner also sets out the terms and conditions of the transfer as well as the timetable for the transfer. It is equally important to determine precisely, taking into account the abilities and capacities of the persons concerned, their future roles and the rules for the joint management and operation of the family property. Last but not least, the mutual expectations of the persons concerned must be established in order to avoid possible conflict situations.
In the case of a gradual transfer of property, the owner can act as a controller and monitor how the transfer process is going and whether everything is going according to his expectations. A major advantage of a phased transfer over other institutions is the possibility of adjusting the terms of the future structure during the process. Situations may arise in the course of the transfer which were not anticipated or known at the time of preparation, or which may have arisen unexpectedly. If the owner or the person concerned discovers during the handover that the future structure is deficient, he can intervene and adjust the conditions.
Although the institution of gradual handover seems to be the most appropriate, it is not always possible to use it. It is worth noting the situation where there is no person who can take over the family property at the time the phasing plan is prepared. This is the case, for example, if the descendants do not have the necessary age, experience, knowledge, are not suitable persons to manage the company or suffer from addiction, etc. In such a case, there is the possibility of using the institute of a trust or foundation (or a similar structure abroad), which serves to ensure the management of assets set aside for a specific purpose.
Conclusion
In view of the above, I recommend thinking about the regulation of the intergenerational transfer of property during the owner's lifetime. This is a very demanding and long-term process and a comprehensive approach is advisable.
Ideally, it requires the necessary cooperation not only of the owner but also of the family members. As a rule, only in such a case can the expectations of all the persons involved be met and the family property be secured for the next generation. Each family and the relationships within it, as well as the assets to be transferred, are so specific that there is no one-size-fits-all guide that can always be applied to create a (phased) transfer plan. However, when setting up this process, it should always be borne in mind that the transfer of assets will directly affect future generations.
It is important to look at every aspect and take into account all the possible alternatives that the law offers. To create the most appropriate and ideally tailor-made transfer structure for the owner and his family.