Inheritance: All you need to know

Find out how to plan every aspect of your estate and maximise its value for your heirs and future generations.

Making decisions about inheritance is always a challenge – apart from the emotional side, there are tax, financial and legal aspects to consider. You need to take these into account in order to preserve the value you have built up over a lifetime.

1. Don’t make inheritance a taboo subject

For many people, topics such as death, inheritance, wills and estate planning are taboo – making it impossible to have a serious conversation about them during life. This means that the most complex decisions are left to be made after death, and are left to the survivors. However, the earlier and more transparent you are, the more likely you are to consider all aspects of the inheritance, such as tax, legal and financial issues.

2. Take a look at the family portfolio at an early stage

The first step in estate planning is to understand exactly what is in the family portfolio. Start by identifying each asset, from stocks and bonds to real estate and other investments, as well as holdings in private companies or art collections. It’s important to know not only the nature of each asset, but also its value, liquidity and weighting in the portfolio. Of course, this planning should be done together, throughout your life and on a regular basis.

3. Assess the profitability and risks of assets

Knowing which investments are the most profitable and which are underperforming will help you make investment decisions and make adjustments where necessary. You should also assess the level of risk associated with each investment. Consider factors such as market volatility, the stability of the company invested in and any other specific risks associated with each investment.

4. Consider the different succession mechanisms

There are various succession mechanisms that can be used to transfer assets to heirs. The most common are:

• Will: A will determines the distribution of your assets after you die. Make sure your will is up to date and reflects your current wishes. Remember, however, that you cannot dispose of your entire estate at will. The disposable share – the part you can give to anyone, even non-family members – is at least 1/3 of the estate, depending on the case. The remainder (also known as the unavailable or legal share) is divided among the legal heirs, including spouse and children or others, in the order established by law.

• Lifetime giving: The applicable rate depends on the degree of kinship – donations between spouses, descendants and direct ascendants (parents and children) are exempt, but other relatives or third parties pay 10% of the value of the donated movable property. It is also important to ensure that donations respect the legitimate share, the part of the inheritance reserved by law for the legitimate heirs. Any donation that exceeds this quota will lead to offsetting (known as tornas or cash payments) between the heirs after the donor’s death.

• Trusts: A trust is a legal arrangement whereby a person, known as the settlor – or donor –, transfers ownership of assets to a trustee who is responsible for managing those assets for the benefit of one or more beneficiaries. Trusts can be used for a variety of purposes, including asset protection, tax management and ensuring that assets are used in accordance with the donor’s wishes. In addition, trusts can provide an extra level of privacy and can help avoid probate, making the transfer of assets quicker and more efficient.

• Traditional life insurance: Life insurance is not directly considered an inheritance, but it does provide an immediate financial benefit to beneficiaries upon the death of the insured. These benefits can help cover expenses, taxes or even provide financial security for heirs. The main function is to provide financial protection and cover in the event of death or disability.

• Unit-Linked: A unit-linked policy is a life insurance policy linked to an investment fund. Unlike traditional life insurance, this product combines protection with the potential for financial returns as the amount invested is invested in financial assets. It is usually aimed at investors seeking long-term returns and who value active and specialist management. In addition, unit-linked products offer tax advantages that become more favourable as the investment is held over time.

5. Discuss the shares with everyone involved

Start by bringing together all the heirs and parties involved in the division process. Present the division plan and clearly explain how the property and assets will be divided among the heirs. This step is crucial to ensure that everyone feels involved and has the opportunity to raise any concerns or questions. Don’t forget to document all discussions and agreements in writing to avoid misunderstandings in the future and to have a clear record of what has been decided. If necessary, use mediation to facilitate communication and find solutions that are acceptable to all parties. However, always keep the unity and harmony of the family in mind.

6. Delegate the management of lifetime investments

Start by identifying who within the family or your trusted associates has the ability and willingness to manage the investments. This could be one or more family members or a professional manager. Choosing the right people is crucial to the good management of your investments.

Then involve successors in meetings and discussions about current investments. Let them observe and learn about the decision-making process, investment analysis and risk management. A gradual transition allows successors to gain experience and confidence over time. Even after you have delegated, you should maintain an oversight system to monitor investment performance and ensure that everything is being managed according to your criteria.

If the family isn’t interested or doesn’t have the capacity to continue managing the business or investments, appointing a trusted team is a prudent strategy. Relying on experienced professionals can help ensure that the assets continue to generate income.

Banco Carregosa is at your disposal to help you manage your investments and ensure that they continue to be managed professionally and efficiently. This will ensure peace of mind and security for all concerned.

7. Simplify the transition on death

Develop a transition plan that covers all aspects of wealth management. Include information on all assets, from bank accounts and investments to property and other assets. Keep everything organised to make it easier for successors to access the information.

Identify all the administrative and bureaucratic processes that will need to be completed by your successors and provide clear instructions on how to deal with each one. For example, which banks, brokers or other institutions need to be notified and what documents are required. Make sure all the necessary legal documents are in place and up to date. The aim is for successors to know exactly what to do.

Banco Carregosa, at your side in succession planning and wealth management

Succession planning and lifetime wealth management are complex processes that require time, knowledge and collaboration. You can count on Banco Carregosa’s specialised support, from portfolio management to financial advisory, to ensure that your investments continue to grow and prosper for future generations.