Many people have taken advantage of the restrictions due to the coronavirus to do private things that have been left undone for a while. One of the topics that is often put off until later is the regulation of succession. For asset owners, the current situation may be particularly appropriate to ask how and to whom they would like to transfer their assets further, or whether their previous succession planning is still in line with current circumstances and wishes. Optimal succession planning recognizes both the opportunities and the risks that arise in corona times.
Opportunities in Corona times for succession
The impact of societal constraints due to coronavirus may affect the value of businesses and other assets. A decreased asset value may well have a positive effect in succession planning, for example, and lead to new opportunities.
An important factor in business and asset succession is the right of close relatives to a compulsory portion. For various reasons, the question may arise as to whether and how claims to a compulsory portion which, as purely pecuniary claims, jeopardize the company, for example, can be reduced. Lifetime gifts play a major role here. However, gifts do not automatically reduce the entitlement to a compulsory portion and are in principle only to be offset against a compulsory portion of the donee at a later date if this was agreed in the gift agreement. Furthermore, gifts made no more than 10 years prior to an inheritance are also regularly taken into account when assessing the entitlement to a compulsory portion.
However, if assets currently decline, the value of gifts to be taken into account later in the inheritance process will also decline. This applies, for example, to gifts of company shares if these had a low value at the time of the gift. This effect can be used to reduce the claims to the compulsory portion, especially if the assets increase again at a later date.
Risks in corona times for succession
Against the background of possible losses in value, however, the question also arises as to whether the previous succession planning is still appropriate. For example, are there still sufficient liquid assets available for all intended bequests and for compensation payments to beneficiary heirs? If the succession concept in the past also consisted of the agreement of a usufruct or a life annuity, it is questionable whether these agreements still fit economically today and are sufficient to ensure the desired goal of providing for the asset owner or his dependents.
Wills, for example, frequently provide for regulations that are intended to enable only descendants to succeed to the company. Spouses, on the other hand, are to be provided with a generous life annuity or bequest. If current events due to the coronavirus lead, for example, to liquidity losses, consideration should be given to whether this type of protection for the spouse still achieves its goal on the one hand and is still compatible with the future viability of the company on the other.
These were just a few examples that may need to be taken into account in current succession planning. Exceptional circumstances, such as those that apply to large parts of the economy in times of a pandemic, also make it sensible to review whether private and corporate succession planning from the past is still up to date. Succession planning may have been made under different economic assumptions, so a review of the will, prenuptial agreement, or gift agreement may reveal whether an adjustment has become necessary. Anyone who is thinking about succession anyway would certainly be well advised to take current events as an opportunity to put this good resolution into practice.
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