1. A Civil Law of the Balearic Islands?<\/strong><\/p> Spain is a State with multiple civil law systems, meaning that it has several civil legal orders, one of which is that of the Balearic Islands (which is itself plural, reflecting the geographical reality of the archipelago).<\/p> Indeed, for centuries various civil legal systems have coexisted within Spain, including those of the Balearic Islands, Aragon, Catalonia, the Basque Country, Navarre, Galicia, and the Civil Code based on Castilian law. These legal systems enjoy equal status and parity, with no hierarchy existing between them.<\/p> 2. What is the Civil Law of the Balearic Islands?<\/strong><\/p> It is the body of civil law that has evolved throughout centuries of Balearic history and has remained in force up to the present day. This law has been codified and reformed through legislation enacted by the Parliament of the Balearic Islands and applies throughout the territory of the autonomous community.<\/p> It currently regulates important aspects of private life. In particular, there is extensive regulation concerning inheritance law, matrimonial property regimes, and even rights in rem (property rights).<\/p> 3. What does this Law on Succession Agreements do?<\/strong><\/p> Our autonomous community has constitutional authority to preserve, amend, and develop its own civil law (Articles 149.1.8 of the Spanish Constitution and 30.27 of the Statute of Autonomy).<\/p> In practice, however, the legislative activity of the Parliament of the Balearic Islands in the field of civil law has been very limited to date (four amendments to the Compilation of Civil Law and only two specific civil laws), which contrasts sharply with the activity carried out by other autonomous communities with legislative competence in civil law matters.<\/p> This law not only preserves and amends Balearic civil law but also significantly develops it. The regulation expands from just thirteen articles in the Compilation to a comprehensive law consisting of 80 articles.<\/p> 4. What Are Succession Agreements?<\/strong><\/p> Inheritance may be transferred through three different means:<\/p> * By will; Under the Balearic civil law system, inheritance may be transferred wholly or partially during a person’s lifetime through various forms of succession agreements. This is undoubtedly one of the most distinctive features of Balearic civil law, since succession agreements are not only absent from the Spanish Civil Code system but are expressly prohibited under it.<\/p> 5. Why Are Succession Agreements Useful?<\/strong><\/p> There are many reasons why individuals may choose to enter into a succession agreement. For example:<\/p> Many parents wish to help their children start a new stage in life, whether by purchasing a home, starting a business, or paying off debts. Nowadays, life expectancy has increased considerably, meaning that by the time parents pass away, their children are often already between 50 and 60 years old. It therefore seems more reasonable that any financial assistance be provided when children are beginning their adult lives and becoming independent, as this is typically when they need support the most.<\/p> Likewise, there are many elderly individuals who no longer wish, or are no longer able, to manage their assets and prefer to place them in the hands of their younger descendants. They may no longer wish to deal with the responsibilities associated with rental properties (evictions, property damage, etc.) or with the management and operation of rural estates and agricultural land.<\/p> Another situation in which these legal instruments prove particularly useful is when a person suffers from a serious degenerative illness and knows that, in the coming years, they may lose the ability to manage their affairs or make decisions. Such a person may consider it more practical to transfer part of their assets to those who will eventually care for them, thus avoiding the need for judicial authorization to dispose of the assets of an incapacitated person.<\/p> Finally, succession agreements can help prevent family disputes over inheritances. Inheritance litigation is often bitter, lengthy, and costly. Avoiding such conflicts is, in itself, a compelling reason to enter into a succession agreement.<\/p> 6. Why Is There Currently a \u201cBoom\u201d in Succession Agreements?<\/strong><\/p> The main reason is that, until recently, succession agreements were subject to unfavorable tax treatment.<\/p> Historically, they were not recognized as succession instruments for tax purposes but were instead treated as ordinary gifts without succession effects. This approach likely stemmed from the fact that succession agreements are expressly prohibited under the Spanish Civil Code. As a result, tax legislation\u2014particularly regarding Personal Income Tax (IRPF)\u2014was drafted solely with the Civil Code system in mind, ignoring the existence of contractual succession arrangements and failing to provide any specific tax regime for them.<\/p> Consequently, succession agreements were taxed as ordinary gifts. The donor was required to pay tax on the capital gain generated by the transfer, calculated as the difference between the acquisition value and the value assigned to the donation. This could result in a very substantial tax burden.<\/p> For decades, therefore, the tax treatment of succession agreements did not reflect their true succession nature but rather that of a donation, creating significant tax consequences for both the donor and the recipient, especially in relation to Personal Income Tax.<\/p> This situation changed decisively with the judgment of the Spanish Supreme Court of 9 March 2016. The Spanish Tax Administration filed an appeal in the interest of the law against a judgment delivered on 29 October 2014 by the High Court of Justice of Galicia. The Administration argued that the *apartaci\u00f3n* (a Galician succession agreement very similar in structure and legal effects to the *definici\u00f3n* and *finamiento* figures under Balearic law) should be considered a donation and therefore taxed accordingly.<\/p> However, the Supreme Court dismissed the appeal brought by the State Attorney’s Office.<\/p> This case law was subsequently considered applicable to Balearic succession agreements, leading to a significant increase in their use. Succession agreements were no longer tax-disadvantaged and began to be treated for tax purposes according to their true legal nature: succession transfers. Finally, Law 11\/2021 formally incorporated this jurisprudential approach.<\/p> 7. Why Was This Law Necessary?<\/strong><\/p> The rapid growth in the use of succession agreements, combined with the limited regulation contained in the Compilation of Civil Law and the scarcity of legal doctrine and case law on the subject, created considerable legal uncertainty.<\/p> Certain issues eventually reached the courts, including questions such as:<\/p> * Whether a *definici\u00f3n* agreement could be revoked; It became both necessary and evident that these legal institutions needed to be further developed and adapted to the realities of twenty-first-century Balearic society.<\/p> The law therefore seeks to provide clear legal tools and guidance for legal practitioners, public authorities, and particularly the tax administration.<\/p> 8. What Are the Objectives of the Law?<\/strong><\/p> As noted above, the law pursues two main objectives:<\/p> 1. To modernize and update the law governing succession agreements. In short, the law aims to preserve the essence of these traditional institutions while adapting them to contemporary social, economic, and legal realities.<\/p> 9. Is the Law the Same for Every Island?<\/strong><\/p> No. The insular reality of the Balearic Islands is also reflected in its legal system. In particular, the civil law of Ibiza and Formentera has its own distinctive character and principles, especially in matters of succession law.<\/p> Accordingly, following the structure of the Compilation of Civil Law of the Balearic Islands (which consists of three books: one for Mallorca, one for Menorca\u2014although containing only two articles\u2014and one for Ibiza and Formentera), the new law is divided into:<\/p> * A General Title applicable throughout the Balearic Islands; As a result, succession agreements in Ibiza and Formentera now have their own specific and differentiated legal regulation, distinct from that applicable in Mallorca and Menorca.<\/p> 10. What Types of Succession Agreements Exist?<\/strong><\/p> MALLORCA AND MENORCA<\/strong><\/p> ### Universal Donation (*Donaci\u00f3n Universal*)<\/p> Under this agreement, the donor transfers assets and simultaneously appoints the recipient as his or her heir.<\/p> ### Limited Definition (*Definici\u00f3n Limitada a la Leg\u00edtima*)<\/p> The recipient renounces his or her forced heirship rights (*leg\u00edtima*) in exchange for a donation, allocation of assets, or other compensation.<\/p> This is undoubtedly the most commonly used succession agreement.<\/p> ### Broad Definition (*Definici\u00f3n Amplia*)<\/p> The recipient renounces all inheritance rights, including forced heirship rights (unless previously waived), in exchange for a donation, allocation of assets, or compensation.<\/p> ## IBIZA AND FORMENTERA<\/p> ### Universal Institution Agreement (*Pacto de Instituci\u00f3n a T\u00edtulo Universal*)<\/p> This agreement grants the beneficiary the status of heir.<\/p> It may be entered into either:<\/p> * With an immediate transfer of assets; or ### Singular Institution Agreement (*Pacto de Instituci\u00f3n a T\u00edtulo Singular*)<\/p> This agreement grants the beneficiary the status of contractual legatee.<\/p> It may also be:<\/p> * With transfer of assets; or The version involving an immediate transfer of assets is particularly popular in Ibiza and Formentera.<\/p> ### General Waiver of Forced Heirship Rights (*Finamiento de Leg\u00edtima General*)<\/p> The recipient waives all future forced heirship rights in exchange for a donation, allocation of assets, or other compensation.<\/p> ### Special Waiver of Forced Heirship Rights (*Finamiento de Leg\u00edtima Especial*)<\/p> The recipient waives forced heirship rights only with respect to certain present assets of the future deceased person, in exchange for a donation, allocation of assets, or compensation.<\/p> This allows the forced heirship entitlement to be satisfied progressively through partial transfers made during the lifetime of the future deceased.<\/p><\/p>\n","protected":false},"excerpt":{"rendered":" 1. A Civil Law of the Balearic Islands? Spain is a State with multiple civil law systems, meaning that it has several civil legal orders, one of which is that of the Balearic Islands (which is itself plural, reflecting the geographical reality of the archipelago). Indeed, for centuries various civil legal systems have coexisted within […]<\/p>\n","protected":false},"author":4,"featured_media":1670,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2140","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-sin-categorizar"],"_links":{"self":[{"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/posts\/2140","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/comments?post=2140"}],"version-history":[{"count":3,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/posts\/2140\/revisions"}],"predecessor-version":[{"id":2144,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/posts\/2140\/revisions\/2144"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/media\/1670"}],"wp:attachment":[{"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/media?parent=2140"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/categories?post=2140"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hereditaslegal.eu\/en\/wp-json\/wp\/v2\/tags?post=2140"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
* By operation of law (when there is no will);
* Through succession agreements.<\/p>
* The legal capacity of minor recipients under succession agreements;
* Other practical and interpretative matters.<\/p>
2. To make succession agreements more flexible and adaptable by opening the door to new forms and possibilities of succession arrangements.<\/p>
* A Title governing Mallorca and Menorca;
* A Title governing Ibiza and Formentera.<\/p>
* Without an immediate transfer of assets.<\/p>
* Without transfer of assets.<\/p>