Benjamin Franklin famously declared that “in this world nothing is certain but death and taxes”. Estate planning is a sensitive issue, which many people are reluctant to address, but considering that the plans and documents you make concerning your death are likely to be some of the most important financial documents you will ever make, inheritance is a crucial legal issue which everyone must consider.
The Cypriot rules of inheritance are governed by:
- The Wills and Succession Law Cap 195;
- The Administration of Estates Law Cap 189; and
- The Probates (Re-Sealing) Law Cap 192.
The Cypriot Rules of Inheritance
The Cypriot rules of inheritance will apply to any person who is domiciled in Cyprus and any person who holds immovable property in Cyprus.
Domicile means more than simple permanent residency. It refers to a person who lives in Cyprus and (crucially) who can show that he or she intends to spend the rest of his or her days in Cyprus.
If the Cypriot laws of inheritance apply to the estate then there will be no estate duty to pay as inheritance and gift tax was abolished in Cyprus in 2001. For this reason it can be highly beneficial for those persons coming from countries which apply hefty inheritance taxes to consider whether they should establish Cypriot domicile, although local inheritance tax may still apply on assets held in the relevant country of original domicile.
A will is a legal instrument by which a person specifies the method to be applied to the management and distribution of his estate after he has died. In some jurisdictions, such as the UK, every person (upon reaching a certain age, usually 18) who is of sound mind can make a will to determine who will inherit all of their assets when they die.
Cyprus is a jurisdiction where any person can make a will, but only certain persons can make a will to govern the whole of their estate.
It is only possible for a person who was (or whose father was) born in the UK or another Commonwealth country to make a will in Cyprus which governs the whole of their estate.
If a person does not satisfy this criteria then he or she can make a will to govern the “disposable portion” (see below) of his or her estate but a certain portion will pass according to the rules set by law (the “compulsory portion”). In this way Cyprus law protects the family members of the deceased. However, it must be noted that any determined person may employ other estate planning methods (gifting for instance) in order to ensure that his or her assets pass in accordance with his or her wishes.
Wills are precise documents, whether they cover the entirety or a portion of a persons estate. There are formalities which must be complied with (for instance with regards to witnesses, signature, contents and registration) in order for the document to be valid. It is for this reason that it is highly advisable to instruct a lawyer to draft such a document on your behalf.
If a person is entitled to make a Will to govern the whole of their estate, but has not done so, then a will from his or her home jurisdiction may be re-sealed in the Cypriot Court in order to give its provisions effect in Cyprus.
Those who cannot make a will to govern their whole estate will be subject to the Cypriot rules of forced heirship. This is a fairly complex set of rules which outline the order of inheritance within a family tree. Only when a person dies with no spouse, child, descendant of child or parents will the forced heirship rules be circumvented and a person who would otherwise be unable to make a will be entitled to make one to govern the whole of the estate.
According to the rules, the estate is divided into two potions:
- the disposable portion;
- the compulsory portion.
The disposable portion will be determined according to the surviving relatives at the time of death. It will usually be between a quarter and a half of the whole of the estate. This portion is possible to be passed by will if a person has made such a document to govern this section of his or her estate.
The compulsory portion is the rest of the estate, usually between three quarters and a half (again depending upon who the surviving relatives are) and will pass according to the set rules determined by law. The applicable rules for distribution are dependent upon who the surviving relatives are at the time of death. In the most simple case, where a person leaves his spouse and children, then the assets will be divided equally between them.
Administration of Estates
When a person dies, the estate will be distributed according to their will (if they have validly made one) or in accordance with the forced heirship rules, where applicable. Letters of Administration or a Grant of Probate will authorize a named individual to collect the assets in and to distribute the estate according to the applicable rules.
Estate planning in Cyprus is exceptionally important for anyone who is domiciled on the island or who owns immovable property here. It is important to determine how much of a person’s estate may be passed by will and how much (if any) will pass according to forced heirship rules. Any will document which is drawn up will need to comply with all of the specific formalities in order to be effective. Michael Chambers and Co. LLC is able to advise clients on all aspects of estate planning and inheritance. We are able to advise on inheritance tax planning devices as well as to assist in undertaking administration of estates. If you wish to speak to one of our wills and estates lawyers, please contact us.