5 things you should know about forced heirship, and how to avoid it

Our clients ask about it all the time: forced heirship. Understanding what it is and how to plan accordingly is a critical part of succession planning. Our BVI and Bahamas experts have the ins and outs. Here, they fill you in on what you should definitely know.

1. What is forced heirship?

Forced heirship is a civil law system. It determines which heirs are entitled to receive the assets of a deceased person. The rules vary from country to country, but in essence, where forced heirship rules apply, an individual cannot freely dispose of their assets as they see fit; the entitled heirs are determined by the applicable forced heirship laws in force.

2. When do forced heirship rules apply?

It’s complex. Forced heirship is subject to legal restraints depending on your jurisdiction, and various laws impose different restrictions. When families don’t carefully structure and plan their succession, forced heirship can become an unexpected reality.

3. What assets can be affected?

In BVI and The Bahamas for example, shares in local companies are classified as moveable property for succession purposes. This means BVI and Bahamas legislation treats the law of the country in which the deceased was domiciled as the governing law. Incidentally, if the individual is domiciled in a country where forced heirship rules apply, those rules will apply to their BVI or Bahamas company shares, provided there is no BVI/Bahamian will governing such shares. There are many intricacies affecting different assets, and it’s important to work with an expert to make sure all of your assets are planned for accordingly.

4. What are my options?

Choosing a skilled and experienced administrative professional is a good place to start. There are several effective choices and an experienced private wealth advisor is best suited to help you find the right fit. Here’s a snapshot of your options.

Write a will: A will is a simple and common succession planning tool. In BVI and The Bahamas though, laws around wills are more nuanced and may lead to issues when it comes to avoiding forced heirship rules. An expert can better determine how factors like immovable property, your country of domicile, and local law apply to you specifically.

Hold shares in joint tenancy: If shares are jointly held in BVI or The Bahamas, upon death, the shares may easily pass to the other joint shareholder. Talk to an advisor about how this option affects future generations though; this alternative only postpones forced heirship issues which will arise when the surviving tenant dies.

The difference between Trusts and Private Trust Companies: Throughout time, trusts have been a dependable method of succession planning. In BVI and The Bahamas, a trust is a confidential document, and generally, they’re protected from forced heirship claims. Though there are different types of trusts and options, many settlors are opposed to relinquishing control over their assets to a trustee; Private Trust Companies (PTC) may offer a solution. Settlors themselves may have the option to be the sole director of their PTCs, or the Foundation Council may consist of family members, family advisors and those familiar with the family business. Through BVI and The Bahamas, different types of PTC structures are available to fit your needs.

Bahamas Foundations: A Bahamas Foundation is best understood as a hybrid between a trust and a company. It can be established by a will, need not be charitable, and its main purpose is management of assets.

5. What’s my next step?

To protect future generations and your family’s legacy, planning ahead is key. There’s no shortage of choices when it comes to succession planning, but understanding which options fit your needs is fundamental. While one path may seem like the obvious choice, it’s crucial to work alongside an expert who knows the intricacies of forced heirship rules. Reach out to learn more.