Law Messenger. The Civil Code is amended to include contracts of inheritance and joint wills Amendments on inheritance trusts enter into force

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1 10 August 2018 Law Messenger The Civil Code is amended to include contracts of inheritance and joint wills Amendments on inheritance trusts enter into force EY s Russian Tax & Law practice was named a leading Tax firm in Russia in World Tax 2017, an annual guide published by the International Tax Review. On 10 July 2018 the Russian Civil Code (hereinafter, the Civil Code ) was amended to include contracts of inheritance and joint wills both entirely new to Russian law. The amendments reflect the government s desire to provide a broader range of options when it comes to legal succession. Contracts of inheritance and joint wills 1 help individuals settle matters of inheritance in advance and so prevent future disputes between heirs. The new inheritance arrangements will be available for use as of 1 June On Amendments to Article 256 of Part One and to Part Three of the Civil Code of the Russian Federation concerning joint wills and inheritance agreements (Draft Federal Law No )

2 Joint wills A joint will may be made only by spouses and will allow them: To bequeath their joint assets and each spouse s individual assets to any persons To determine the portions of an estate that will go to various heirs To determine the assets that will make up the estate of each spouse To disinherit one, several or all heirs under the law without giving any reason To include other dispositions in a joint will as long as they are not contrary to the law, taking into account the requirements concerning reserved portions and unworthy heirs A joint will is convenient for spouses because they will not have to divide up their joint assets in order to make individual bequests, as is the case under current law. This matter will now be much easier to handle. Spouses will be able to determine in advance which heirs will receive which assets in what order of precedence after the death of one or both spouses and in what circumstances. This is particularly convenient for spouses who have children in common. Joint wills, like ordinary wills, must be notarized, and the notarization process must be recorded on video. Legislators believe that this will help to prevent abuses by one or the other party. For the same reason, legislators explicitly prohibit such wills from being kept secret or from being made in extraordinary circumstances. The Civil Code s provisions on questionable or void transactions apply to a joint will that fails to meet the requirements of law, regardless of the reasons why such a will is invalid. An obvious disadvantage of this arrangement is that the will loses force if the spouses divorce or their marriage is annulled. Also, after the death of one spouse, the other may terminate a joint will, and all agreements reached during the lives of both spouses will be at an end. Contracts of inheritance A contract of inheritance is essentially an agreement between a testator and a potential heir in regard to a future inheritance. Unlike a joint will, a contract or contracts of inheritance may be concluded with any party or parties at the testator s discretion. Such a contract is signed in the presence of a notary, and the process is recorded on video. A contract of inheritance may govern the transfer of title to the testator s property after his/her death, i.e. determine in advance who will inherit what after the testator s death. The parties to a contract of inheritance may also make an inheritance conditional on the performance of actions involving or not involving assets, including a testamentary waiver or assignment. An inheritance may also be made conditional on the occurrence of certain events that cannot be known in advance by the parties and are beyond their control. The right to demand fulfillment of obligations is granted to heirs, the executor, surviving parties to the contract of inheritance and the notary. An important advantage of a contract of inheritance is that it may be amended or terminated only during the life of both parties, whereas a joint will may be terminated after the death of one spouse. The testator may unilaterally withdraw from a contract of inheritance and in that case must reimburse any losses incurred by the other parties in connection with their obligations under the contract. Another advantage of the new arrangement is that a contract of inheritance prevails over a will and supersedes a previously made joint will. After signing a contract of inheritance, the testator retains the right to make any transactions with the assets named in the contract, even if this would deprive the other party to the contract (the potential heir) of his/her rights to such assets. A contract of inheritance that limits this right of the testator is null and void. 2

3 Inheritance trust The Civil Code s new provisions on inheritance trusts enter into force on 1 September In the Civil Code, an inheritance trust is a trust formed to manage the inheritance of an individual s assets. This is a new method of estate management that was previously unknown in Russian law. In terms of its legal status, a trust is a nonprofit organization and is officially created at the time of its entry in the Unified State Register of Legal Entities. The law prescribes a rather complicated procedure for setting up an inheritance trust. Such a trust may be created only after the death of the person initiating it, and the testator must thus make a will and also arrange for a trust, drawing up the rules and stipulating all conditions of the trust s management, including selecting the persons who will manage the trust. All of the prepared documents must be included in the text of the will and notarized along with the will. It is essential that the intent to posthumously create an inheritance trust be clearly specified in the text of the will. An inheritance trust may be set up for a limited or unlimited period of time. The trust s rules and conditions of management may not be modified after its creation except by court decision. Before the notary sends notification of the trust s creation, the conditions of management may be disclosed only to the trust s beneficiaries. Under law, a trust should have the following governing bodies: a sole executive body (a beneficiary is not entitled to be a member) a collegial executive body a highest collegial body a board of trustees An inheritance trust is convenient because there is no need for an heir to wait six months for a certificate of succession, as is generally the case. The testator may stipulate a shorter period for coming into an inheritance, allowing a business to remain in operation and avoid a sixmonth interruption. However, the testator cannot check on how the trust is functioning or address any problems with its management due to the fact that such a trust goes into operation only after the testator s death. In addition, legislators have not as yet provided any tax benefits for an inheritance trust. A trust may be liquidated by court decision on grounds stipulated in the Civil Code as well as when the trust expires or if the trust s governing bodies are not formed within one year after the need for such bodies arises. Authors: Georgy Kovalenko Anna Nazarchuk Oksana Gusarova For more information, contact the following EY professionals: Georgy Kovalenko + 7 (495) Georgy.Kovalenko@ru.ey.com Anna Nazarchuk + 7 (495) Anna.Nazarchuk@ru.ey.com 2 Federal Law No. 259-FZ of 29 July 2017 On Amendments to Parts One, Two and Three of the Civil Code of the Russian Federation 3

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