MALTA Law and Practice Contributed by: Rosanne Bonnici and Rebecca Diacono, Fenech & Fenech Advocates
Older generations often intend to plan for a transfer of wealth but are psychologically less prepared to do so than they think and the plan is rarely executed. That said, it is quite common for older generations to donate shares in family businesses to their children during their lifetime (because such a donation may be subject to a capital gains tax exemption in the hands of the transferor and a reduced rate of transfer duty in the hands of the transferee), with the older genera - tion retaining the right of usufruct over those shares for a period of time or, at times, for their lifetime. It is also common for older generations to retain a minority shareholding with quasi-full control over the business through weighted voting rights at board level or veto powers. 2.2 International Planning Previously, the rules of British private international law were traditionally applied by Maltese courts in cross- border property and succession matters. Therefore, Maltese courts previously opted for the system of scission, whereby immovable property is governed by the lex situs and movable property by the lex domicilii at the time of death. Following the introduction of Regulation (EU) No 650/2012 on jurisdiction, applicable law, the recogni - tion and enforcement of decisions and the acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (the “Regulation”), which applies to persons who died on or after 17 August 2015, the rules of British private international law no longer apply and the applicable law is to be deter - mined in accordance with the Regulation (as elabo - rated on below). The Regulation is binding throughout the EU, with the exception of Denmark and Ireland (which have opted out of its application). The remaining EU member states that are participating will apply the Regulation’s rules even in cases involving citizens or residents of third countries (eg, Switzerland or the USA), particu - larly if they own assets such as immovable property and real estate within the EU. The Regulation achieves a degree of harmonisation of private international law rules, enabling individuals to organise their succes -
sions more efficiently and more rapidly within the area of freedom, security and justice. Although only EU member states and EU residents are technically bound by the Regulation, it is intended to apply to estates on a worldwide basis. The law appli - cable to the succession of the deceased as a whole shall be that of the deceased’s country of habitual res - idence at the time of death, unless the deceased has opted to apply the succession laws of their country of nationality. In recent years, the availability of second passports for high net worth individuals may affect this aspect of their lives by giving them more options for choosing applicable succession laws. 2.3 Forced Heirship Laws The Civil Code provides for a form of forced heir - ship, whereby a portion of the deceased’s property is reserved by law in favour of the descendants and the surviving spouse of the deceased. Accordingly, the descendants and/or the surviving spouse of the deceased are generally entitled to a credit of the value of the reserved portion against the deceased’s estate. Interest at the rate of 8% accrues to such credit from the date of the opening of suc - cession if the reserved portion is claimed within two years from such date or from the date of service of a judicial order if the claim is made after the expiry of said two-year period. The actual amount reserved is regulated by law and depends on whether surviving descendants and/or a spouse exist. In terms of the Civil Code, it is unlaw - ful for the testator to encumber the reserved por - tion with any burden or condition and, therefore, the reserved portion is calculated on the whole estate after deducting the debts due from the estate and any funeral expenses incurred. To this end, the estate is deemed to include the property disposed of by the testator under a gratuitous title, even in contemplation of marriage, in favour of any person whomsoever, with the exception of such expenses as may have been incurred for the education of any of the children or other descendants.
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