SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
the donee to care for the donor in the event of dis- ability or need. These arrangements are enforceable under Spanish civil law and allow older generations to ensure personal care while transferring wealth. The characterisation of such gifts can, however, be contro- versial, particularly where the donor retains significant control over the gifted asset or the unilateral power to revoke the donation, as in such cases it may be argued that the gift has no real effect and that the asset, in practice, never leaves the donor’s estate. An alternative widely used in civil law jurisdictions is the donation of bare ownership while the donor retains a lifetime usufruct ( usufructo vitalicio ). This structure allows the donor to continue receiving income and using the asset while transferring bare ownership to the next generation. Upon the extinction of the usu- fruct, full ownership consolidates in the donee, avoid- ing additional succession procedures. This mecha- nism is common for real estate assets but is also used for corporate shares, with the usufructuary retaining entitlement to income distributions. Certain Spanish regions also permit contractual succession agreements, which allow the transfer of assets mortis causa with effect during the lifetime of the testator. Contractual succession agreements are particularly prevalent in the Balearic Islands, where they can include extensive conditions, and which may be irrevocable. These agreements are available to individuals with Balearic vecindad civil or to for - eign residents with habitual residence in the Balearic Islands region. They provide families with the ability to structure complex wealth transfers in advance. In addition to inter vivos gifts, unit-linked life insur- ance has increasingly been used as an estate planning tool in recent years, effectively serving as a substitute for trust structures in Spain. These insurance policies allow for the designation of contingent beneficiaries and the deferral of the transfer of underlying assets until the beneficiary reaches a specified age. They also permit restrictions on the surrender of premiums, subject to the authorisation of a third-party protec- tor, offering a high degree of flexibility in succession planning.
Finally, Spain has introduced the concept of a protect- ed estate ( patrimonio protegido ) for individuals with disabilities, creating a pool of assets separate from the donor to serve the interests of the beneficiary. While lacking the flexibility and planning advantages of a trust, a protected estate allows designated assets to be segregated from the personal assets of the donor and subject to a specific regime of administration and oversight, ensuring that the needs of the person with a disability are met. 6.2 Tax and Regulatory Constraints The Spanish Tax Administration is vested with broad general anti-abuse rules (GAAR) that should be care- fully considered in succession and estate planning. First, it could recharacterise transactions where the legal form adopted does not reflect the underlying economic or legal reality of the arrangement. It may also declare the existence of a sham where the parties intentionally disguise the true transaction by means of an apparent legal structure. In addition, it may apply GAAR where arrangements are formally valid and reflect the parties’ intent but have been entered into in an artificial manner, without valid economic or legal substance beyond the tax benefit. An example of GAAR risk arises where a taxpayer implements a step transaction designed to secure a tax advantage that would not be available under a direct transfer, such as structuring donations to ensure that beneficiaries fall within the relevant group of rela- tives eligible for next-of-kin tax relief – for example, by aggregating multiple interrelated transfers rather than making a direct transfer to relatives who do not qualify. Such an arrangement could be treated as a single transaction and recharacterised by the Spanish Tax Administration with no entitlement to the next-of- kin transfer relief. In addition, Spanish tax law provides for a number of specific anti-abuse rules that apply in particular situations. From an estate and succession planning perspective, the most relevant include the following: • The possibility of relocating to another Spanish region with more favourable IHT rules is limited by the definition of habitual residence for IHT pur- poses, which is determined by reference to where
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