Planning succession to avoid friction among heirs and the immobilisation of assets

Succession without planning often becomes unmanageable, especially when there are children from previous marriages, unmarried partners, assets abroad and companies or equity stakes.

By Francesco Megna*

There are many mistakes people make when managing their assets when it comes to succession. Many are also seen in banking, especially when succession comes as a surprise and had not been planned. Putting off planning is usually the most common mistake.

Families, in fact, almost always deal with succession only after an illness or a sudden event, when it is already too late to optimise tax treatment, distribute assets evenly and avoid tensions among heirs. In addition, the practice of registering a will – or even leaving a handwritten one, drawn up in the presence of witnesses – is almost entirely neglected by everyone (only 1 family in 10 does so), and without a will the intestate succession comes into play, following rigid rules, which can create unintended divisions (for example, shared shares between siblings) and complicates the management of undivided interests. Contrary to what many people think (above all the de cuius), the application of inheritance law does not “sort everything out”, and it certainly does not resolve frictions; on the contrary, it lends itself to easy challenges and creates misunderstandings that can at times become irreparable among the heirs.

Another common mistake is not distinguishing between financial assets and real estate assets. The latter are often inherited in forced co-ownership and thus become an inexhaustible source of conflict, especially when the “communists” – that is, those who own property in co-ownership, not a political definition – do not agree on the sale of the real estate asset, since among the heirs there are always differences in financial means and the property, on the other hand, has maintenance costs that can sometimes be high and difficult for the poorer heirs to bear.

It is also common for the de cuius to have put the current account and/or securities account in the name of one of the children, for reasons of “convenience”, believing this would make management “easier”. In reality, partial joint ownership or the granting of overly broad powers of attorney almost always creates unintended inequalities between children, since the act of co-owning an account can itself be likened to an indirect donation – donations cannot be undone! – and generate disputes. On the subject of donations, there is no shortage of endless controversy either. Those donations made piecemeal over time often create imbalances among heirs and possible actions for reduction by those who benefit from the so-called reserved portion (not to mention the problems in the event of the sale of donated property, which the legislature is trying to address).

Another critical issue is not speaking openly with the family: the taboo of death blocks communication. But a lack of transparency creates different expectations, misunderstandings and perceptions of unfairness. What is left unsaid is the real trigger of inheritance disputes, as is the underestimation of inheritance taxation: in Italy the tax burden is low - our country is considered a sort of “tax haven” for succession - but failing to calculate the impact of exemptions, ignoring the treatment of prior donations, not considering the transfer costs of real estate and not optimising future succession with specific instruments can create problems that could be mitigated or avoided altogether by using certain tools that, from a succession perspective, simplify the transfer, guarantee immediate liquidity to heirs and avoid the protection of forced heirs over the individual instrument (e.g. life insurance policies, other insurance wrappers, trusts and family agreements in the case of businesses).

In general, succession without planning often becomes unmanageable, especially when there are children from previous marriages, unmarried partners, assets abroad and companies or equity stakes. In all these cases, the succession of assets becomes an occasion when old rivalries, jealousy, perceptions of unfairness, financial differences and the influence of partners over those entitled to inherit come to the surface. In detail, unplanned succession can lead to problems such as:
- Immobilisation of assets: co-ownership of assets (such as homes or businesses) without an agreement can make them unusable, generating maintenance debts and taxes, as well as loss of value.
- Financial problems: the deceased’s current accounts remain frozen until the succession is completed, preventing access to the funds needed to cover urgent expenses and taxes.
- Higher tax costs: the absence of planning can lead to a less favourable tax impact, increasing the burden on heirs.
- Tax penalties: failure to file the inheritance declaration within the deadline may result in severe penalties, which can reach 240% of the taxes due.

To avoid these obstacles and disputes among heirs, in most successions it would be enough to use just two tools: the will and the life insurance policy. With the first, in fact, it is possible to avoid forced co-ownership of assets (unless it is a single, high-value property), reducing the risk of friction over their allocation, and in the case of family business shares, to ensure continuity by entrusting management to the heir who has already been involved in the business. With the second (life insurance policy), it is possible to reduce the tax impact by “bypassing” succession and reducing excess liquid assets so that they can be brought, together with real estate, within the broader exemptions (children and spouse). The policy also guarantees immediate liquidity for heirs to meet the taxes linked to succession.

* Commercial manager, primary hub of a banking group, coordinator of private and business managers