Difficulties in inheritance: Russian business is thinking about the transfer of assets

Large states appeared in Russia relatively recently: many of them come from the 90s. Collapsed business empires continue to work actively, but the group of businessmen who are thinking about the need to transfer the fortune to their heirs without a loss is growing. To do this, follow the banal set of rules, explain the lawyers. But the peculiarities of the Russian business turnover can become a serious obstacle both for the testator and for the heirs, experts warn.

Business is thinking about the eternal

The growing popularity of appeals on inheritance issues, in particular on issues of transferring business to next generations, is called by lawyers a recent trend. Due to the natural course of things, the first generation of Russian big business thought about continuity. The number of such projects is inexorably growing, and they differ both in confidentiality and complexity, recognized by experts who gathered at the conference “Law.ru” “Inheritance Law”.

Since recently the question of inheritance planning was not acute, this practice is only in its infancy. Against this background, the development of national inheritance law. To date, hereditary funds have already appeared in Russia, and from June 2019, the provisions introducing the use of joint wills of spouses and hereditary contracts will come into force.

Now it is necessary to develop common approaches to law enforcement practice to take into account the interests of citizens and business, and the notary plays a key role here as one of the main law enforcers, said Anton Makarov, head of the legal department of the Federal Notary Chamber. It is the notary who finds himself at the center of the creation of a hereditary fund and has a wide range of duties when working with a will. At the same time, there are problems that are obvious today, says Makarov. For example, the possibility of certifying a will by local governments, which sometimes lack legal qualifications. A possible adjustment of the legislation implies a ban on such action, said Makarov.

New practices, old problems

In addition to the difficulties with the toolkit, there are a huge number of objective reasons that complicate inheritance, especially when it comes to Russian business. 

Nominal owner – who is he for the law

Ilya Aleshchev, partner of the law firm Alimirzoyev & Trofimov, called microcontroller on the part of the empire’s creator and the absence of a real corporate structure and transparent procedures that would allow working without the first person of the company as one of the main obstacles to a simple business transfer scheme. Another problem for inheritance is the often used complex chain of ownership, including Cypriot holdings, BVI companies, nominal owners. While from an economic point of view, business remains one. In addition, the Russian business, created in the 90s, is distinguished by the absence of shareholder agreements.

In addition to the formal difficulties, there are psychological ones: for example, family members may not be involved in the business or they may have other plans.

The main recommendation for a business is to clearly build a corporate management structure with real authority, formalize the relations of business partners, rebuild fragmented ownership and interaction structure, bringing the latter into line with business practice, and have a plan “B” in case there is no successor. 

In addition, the tools will not work without thinking through the perimeter of the people who manage it: from executors to protectorates in trusts, said Alexey Stankevich, managing director of Phoenix Advisors.

How to reduce risks when heirs enter the business, said Kira Koruma, partner Asnis, and partners. Among the risks, there are many factors – from the mandatory share in the inheritance or marital share to uncertainty with the composition of the heirs, with the composition of creditors. This affects the decision to accept the inheritance or corporate differences. Ways to protect the parties are testaments, testamentary refusals, trust management, the creation of a hereditary fund or the option of a share of the deceased in favor of another participant. 

Consequences of moving

In fact, many difficulties in Russian hereditary cases are associated with inheritance with a foreign element. We can talk about assets abroad, and the consequences of living in another country. The change of tax residency is usually not associated with an attempt at inheritance planning: the reasons are rather personal. But those who are still thinking about the transfer of property to their heirs should be remembered: the purchase of tax residency is not working, warns Daria Romanova, a senior lawyer for Alimirzoyev & Trofimov. 

Of key importance is the actual connection with jurisdiction: the presence of a permanent home, a center of vital interests, time spent in the country, etc. However, the presence of such connections with foreign jurisdiction may lead to unpredictable results from the point of view of inheritance, which in most jurisdictions where harder and more expensive than in the Russian Federation. Russia is a good country, in order to die, lawyers ironically. Abroad, heirs may face an unexpectedly high tax, and the key factor will often not be the legislation of the country where the testator was a resident, but the so-called domicile — the country where he resided. By this right, and will be the procedure of inheritance. For example, in Russia and abroad there are significantly different provisions on the mandatory share in the inheritance, gave the example of Ksenia Ivanova, a lawyer, Ivanov, and partners. Thus, in Spain, the inheritance is divided into three equal parts: the mandatory share is inherited only in a certain way, the additional one is the second third, the last one implies the unlimited disposal of the testator. In such cases, the question of the applicable law is acute – it depends on how the mandatory share will be allocated and calculated. 

The big question is about real estate. For example, whether the property in Spain will be taken into account when calculating the mandatory share in a Russian court.

Yevgeny Petrov, a lecturer at the ICC named after S. Alekseev under the President of the Russian Federation, pointed to the typical problems for a wealthy Russian – the inheritance of real estate abroad. Usually, Russian courts indicate that foreign assets should be divided under foreign law, Petrov notes. But most of the EU countries, based on their existing citizenship, allow choosing a law applicable to inheritance in the will, that is, if the inheritance specifies Russian inheritance law, then leaving into foreign jurisdiction can be avoided, says Petrov.

In addition, difficulties may be associated with the need to explain to the Russian notary or the court the realities of foreign countries or the business structure. The latter problem arises in the case of parallel disputes about inheritance in Russian and foreign courts, said Anton Maltsev, partner of Baker McKenzie. In this case, the winner is the party that first chose the most successful jurisdiction for filing a claim. The first decision in long litigation, as a rule, is decisive.

Leave a Reply

Your email address will not be published.