COVID-19 crisis: inheritance law and business succession

The coronavirus has kept the world in suspense and leads to a noticeable insecurity. In addition to the financial worries, many entrepreneurs and private individuals are becoming increasingly concerned with their personal care and succession planning. The virus teaches us clearly that a temporary incapacity of acting and contracting can happen to anyone and that we do not live forever. "Emergency planning" in the form of a lasting power of attorney, healthcare proxy, and advance healthcare directive is therefore inevitable in order to mitigate the consequences of a (temporary) incapacity of acting in business and private life. In particular entrepreneurs should prepare dispositions of property upon death early enough in order to prevent intestate succession, which is frequently unsuitable for ensuring business continuity and has an inherent risk of fragmentation of the business.

Consequences of not planning ahead

Not planning ahead may have the following consequences in private life and business:

• Business shutdown for a longer period, as the management is temporarily incapable of acting or contracting. Decisions can no longer be made quickly and without bureaucracy;
• No power of representation for spouses, life partners, and family members. They would not be appointed as guardians automatically;
• Court orders for the appointment of a legal guardian are time-consuming and costly. The legal authority to take care of the assets will be assigned to a professional guardian as a third party to whom internal company information will be disclosed;
• Fragmentation of the assets due to the distribution of the estate;
• Disputes on the distribution of the estate between the family members;
• Massive impact on liquidity resulting from immediately due claims (compulsory portion, equalisation of the accrued gains, severance payments under company law, estate tax) against the heirs;
• The business and other assets may pass to "non-family" persons because of the statutory inheritance rights of relatives.

Measures ensuring freedom of decision

So as to ensure one's own capability of acting and to keep the business operational, individualised care and succession planning is inevitable and should comprise the following steps and criteria:

• Aligned with the articles of association: lasting power of attorney;
• healthcare proxy;
• advance healthcare directive;
• alternative precautions at business level where lasting powers of attorney are not appropriate for ensuring the company’s ability to continue as a going concern;
• Drawing up individualised dispositions of property upon death;
• Aligning the dispositions of property upon death with succession regulations, if any, in the articles of association (company law overrides inheritance law!);
• Review and adaptation of the existing dispositions of property upon death to the current personal situation (e.g. last wills of divorced persons);
• Use of structuring alternatives in order to avoid or to reduce liquidity outflows due to high estate tax payments, claims for a compulsory portions or claims for equalisation of the accrued gains;
• Protection of private assets against third party claims (e.g. liability claims).

Practice note

We are here for you and look forward to assisting you with the swift organisation of your personal emergency planning and with long-term (tax-optimised) succession planning.