In order to develop a proper estate plan, you must be aware Puerto Rico's inheritance framework is significantly different than that of most mainland U.S. jurisdictions. I've written this article to answer one of the most common questions I receive from individuals and families that are beginning to think about - or revisiting - their estate plan: What happens to the assets in my estate if I pass away as a Puerto Rico resident without a will? The other question new Puerto Rico residents must consider is, what happens to my money if the mainland U.S. will that I executed does not comply with Puerto Rico inheritance law?
Puerto Rico's probate court is notorious for its lack of speed - not the ideal situation for your loved ones to be in if you passed away and your assets are tied up in the system. Executing a will does not avoid probate court, but it can work together with other estate planning tools in certain circumstances. At the bare minimum, it can help you make sure that your estate winds up in the hands that you intend it to.
I will be covering will drafting restrictions in an upcoming article, but you should know, under Puerto Rico inheritance law, in order for your will to valid you have to assign your assets in a very specific manner. In this article however, we will be covering specifically instances when an individual passes away and has not executed a valid will, which are also the same distribution rules that are followed if your mainland U.S. will does not comply with Puerto Rico's inheritance law framework.
What is Intestate Succession under Puerto Rico law?
Under Puerto Rico law, an Intestate Succession is the set of legal rules established in the Puerto Rico Civil Code to order and distribute the estate of a person when:
A person dies without a will.
A person dies with a will, but the will is null.
A person dies with a partially ineffective will. For example, when the will did not identify the institution of heirs for all the estate’s assets. In case of partial identification, only the unassigned assets will be allocated under the intestate succession scheme.
A named heir is unworthy (ineligible) to succeed (to receive the inheritance).
When the named heir is incapable of succeeding.
When there is an unmet condition.
When the named heir dies before the testator, rejects the inheritance without having a substitute, and there is no right to accretion.
An Intestate Succession is universal because the heir acquires the entirety of the estate’s property with the same rank, conditions, and characteristics – in regard to its effectiveness and legal force, as the Testamentary Succession (with a will); the successors inherit without any terms (time restraints), conditions, or charges.
What is Kinship and why it is so important in Puerto Rico?
Kinship is defined as the legal relationship between two or more people, created by blood ties, genetic ties, or created by law. Kinship is fundamental in matters relating Puerto Rico inheritance law, but you will find that understanding kinship will help you in most civil and criminal matters. For example:
Area of law | Law | Disposition | Limitation |
Tax Law | Puerto Rico Internal Revenue Code - Sec. 1033.15 (a)(8)(A) | Individual income tax deduction to educational saving accounts | 3rd Degree consanguinity kin or 2nd degree affinity kin |
Contract Law | Civil Code - Art. 298 | Presumption of creditor fraud under certain circumstances | 4th Degree consanguinity kin or 2nd degree affinity kin |
Criminal Law | PR Penal Code - Art. 131 | Incest | 3rd Degree consanguinity, affinity or adoption kin |
Family Law | Civil Code - Art. 380 | Limitation on who can marry | 3rd Degree consanguinity, affinity or adoption kin |
Inheritance Law | Civil Code - Art. 1642 | Prohibition on who can witness an execution of a will | 4th Degree consanguinity kin or 2nd degree affinity kin |
Different types of Kinship
Consanguinity kinship (genetic) is the link between people that descend from the same ascendant or “trunk”.
Affinity kinship is the relationship created by way of marriage. An affinity kinship relationship occurs in between spouses, and in between the genetic kin of each spouse in direct and collateral lines (explained below). This type of kinship terminates if the marriage is dissolved, and does not produce a consanguineous kinship between one spouse and the consanguineous kin of the other spouse.
Adoption kinship is equal as genetic kinship with respect to:
The adopter and the adopted;
The adopted and the consanguineous kin of the adopter;
The adopter and all the descendants of the adopted; and
All people adopted by the same adopter.
The proximity of the kinship is determined by the number of generations and each generation forms a degree of relationship.
How to count the degrees of kinship
The degree in the link between two people that belong to successive generations. A new degree is generated every time that, starting from a common trunk, the descendants generate successive births. The children that are born to the same person belong to the same generation. This computation is important in Puerto Rico civil law, inheritance law, and every legal matter in Puerto Rico that pertains to kinship between people.
In the direct line you start at the first ascendent (the trunk), you do not include the trunk, and the degrees are the amount of generations.
Example:
The son in regards to the father, are first degree direct line kin.
The grandfather in regards to the grandchild, are second degree direct line kin.
The great-grandfather in regards to the great-grandchild, are third degree direct line kin.
Illustrated here:
In the collateral line you count upward until the common ascendent, counting him/her and then counting down until you reach the person of interest; each generation forms a degree. Hence, siblings are second degree collateral line kin. For example to establish your kinship with your sibling you start with yourself and go up to your parents (one degree), and from your parents you go down to your sibling (two degrees), illustrated here:
Uncles and aunts are third degree collateral line kin. From the uncle you go up to the grandfather (common ascendant, one degree) you go down to the father (two degrees), then down to yourself your sibling (three degrees), illustrated here:
Therefore, there is no such thing as first degree collateral kin. The adoption kinship follows this same schema, as does the affinity kinship.
In the affinity kinship the proximity of the kinship is determined by the number of degrees from which each spouse is from the consanguineous kin of each spouse. Therefore, the direct line or collateral kin of one spouse is the affinity kin of the other spouse in the same degree as that of the other spouse. Hence, the consanguineous first degree kin of one spouse is the affinity first degree kin of the other spouse.
Order of Succession under Puerto Rico Law
The Puerto Rico Civil Code establishes a preferential succession in Puerto Rico is as follows:
The marital or extramarital descendants, and descendants by means of adoption.
The surviving spouse.
The ascendents.
The siblings and nephews.
The fourth-degree collateral kin.
The State.
General Rule. The closer degree kin exclude the further degree kin. This applies to both direct and collateral kinship.
In practice, this general rule means that upon the passing of the decedent, the order of succession shall be followed to determine which person or group of person is next in line to receive the decedent's estate. For example, if the decedent left descendants, the descendants shall inherit the estate, and any surviving ascendants shall be excluded. There is one very important exception to the general rule, which is the right of representation.
Right of Representation
The right of representation allows a more removed kin to place himself in the place of the closer kin that either (1) has predeceased or (2) is ineligible to inherit. It’s the right that the legally recognized natural or legitimate kin have to succeed a person in all his rights, as he would if the person would have lived or would have been able to succeed.
The right of representation applies in the decedent’s direct descending line, but never in his ascending line.
In case of inheritance by representation, the division of the estate will be performed by stirpes, meaning that the person or persons that succeed in representation will acquire together the portion that would have been attributable to the person that could not succeed.
Order of succession at a glance
Although the Puerto Rico Civil Code establishes the order of succession as discussed above, I've found it useful to view it using the following visual aid, since in practice, if there is a surviving spouse and descendants, they will share the decedent's estate in equal shares. Always remember that here we're talking about intestate succession, so the decedent did not leave a will where he could allocate distributions amount in a different manner. Hence, in intestate succession, once the heirs are identified using the order of succession, they will all be called to inherit, in equal shares.
Example 1
Decedent dies without a will
He is unmarried
He had two children, but one of them predeceased him (died before him)
The predeceased child had five children
The estate division is as follows:
Example 2
Decedent dies without a will
He is unmarried and had no children
His father predeceased him
Since there is no right of representation in the ascending line, the estate division is as follows:
Example 3
Decedent dies without a will
He has two children from previous marriages
He has a long-term partner who's been with him for 20 years
Since the long-term partner and the decedent were not legally married, the long-term partner will not inherit, and the estate division is as follows:
The inheritance distribution schema can get significantly complex depending on the personal circumstances of the client. When it comes to estate planning and business succession planning, there is no off-the-shelf solution. Hopefully after reading this article you have a better understanding of Puerto Rico's inheritance framework and how your estate will flow if no plan is put in place.
Feel free to reach me at chris@cimadvocacy.com if you have any questions.
So what are the inheritance taxes like when a son or daughter inherits property from a parent?