Planning the transfer of property during one’s lifetime can prevent numerous future family disputes and lengthy probate proceedings. One of the most important legal institutions under Croatian inheritance law is the Lifetime Agreement on the Transfer and Distribution of Property, regulated by the Croatian Inheritance Act. It is a special type of inheritance agreement by which an ancestor distributes his or her property to descendants and a spouse during his or her lifetime, provided that the statutory requirements are met.
What is a Lifetime Agreement on the Transfer and Distribution of Property?
The fundamental principle of the Croatian Inheritance Act is that inheritance rights may be acquired only by operation of law or under a will. Exceptionally, the Act recognises several special inheritance agreements, among which the Lifetime Agreement on the Transfer and Distribution of Property is one of the few that may be valid if all statutory requirements are fulfilled.
It is a bilateral legal transaction whereby the transferor transfers all or part of his or her existing property during his or her lifetime to descendants and a spouse, either free of charge or subject to certain obligations. The primary purpose of the agreement is that the property covered by it does not become part of the estate after the transferor’s death and, as a rule, is not taken into account when determining the value of the estate.
Main Characteristics of the Agreement
This agreement has both contractual and inheritance law characteristics.
From the contractual perspective:
-the agreement may be concluded exclusively between the ancestor and his or her descendants and spouse (or unmarried partner);
-it may cover all or part of the transferor’s existing property;
-the transfer of property takes place during the transferor’s lifetime;
-the transferor may retain certain rights, such as a usufruct or right of residence, and may agree on maintenance, an annuity or other obligations.
From the inheritance law perspective:
-the property covered by the agreement does not form part of the estate after the transferor’s death;
-inheritance proceedings relate only to the property that was not covered by the agreement or that was acquired subsequently;
-all parties to the agreement waive their future inheritance rights in relation to the property covered by the agreement, including the right to a compulsory share.
This waiver of future inheritance rights is the principal distinction between a Lifetime Agreement on the Transfer and Distribution of Property and an ordinary gift agreement.
Who May Be a Party to the Agreement?
The circle of persons who may participate is strictly limited. The agreement may be concluded exclusively between:
-the ancestor (transferor);
-his or her descendants;
-his or her spouse or unmarried partner.
If property is transferred to other persons, such a legal transaction will not constitute a Lifetime Agreement on the Transfer and Distribution of Property but will instead be regarded as a gift agreement.
Consent of All Descendants and the Spouse
One of the most important requirements for the validity of the agreement is that all descendants and the spouse give their express consent.
If even one of them refuses to consent, or if a child is subsequently born or an heir who had not previously participated later appears, the law provides that the agreement will, as a rule, be converted into a gift agreement. In such a case, the transferred property will once again be taken into account when calculating the compulsory share and the value of the estate.
The law nevertheless permits persons who did not participate at the time the agreement was concluded to accede to it subsequently, provided that such accession is executed in the same form as the original agreement.
Form of the Agreement
The agreement must be made in writing and must be:
certified (solemnised) by a notary public;
executed as a notarial deed; or
certified by the competent judge in cases prescribed by law.
Failure to comply with the prescribed form renders the agreement invalid.
What May Be the Subject Matter of the Agreement?
The subject matter of the agreement may consist only of assets, rights and other property owned by the transferor at the time the agreement is concluded.
Property that the transferor acquires in the future cannot be included in the existing agreement, but it may subsequently be distributed under a new agreement or transferred through other legal transactions, such as a gift agreement or a maintenance agreement.
Although this is generally a gratuitous legal transaction, the agreement may include various obligations, such as a usufruct or right of residence; real burdens; a lifetime annuity; maintenance obligations; other forms of consideration in favour of the transferor or third parties.
Challenging and Revoking the Agreement
The transferor’s creditors may challenge the agreement under the rules governing the avoidance of a debtor’s gratuitous legal transactions where the agreement prejudices their ability to recover their claims.
On the other hand, the transferor may revoke the agreement in relation to a particular descendant or spouse if that person:
-fails to fulfil the assumed maintenance obligation;
-fails to discharge the debts he or she has undertaken to pay;
-there are grounds that would also justify the revocation of a gift agreement, such as gross ingratitude or the impoverishment of the transferor.
Revocation takes effect only in relation to the person to whom it applies, while the agreement remains in force with respect to all other parties.
Why Is It Important to Have the Agreement Properly Drafted?
Although at first glance it may appear similar to a gift agreement, a Lifetime Agreement on the Transfer and Distribution of Property produces significantly different legal consequences. An improperly drafted agreement may result in its conversion into a gift agreement, challenges by heirs or creditors, and lengthy court proceedings.
A properly structured agreement enables the secure distribution of property, protects the interests of all family members and significantly reduces the possibility of future inheritance disputes. Given the numerous statutory requirements and significant legal consequences, it is advisable to seek professional legal advice before entering into such an agreement.
