Guatemala: Inheritance

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Inheritance tax and law

The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Guatemala: what restrictions there are and whether making a will is advisable.

INHERITANCE TAX

How high are inheritance taxes in Guatemala?

INHERITANCE TAX (impuesto de herencias, legados y donaciones)

Inheritance tax, governed by the Decree 431 of 18 November 1947, is levied at progressive rates depending on the value of the taxable inheritance and the relationship between the deceased and the heir. The recipients are categorized as follows:

Category I: spouse, child
Category II: direct ascendant, grandchild, great-grandchild
Category III: brother, sister
Category IV: niece, nephew, uncle, aunt
Category V: first cousin
Category VI: in-laws, step relatives
Category VII: others

The taxable inheritance is based on the estate’s market value or officially assessed value less the following:

• The marriage portion of the surviving spouse
• Debts owed by the decedents
• Liens and obligations of the transfer of the property at the time of death (as substantially documented)
• Last illness and funeral expenses
• Professional fees and testamentary expenses
• Compensation received by the heirs on the account of the death
• Up to GTQ1,000 (US$130) paid by savings and special insurance funds
• Amounts received from life insurance funds
• Mandatory alimonies
• Copyright royalties
• Public funds where specifically exempt
• Money deposits with Guatemalan-resident banking and saving institutions

The beneficiary is the one liable to pay the inheritance tax on his gross share. Each beneficiary can deduct an allowance of GTQ500 (US$65) if he is considered as a Category I or II recipient. For Category I and II recipients who are less than 12 years old, the allowance is GTQ1,000 (US$130). Category III to VII recipients can each deduct an allowance of GTQ300 (US$39).

INHERITANCE LAW

Thanks to Claudia Murga Arroyave, Abogada y Notria Muadi & Murga

What inheritance laws apply in Guatemala?

Which inheritance law applies?

Guatemala’s inheritance laws affect everyone who owns property in Guatemala. Foreign nationals are not treated differently, nor is any distinction made under the Guatemalan Constitution between foreigners of different nationalities or religions.

The main laws are: the Civil Code, International Private Law Code, Judicial Body Law, Code of civil and commercial procedures.

The general principles concerning jurisdiction over property are:

• The principle of lex rei sitae i.e. property is regulated by the laws where it is situated.
• Issues arising from property rights are resolved by the judge of the department where the property is situated

Competent judges to handle property inheritance rights are located in the last domicile of the deceased person; if no known domicile, then where the real estate assets are located. If the foreigner’s national law states that the applicable law is Guatemalan law, it is up to the foreign judge to apply Guatemalan substantive law, but if the foreign law sends the competence to Guatemalan judges, then they are competent.

Where foreign law states that the applicable law for property located in Guatemala is non-Guatemalan law, the conflict will be that Guatemalan applies the principle of lex rei sitae for this property. Guatemalan courts recognize foreign decisions and if an inheritance process was handled by a foreign competent judge, then the decision regarding property ownership will have to be executed anyway by a Guatemalan judge. The property register will not register a land transfer ordered by a foreign court without going through Guatemalan courts

Guatemala applies the International Private Law Code contained in the Havana Convention from 1928 that states:

• The institution of heirs is regulated by the deceased’s personal law.
• The deceased´s personal law regulates the appointment and powers of the will’s executor.

The civil code states that the law of the foreigner’s domicile is applicable to determine his/her capacity to be an heir, but this rule only applies when the assets are not located in Guatemala.

Inheritance issues in Guatemala might be handled by a civil court or by a notary public (if all the parties agree and there are no conflicting issues). The civil court or the notary public applies very formal written procedures, in which issues as to how the heirs or deceased person’s names are written, require additional procedures. Decisions are expected to be made in the deceased’s last domicile, but to execute a foreign resolution in Guatemala, it must pass through Guatemalan courts for execution. This process can be long, even if there are no conflicting issues, and afterwards the processes are passed to the tax office to determine the tax liability (in general 12%). An inheritance procedure without conflicting interests between the heirs may last from 9 months to 18 months.

No Reserved Portion in Guatemala.

In Guatemala there is no reserved portion. The inheritance system allows persons to leave their estate to anyone they wish in the will, and a person may freely dispose of his/her property. However the estate must cover the obligations of the deceased (alimony, if applicable, children support, taxes and debts).

In the case of intestacy, when there is no will, then the law designates the heirs: first to the children (including adopted children) and the spouse, who inherit in equal portions. The spouse cannot inherit community property, unless it is less than that portion s/he would inherit.

In the absence of children, then grandchildren will inherit. In the absence of grandchildren or descendents, then the estate goes to the closest blood relatives (parents and spouse first, brothers and grandparents second, uncles third, cousins fourth and last). In the absence of these relatives, the estate goes to the State of Guatemala and the Universities of Guatemala in equal amounts.

Few people make a will. Many use a usufructo (gift with reservation) or corporation to avoid the inheritance procedures.

Most wealthy people in Guatemala do not make a will, though some older people prefer to.

It is not advisable for a foreigner to make a will in Guatemala, unless there are specific circumstances (minor children in Guatemala or other issues not related to property) because the inheritance process tends to be long, with many formalities. Sometimes it can get to a point where a requirement is not met, and then the process stops.

There are many alternatives that people use in Guatemala to the inheritance procedure. Most common is to have a Guatemalan corporation as owner of the property. It is relatively easy to establish a corporation, and administer the legal requirements to maintain it.

Another common practice is to use usufructo, which means that one person reserves the use of the property, but gives the nominal ownership (nuda propiedad) to another person. At the moment of his/her death, the nominal owner acquires full rights to the property. The disadvantage is that once the property is transferred to the nominal owner, the property cannot be transferred without his/her consent.

If a foreigner wants to make a local will, his/her presence in Guatemala is required, and the will has to fulfill specific formalities. The notary public assesses the capability of the person. The will has to be in Spanish.

To handle an ordinary inheritance process in Guatemala, heirs who are foreigners must give a power of attorney to a lawyer or a relative. The process takes time, during which they will not be able to sell the property. Foreign heirs must present birth certificates (with all the legal formalities and legalizations needed to be effective in Guatemala), among other documents.

Despite the disadvantages of making a will, it may be better to follow an inheritance process in Guatemala than to execute a foreign decision, which will take twice the time. The notary public that handles the will might also handle the inheritance procedure, which will be faster than to leave it to the courts, but this is only possible if there are no conflicting interests among heirs.

Guatemalan laws prohibit foreign institutions from being heirs, but the concept of foreign institutions has not been defined.

During the lifetime of the property-owner.

The owner may freely give the property to anyone prior to his death. No restrictions apply.

Problems of inheritance.

Guatemalan laws look at registered ownership and registered rights to determine the owner of real property. There are other law concepts, such as possession, which are also protected under certain circumstances.

Guatemalan laws apply only to property located in Guatemala. The property owner is the person registered in the Property Register. If s/he is married but the spouse does not appear as joint owner in the register, then the registered owner may transfer, sell or give the land to anyone. The spouse can make a claim against the owner that will not affect the property.

Regarding community property, Guatemalan laws state that if foreign spouses are of the same nationality, the applicable law is that which is common to both. If they are not from the same nationality, then the applicable law is the law from the first domicile of the couple. If Guatemalan law is applicable regarding community property, and the spouses have not chosen a specific regime, then the regime that applies is community property of all the assets acquired after the marriage, and the sole property of all assets that each of them had prior to the marriage.

If the property (or part of it) is inherited by a child, or children not of legal age, or to others not legally adult, a guardian must be appointed. The guardian is him/her appointed by the deceased to manage the property, if not, then the legal guardian (the parents, the surviving parent, grandparents).

Guatemala - more data and information

• How high is income tax on residents in Guatemala?

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