Estate Planning in Costa Rica
Published in Paradise Properties Magazine
By Thomas A. Burke, Real Estate Attorney
Estate planning is a way of beginning to deal with the idea of death by facing it, by defining certain matters that otherwise would be of an uncertain outcome from the planner’s view point.
The desire to plan grows out of a natural desire to provide for the security of loved ones while living and the desire to retain control of ones surroundings and security during one’s lifetime. These two typical desires beget the two extremes of donating all on one’s assets during a lifetime and thus living on the edge at the mercy now of those you hoped to trust entirely and the other extreme of denial and refusal to deal with the issue of death and estate planning, which is a very selfish and not necessarily a more secure approach to dealing with the years of dwindling capacities.
The room to maneuver between these two extremes is filled with the typical instruments or solutions to the problems of estate planning, that is they provide a balance between just giving everything away and the other of keeping everything and risking not providing for those you care for most.
Taking into account the possibilities offered by Costa Rican law in terms of preparing for an orderly "Succession", as an estate in probate is designated in the local Civil Code, is something that many thoughtful investors inquire about before purchasing real estate here. Since we count our readers among this thoughtful sort, the following synopsis should interest you.
My standard advice is to provide for Costa Rican assets in accordance with local legal practices entirely separately from overseas assets. That is, in the case of wills, have a will drafted in Spanish and according to the Costa Rican Civil Code by a knowledgeable attorney to cover all assets held here. It is a mistake to rely on a foreign will, particularly one prepared under Common Law tradition countries such as the USA, Canada, etc. because the legal formalities for a will in Costa Rica, which I will mention in a moment, are so very stringently different that a foreign will simply is not recognized as such by Costa Rican courts. Even if the will is probated in a foreign court, the procedural differences can also thwart execution here. Contrary to what one might believe, neither foreign nor Costa Rican courts have shown a willingness to bridge the gap in legal formalities.
To give you and idea of what is involved in getting a foreign will executed in Costa Rica, here is a condensed list of steps:
a) obtain a judgment from the probate court that specifically recognizes the validity of the conveyance of the specific property in Costa Rica to the specific beneficiary (devisee, legatee, heir);
b) have that judgment certified by the issuing court,
c) authenticated by the nearest C.R. consul;
d) officially translated to Spanish and authenticated through the Foreign Relations Ministry;
e) have an attorney apply for recognition of the foreign judgment to the First Chamber of the Supreme Court of Justice through a process called Exequatur;
f) begin an abbreviated probate process anew in the civil court with the territorial jurisdiction in the location of the real estate of interest.
Needless to say, in practice this procedure abounds with possibilities for confusion and delay as well as greater expense while local assets risk remaining in a "legal limbo" awaiting this very bureaucratic process to finish. This can be avoided to a great degree by following my "standard" advice stated above, that is, providing for estate in different countries separately such that each group of assets is handled strictly locally with as little complication as possible.
Lacking a specific will the C.R. Civil Code makes provision (known as intestate procedure) for the most common cases by setting an order of heirs in which the first order, surviving spouse, children, and parents inherit all of the estate to the exclusion of all others by law. The successive orders of inheritance then go on to lesser degrees of kinship and finally to the local Board of Education by default. This coupled with the legal principle that an estate is deemed to be accepted by the heirs only to the extent that it has a net positive worth, coincides with the most common desires with respect to the disposition of estates.
The problems lie with how to ensure a different, earlier or conditional distribution of the estate. There are several possibilities in Costa Rica:
1- "Last Will and Testament" (Testamento in Spanish), which can take one of several forms under Civil Code Law, such as:
a- an open will drafted by an attorney in a notarial protocol book with three witnesses, two of which must speak the language of the devisor (person making the will) if is not Spanish.
b- a handwritten and sealed will deposited with and certified by an attorney-notary public;
c- an open will with six witnesses, or with four witnesses when handwritten by the devisor.
d- wills given legal status due to emergency situations.
In practice, option "a-" is most frequently used because it includes legal advice, greater ease through fewer witnesses, and security through registration in the National Archives. This of course still implies a court probate procedure, which can be shortened and handled privately in the office a Costa Rican attorney/notary if all the heirs are of legal age and of one accord. The definite downside is the cost which can be in the range of 15-20% of the estate value for professional fees and taxes whether the procedure is with a will or without, in court or in an attorney/notary’s office.
2- "Living Trust" (Fideicomiso in Spanish) which is identical for practical purposes to the Common Law concept, whereby assets are placed in the care of a trustee(s) who is legally bound to manage the trust assets for the benefit of the beneficiaries according to the conditions of the trust agreement once the trustor passes away. Assets can thus be transferred while in good health and under conditions that will not vary due to one's passing away or the whim of the beneficiaries. The cost should be much lower in total however setting up the trust will be more expensive short term than a formal will.
3- "Bare legal title" (Nuda Propiedad in Spanish) is a very convenient way of transferring title to real estate while in good health and yet retain the beneficial use (Usufructo in Spanish) in favor of the original owner(s) for life. This is very easy and secure when dealing with property that one desires to enjoy and use during life yet pretransfer to the beneficiary whether gratuitously or for a price. The holder of the bare title in this case cannot interfere with the reasonable use of the property. By mutual agreement it is still possible to dissolve this arrangement and otherwise dispose of the property should this be desirable in the future. Cost is equal to a normal recorded real estate title conveyance.
4- "Foundation or other non-profit organizations" (Fundaciones, Asociaciones in Spanish) can be employed, although these are obviously for larger estates with a specific purpose in mind.
5- "Stock held corporation" (Sociedad Anonima in Spanish) or a “Limited Liability Corporation” (Sociedad de Responsabilidad Limitada in Spanish) to be transferred to the control of heirs upon the passing away of the owner/s by means of a preassignment of the stock, is another conventional measure. In this case however one must take extra precaution in Costa Rica, as "Bearer Shares" are not allowed in C.R. corporations. A written assignment contract must be signed by the owner of the stock and the beneficiaries of the stock assignment. The trick is in how to ensure that the contract will come into the hands of the heirs once the original stockholders passes away and not before as in this case they could take control of the corporation prematurely. It is a matter of who you can trust and how much. Often this is handled by registering full universal powers of attorney to the intended heirs allowing them to dispose of real estate in the corporate name and avoid opening probate. However the best “belt and suspenders” advice in this case is to back this up with a will should other potential heirs try to contest the sale of real estate and the ensuing distribution of the proceeds.
Finally, as a reminder to our readers, it is always advisable to ask an attorney for a list of his/her references before deciding on actually taking any of the above steps. Embassies usually offer a list of reputable local attorneys and consular services for wills to be used in your country of origin.
This document is published and distributed by Burke & Quirós S.A., and is under copyright. The information contained within may be copied in part or in whole if accompanied by a clear reference to the author's name with complete phone, fax and email addresses, and notice is given to same of the use of the information with a copy of the corresponding publication.
Thomas A. Burke, LL.M.